OEM, commonly known as "OEM", is a production form in which brand producers do not directly produce products, but use the key core technologies they have mastered to design and develop new products, control sales channels, and leave specific processing tasks to other companies.
Looking at the overall situation, OEM development also has great potential
As an inevitable product of the trend of socialized mass production and mass collaboration, OEM has become one of the effective ways for enterprises to rationally utilize resources. At this stage, the rapid development of science and technology has also shortened the life cycle of products. The competitive strategy of enterprises is gradually changing from a production type that focuses on expanding production scale and reducing production costs to a market operation type that focuses on the application of new technologies and the rapid launch of new products.
What must be mentioned is that, as the world's most populous and most labor-intensive country, China's national conditions of adhering to the path of labor-intensive economic development have also provided an extremely comfortable "hotbed" for countless OEM companies. Such a "hotbed" breeds various types of companies from all walks of life, such as the well-known Foxconn, known as the global "OEM giant", as a representative. It is reported that in 2013, Foxconn’s turnover reached US$4,996,949,000. It can be said that the OEM model is a win-win strategy for Foxconn and its OEM customers.
The development needs of OEM are in line with the division of labor and specialization model, and this model can also be fully utilized in the lighting industry. In the lighting industry, although there are international brands such as Osram, Philips, and GE, and domestic first-tier brands such as NVC, Sanxiong Aurora, and Opple, there are also tens of thousands of OEM companies that process various products and parts. They are also the product of labor-intensive economic development.
"OEM has adapted to China's national conditions and the development laws of the LED industry. In the operation of LED companies, the limited hardware resources are an objective fact before every operator. Although OEM companies do not fully master the core technologies and channels of production, they play a pivotal role in the LED industry chain. This role is irreplaceable." The words of Li Xiaoping, general manager of Auman Technology, illustrate the importance of OEM companies today.
In fact, in the era of traditional lighting, there were many companies that started by OEM, such as Guangmingyuan Lighting; there were also many companies that specialized in OEM and did not build their own brands, such as Zhongshan Dafini Lighting; there are also many companies that both built their own brands and also processed for some other brands, such as Auman Technology, Zhongshan Chimeio Lighting, etc. The ways of survival are different, and the development strategies are also different.
OEM development gains new opportunities in the new era
For many companies, OEM is still a tempting "market cake". "There are specializations in the industry." For the lighting industry, there are not many companies that can develop in an all-round way. Even listed companies still have "short board effects", which are reflected in brand building, market management, R&D innovation, or channel construction. Therefore, in order to seize more market share and have stronger market competitiveness, enterprises must learn from each other's strengths and complement each other's weaknesses, and carry out effective division of labor through strong alliances to ensure the healthy development of enterprises.
For OEM companies, building a brand requires not only familiarity with brand operations, but also channel expansion. Behind high profits are high risks. OEMs for brand companies only need to have certain advantages in the fields of R&D and production, and can ensure delivery of quality and quantity within the specified time. Under the influence of power, OEM has become the best choice for some small and medium-sized enterprises with insufficient strength.
In the era of LED lighting, many traditional lighting companies are facing the embarrassing situation of transformation and upgrading, which has also added "fertile ground" for the development of OEM companies. According to relevant industry insiders, perhaps LED technology is relatively imperfect, so many traditional lighting companies choose to quickly enter the LED field through the OEM model when the LED era is approaching.
In the interview, a business owner told reporters that for many traditional lighting companies, OEM is one of the fastest ways to develop their LED lighting business, because choosing OEM means that for transforming companies, capital investment and technology investment are relatively lower, and the capital is withdrawn faster. He also revealed that a domestic first-tier brand recently launched nearly 600 new products, but nearly 70% of them were manufactured by other companies.
In fact, "existence is reasonable." For OEM companies, if they are "lucky" to be able to OEM for international brands, it is actually excellent. This can not only enter the international market and enhance the company's global awareness, but also organize production in strict accordance with the buyer's requirements in terms of product quality control, cost control, operating efficiency control, etc., thereby further improving the company's management level and enhancing the company's comprehensive competitive strength.
Sometimes we are embarrassed
There is a popular saying on the Internet: "Cats like to eat fish, but cats can't swim. Fish like to eat earthworms, but fish can't come ashore. God has given you many temptations, but he won't let you get them easily." This seemingly ridiculous but very reasonable statement also applies to the development status of OEM.
At this stage, although OEM companies have a certain space for survival and development, some problems are gradually exposed, which makes OEM manufacturers cry out that "it is not easy to want to love you."
First of all, brand companies are erratic and OEM companies have no sense of security. For OEM companies, in addition to longing for the right to speak and initiative, they also particularly long for brand companies to give them a certain sense of security.
"For OEM companies, brand companies are more "careful". OEM companies are sometimes forced to make concessions in order to get more orders and achieve long-term cooperation. Even so, it is difficult for brand companies to "give back."" An OEM company leader said with regret.
Indeed, for most OEM companies, since the advantages of core resources such as capital, technology, and channels are extremely unclear, in the OEM process, product design and standard setting are all decided by brand companies, and their room for development is severely suppressed. Once brand companies look for new partners, OEM companies that have fallen out of favor will become a "gone flower".
Secondly, brand companies are reducing costs and OEM companies are "starving and cold". Although OEM companies accepted the "unequal treaty" proposed by brand companies with humiliation and were able to get back some orders, many OEM manufacturers were also hurt as brand companies did not set a lower limit on cost control.
For OEM-based companies, since they specialize in OEM production for brand companies, they have no independent brand, no core technology, and no marketing channels in the LED industry chain. They only have meager processing profits. The situation of having no initiative and voice can easily put OEM companies into the embarrassing situation of "people are the knife and I am the flesh and blood".
Industry insiders say that among all aspects of product development, production, and sales, the production link has the lowest profit. As market competition becomes increasingly fierce, many brand companies will lower their prices again and again when placing orders. Although OEM companies can accept a large number of orders, the actual profits are not high. At the same time, as labor costs continue to rise, it is difficult for OEM companies to obtain higher profits by relying solely on the "win through quantity" model.
Furthermore, quality problems appear frequently, and OEM companies are "hard to defend". On January 24, 2014, the General Administration of Quality Supervision, Inspection and Quarantine announced the results of the 2013 special national supervision spot inspection of LED lighting product quality. Philips, Mingkai Lighting, Beiguang, Harmony Optoelectronics and other brand products were "topped" on the unqualified list. This time, a total of 108 batches of LED lighting products produced by 82 companies in 10 provinces and municipalities including Beijing, Shanxi, Liaoning, and Shanghai were randomly inspected. As a result, 22 batches of products produced by 21 companies did not meet the standard requirements. Brand companies are afraid of random inspections, and so are OEM companies.
It must be mentioned that a series of quality inspection reports and "blacklists" have made OEM companies become the "scapegoats" of brand companies, but they are unable to defend themselves. In fact, if you think about it carefully, brand companies should bear more responsibilities, right? As the makers of the rules of the game, brand companies must not be careless in all aspects such as selecting raw materials, setting inspection standards, formulating processes, and selecting OEM companies. Some brand companies wait until they are deeply involved in the "quality gate" before taking accountability, and OEM companies have become "scapegoats."
Finally, building your own brand has become the way out, and OEM companies are "worried about risks." "Most OEM companies 'win by quantity', and the profits they obtain are extremely limited compared to brand-name companies. Therefore, for companies, if they only focus on OEM for other brands, there is a certain risk, because OEM can make the company full, but it may not make the company well-fed." Deng Suwen, marketing director of Qianhua Technology, believes that "building your own brand is the best choice for corporate development."
Take a company in Jiangmen as an example. This company made its fortune through OEM, has cooperative relationships with major international brands and first-line brands, and has accumulated rich production and operations. As the company's financial strength, management and operations and other capabilities matured, the company not only built its own brand, but also chose to enter the light source field when the LED era came. It integrated the superior resources of all parties through resource mergers and acquisitions, and achieved rapid and stable development.
For many OEM companies, they have a dream: to have their own brand. But in fact, the risks faced by self-built brands are far greater than those of OEMs themselves, which also puts forward higher requirements for lighting companies that are interested in this.
OEM companies must also live a beautiful life
The prospects are bright, but the reality is cruel. In order to truly achieve the perfect combination of brand advantages, technological advantages, processing cost control, etc. under the OEM business model and achieve a win-win situation, OEM companies and brand companies must work together to face opportunities and challenges.
For brand companies, even if they have strong financial strength and advanced R&D technology, when choosing OEM companies for processing and production, they must also strive for excellence in the purchase of raw materials and the formulation of process standards. At the same time, intelligent control and reasonable allocation of production costs are achieved, allowing OEM companies to complete tasks with quality and quantity.
For OEM companies, they should not be reduced to "processing machines", but should integrate technology, services, solutions, etc. with brand companies in an all-round way, while building their own influence and turning passivity into initiative.
For example, according to Li Xiaoping, general manager of Auman Technology, Auman Technology integrates products with a full range of services in OEM products, making full use of OEM advantages to enable Auman to provide consumers with systematic and integrated solutions, and get rid of the restrictions of a single product on corporate development.
First, clarify the company’s positioning. Is it to focus on building its own brand, or is it to take OEM processing as its main development plan? Industry veterans said that different positionings, market layouts, and strategic plans are also different. If it focuses on self-built brands, its OEM business needs to be differentiated. If it focuses on OEM, it needs to enhance its own scale production and cost advantages to enhance market competitiveness.
"It's not a bad idea to borrow an arrow from a straw boat. Choosing OEM companies for processing and production is indeed a good strategy for the early development of the company. However, if the company does not have strong R&D strength, a complete channel system, and a professional talent team, it will be difficult to achieve long-term development, especially for companies that choose to build their own brands while also taking into account OEM business. Enterprises must always remember that "products are the vitality of the enterprise." Hu Weiyue, general manager of Zhongshan Chimei'ao Lighting, concluded.
Second, industry veterans said that for OEM companies, what needs to be solved now is to reduce costs, improve quality, and give full play to their own advantages in the fierce market competition.
"In my opinion, developing OEM, especially when manufacturing for internationally renowned brands, can quickly form scale advantages, integrate supply chains, and reduce costs. In terms of product quality control, cost control, operating efficiency control, etc. need to be considered. At the same time, management must be improved so that it can bring long-term relatively stable income to the company." Zhang Nan, deputy general manager of Shenzhen Shengda Optoelectronics, said.
Third, shorten the delivery period. Delivery deadlines are now being watched by more and more manufacturers, especially in the new era of LED lighting. For OEM-based companies, most of them do not have strong financial strength and advanced R&D technology. Therefore, such companies must do everything possible to improve product quality, control product costs, and shorten delivery deadlines. Doing so can not only enhance the overall market competitiveness of OEM companies, but also help them win more OEM orders.
Fourth, don’t forget to promote yourself. In today's increasingly fierce competition, it is extremely important for OEM companies to conduct timely publicity and increase corporate visibility. The information asymmetry between brand companies and OEM companies has not been broken. In the future, whoever can stand up will gain greater business opportunities.
Ni Xiaoming, general manager of Jingshang Lighting, said that at this stage, "the fragrance of wine is also afraid of the depth of the alley." Although there are many OEM companies that have a certain degree of strength, there are always only a few old customers who look for them for processing. This is because of the information asymmetry that exists between brand companies and OEM companies. Therefore, it is important for OEM companies to improve their own capabilities as much as possible, and it is even more important to do everything possible to increase their visibility, because only when others know something about you can they have more opportunities to achieve cooperation.
According to Ni Xiaoming, general manager of Jingshang Lighting, in view of the good development prospects of the OEM market, he will set up a production factory in Zhejiang to mainly process for enterprises in Zhejiang Province and surrounding provinces, and export complete lamps. It is expected to be officially put into operation in May this year. Before the official operation, Mr. Ni said that he would use a variety of methods to promote the factory and quickly increase the visibility of the factory to obtain more industry opportunities.
ANNA