Original design manufacturer
An original design manufacturer (ODM, 제조업자 설계생산/製造業者設計生産) or original development manufacturer (ODM, 제조업자 개발생산/製造業者開發生産) is a company that designs, develops and manufactures a product, as specified, that is eventually rebranded by another firm for sale.
Such companies allow the firm that owns or licenses the brand to produce products (either as a supplement or solely) without having to engage in the organization or running of a factory. Original design manufacturers have grown in size in recent years and, as of 2015, many have the scale to handle production in-house for the products that are branded by the buying firm.
[One sentence tip] 제조업자 설계생산 또는 제조업자 개발생산이란 제품의 개발 및 생산능력을 갖춘 제조업체가 특정 제품에 관한 아이디어나 유통망을 갖춘 업체의 의뢰를 받아 주문받은 대로 소정 제품을 개발ㆍ생산하는 방식을 말한다.
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Keywords
original design/development manufacturer, original equipment manufacturer
cf. Original equipment manufacturer
ODM is in contrast to a contract manufacturer or an original equipment manufacturer (OEM, 주문자 상표부착생산/注文者商標附着生産), which is generally perceived as a company that produces parts and equipment that may be marketed by another manufacturer.
Take an example of automotive parts. OEM refers to the manufacturer of the original equipment, that is, the parts assembled and installed during the construction of a new vehicle.
OEMs rely on their ability to drive down the cost of production through economies of scale. Using an OEM also allows the purchasing company to obtain needed components or products without owning and operating a factory.
Management strategy
This type of business is part of "outsourcing" in a sense. [1] In general, this ODM model is especially used in international trade, where a local original design manufacturer is used to produce goods for a foreign company that sees some advantage in the transaction.
Such benefits provided by the original design manufacturer are, among others:
- low labor cost and efficient production facility;
- convenient transport links or proximity to markets; and
- innovative and/or patented technologies developed by ODM.
- Where laws possibly prohibit direct ownership of assets by foreigners, local manufacturers are committed for the production for a foreign brand-holding company - either for the domestic market or for export.
For example, Compal Electronics makes notebook computers and monitors, and operates as a mass producer for numerous brand companies, assisted by low labor-costs, low-cost transport, and the near-commodity nature of the physical inputs (in Compal's case, computer components).
Based upon these products, the foreign brand-holding firms put their own brands on them, and place those products into marketing and circulation.
Success stories
Cosmetic industry before COVID-19 pandemic
In Korea, whether an indie brand cosmetic company makes a success depends on taking advantage of ODM. In the cosmetic industry which depends largely on the name value, marketing capacity and distribution network, there occurs something bizarre - small indie brands such as Dr.Jart, VelyVely. Mimibox, 3CE, April Skin, etc. have leaped to a mega brand taking advantage of online shopping opportunities. Now they are expanding their targets into world markets. [2]
Previously, big cosmetic companies ran both offline stores and online malls while maintaining marketing and distribution channels based on large capital capacity. The situation has changed. New startups with small capital base are accumulating brand awareness via online shopping malls, then expanding their markets into TV home shopping and H&B (health & beauty) stores. Online shopping malls have many advantages being open 24/7/365, free of distance and easy to change prices. [3] Furthermore, social networking services like Instagram, Facebook, etc. are proved highly helpful to indie-brand cosmetic companies. They prefer before and after video/photos of users to cash-consuming celebrity advertisement via TV commercials.
The decisive factor for the success of Indi-brand cosmetic companies must be the remarkable capacity of original design manufacturers (ODM). [4] There are such big ODMs as COSMAX, Hankook Kolmar, Cosmecca Korea, These ODMs are ready to provide services as design, development and manufacturing of products to brand companies. That's why indi-brand cosmetic companies can make hit items even without necessary cosmetics development know-how and manufacturing equipment. [5]
Experts anticipate the growth of indie-brand cosmetic companies will continue thanks to effective outsourcing to capable ODMs and lowered entry barriers. Taking this opportunity, ODMs are aggressive to cooperate with micro beauty brand names. For example, COSMAX is reported to establish a task force to co-work with start-ups and online businesses engaged in online/mobile distribution with new brand names. [6]
See further information at Cosmetic industry in Korea.
Luxury handbag
The luxury handbag market, which women want to own, is estimated to be worth 70 trillion won worldwide, and Korean companies supply 10 percent of the global markets. Simone, which specializes in the planning design and production of handbags, saw its sales drop by 40 percent due to the coronavirus pandemic, but rebounded to 33.5 billion won in sales and 43.4 billion won in operating profit in the first half of 2021.
The company's strength is its long-standing partnership with global brands. Michael Coors, Coach, Kate Spade, Tory Burch, Mark Jacobs, and DKNY, the top six in the U.S. luxury handbag market, are all clients, and the company has been working with DKNY for more than 30 years. The company employs 366 artisans in its headquarters workshop. Its entire workforce is valued at $30,000, double the $15,000 per person in the industry. The company's in-house development capabilities, which go beyond simply sewing bags to suggesting materials and designs, are also a major strength. The company has developed more than 220,000 designs. [7]
Intellectual property issue
Original design manufacturers create their own intellectual property. It is their strength and the origin of competitiveness. So they are very proactive in patenting it.
On the other hand, the brand-holding company relies on its brand in marketing and selling the specified products, which is the object of protection of trade mark and good will.
References
- ↑ Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.
- ↑ According to the Ministry of SMEs and Startups, Korean SMEs exported U$4.58 billion worth of cosmetics in 2018, 27.7 percent increase from the previous year. Cosmetics accounted for 4.2 percent of total exports, up from 3.5 percent in 2017, which is on par with auto parts (4.3%). Korea Economic Daily, " ODM enables Small Cosmetic Co. to Sell Hit Items", March 14, 2018.
- ↑ In 2017, online shopping transactions for cosmetics amounted to 9.5 trillion won, up 26 percent year-on-year. Products were also easy to export. Chinese reverse ODP of cosmetics from Korea were worth 2.43 trillion won in 2017, up 10 times from four years earlier. Ibid.
- ↑ 퀄리티를 앞세운 중저가의 국산 인디브랜드 화장품이 인기를 끌기 시작한 것은 2010년대 초 피부과 의원들이 포화상태를 이룬 것과 무관하지 않다. 경쟁이 치열해지면서 레이저시술, 보톡스 시술의 가격이 크게 떨어지고 일반 대중도 피부과 시술을 받을 수 있게 되었다. 그 결과 화장품이 노화방지의 유일 수단에서 보습관리의 보조수단으로 인식되어 중저가 화장품도 품질만 좋으면 많이 팔릴 수 있게 되었다. 또한 인터넷에서 화장품에 대한 정보와 평가가 퍼지면서 화장품의 위상이 믿고 쓰는 신뢰재(credence good)에서 품질과 가격을 비교ㆍ평가하는 탐색재(search good)로 바뀐 것도 화장품시장에 일어난 큰 변화였다. JoongAng Ilbo, " Consumers prefer Korean-made safe cosmetics to imported one", June 22, 2014.
- ↑ 코스맥스는 라운드랩의 독도 토너를 비롯해 블리블리의 아우라 광채 쿠션을 생산해 히트 상품으로 만들었다. 3CE와 LAKA의 색조 제품도 대부분 코스맥스가 개발·생산하고 있다. 한국콜마는 JM솔루션의 꿀광 로얄 프로폴리스 마스크, 닥터자르트의 세라마이딘 크림 등을 성공시켰다. JM솔루션의 마스크팩은 중국에서 돌풍을 일으키며 매출이 2017년 880억원에서 지난해 5300억원으로 여섯 배 이상 급증했다. See supra note 2.
- ↑ Ibid.
- ↑ 시몬느의 강점은 세계적인 브랜드와의 오랜 협력관계이다. 미국 명품 핸드백 시장의 1위부터 6위까지인 Michael Coors, Coach, Kate Spade, Tory Birch, Mark Jacobs, DKNY가 모두 고객사이며 DKNY와는 30년 이상 협업하고 있다. 본사 공방에서 일하는 장인만 366명에 이르고, 전체직원들의 생산력도 동종업계의 1인당 15천달러의 2배나 되는 3만달러에 달한다. 단순히 가방을 바느질하는 작업을 넘어서 소재부터 디자인까지 제안하는 자체개발 능력을 갖춘 것도 커다란 강점이다. 자체개발한 디자인만 22만개가 넘는다. Chosun Ilbo, " We've Made One Tenth of Luxurious Handbags in the World", September 10, 2021.
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