The ODM model may seem like an easy shortcut for brand owners, but in reality, there are some hidden problems, such as weak design control, squeezed profit margins, and excessive dependence on the supply chain. This model is like a double-edged sword. Although it can improve efficiency by “ready-to-use” solutions, it may also cause the brand to lose its dominant position in the industrial chain and become a passive supporting role.
Limited Design Control
Brand Consistency
Brand owners may have specific requirements for product design to ensure that the products conform to the brand image and market positioning. However, under the ODM model, brand owners have relatively weak control over product design. It is possible that the products designed by ODM manufacturers deviate to some extent from what the brand owners expect, affecting brand consistency and market image.
Design Innovation
Although ODM manufacturers have certain design capabilities, their design ideas and innovation may be restricted by their own experience and industry conventions. If brand owners hope to launch products with unique innovation, they may find that the design schemes of ODM manufacturers cannot fully meet their expectations, thus requiring more communication and coordination work.
Intellectual Property Issues
Ownership of Intellectual Property
During the ODM cooperation process, the design and development of products are completed by ODM manufacturers, so there may be issues regarding the ownership of intellectual property. If the ownership and usage rights of intellectual property are not clearly stipulated in the contract between the two parties, disputes may arise, affecting the cooperative relationship between them.
Protection of Intellectual Property
Brand owners need to ensure that ODM manufacturers strictly keep the product design and related technologies confidential to prevent the leakage of intellectual property to competitors. Once an intellectual property leakage incident occurs, it will not only damage the interests of brand owners but also seriously affect the brand’s market competitiveness.
Supplier Dependence Risks
Single Supplier Risk
If brand owners overly rely on a certain ODM manufacturer, once the manufacturer encounters production problems, financial difficulties, or a deterioration of the cooperative relationship, brand owners may face the risk of product supply interruption. This will directly affect the brand’s market sales and customer satisfaction, and may even damage the brand’s reputation.
Supplier Switching Costs
During the cooperation with ODM manufacturers, brand owners may gradually get used to their production processes, quality standards, and communication methods. If they need to switch to other suppliers, they may face high switching costs, including re-evaluating suppliers, product certification, production running-in, and other links, increasing the investment of time and resources.
Squeezed Profit Margins
Profit Markup by ODM Manufacturers
ODM manufacturers will add their own profit margins when providing design, research and development, and production services. For brand owners, this may lead to relatively high product costs, squeezing their own profit margins. Especially in a highly competitive market with sensitive product prices, this profit squeeze may have a significant impact on the profitability of brand owners.
Price Negotiation Pressure
Brand owners may face price negotiation pressure in their cooperation with ODM manufacturers. If ODM manufacturers have strong bargaining power in the industry, brand owners may find it difficult to obtain an ideal purchase price, further affecting the product’s profit margin and market competitiveness.
Communication and Coordination Costs
Cultural and Conceptual Differences
There may be differences in corporate culture, management concepts, and working methods between brand owners and ODM manufacturers, which may lead to problems such as poor communication and understanding deviations during the cooperation process. For example, brand owners may pay more attention to product innovation and market adaptability, while ODM manufacturers may focus more on production efficiency and cost control, and the two parties may have differences in the product design and development process.
Information Asymmetry
Brand owners have relatively less understanding of the product design and production process, while ODM manufacturers possess more technical and production information. This information asymmetry may put brand owners in a relatively passive position in the cooperation, requiring them to spend more time and effort on communication and coordination to ensure that the goals and requirements of both parties are consistent.
Choosing the ODM model is actually exchanging “convenience” for “initiatives”. If brand owners do not want to be involved in homogeneous competition or supply chain crises in the market, they need to pay attention to two points:
Clearly define their bottom line. Clearly stipulate the ownership of intellectual property through contracts to ensure that they have sufficient say in core design aspects and avoid being controlled by suppliers.
Diversify risks and avoid concentrating all dependence on a single supplier. An alternative supplier mechanism should be established to be prepared for any problems.
Although this model can bring higher convenience, brand owners must remain vigilant to ensure that they always maintain their core competitiveness in the cooperation.