Academic journal article Canadian Social Science

The Analysis of Chinese Enterprises' Upgrading from OEM to ODM: The Opportunity Windows and and Paths

Academic journal article Canadian Social Science

The Analysis of Chinese Enterprises' Upgrading from OEM to ODM: The Opportunity Windows and and Paths

Article excerpt

Abstract

This paper discusses the opportunities and the paths of upgrading from OEM(Original Equipment Manufacturer) to ODM(Original Design Manufacturer) in China. We propose the "opportunity windows" of upgrade for Chinese enterprises by structuring a revised A-U model, analyze the environment of upgrade by a two-enterprises and two-cycle model. The article considers that as many OEM enterprises are in a period foreign technology spilling more slowly and difficultly, or the "spillover inertia"is getting dispeared. China's OEM enterprises need to strengthen their innovation level to infuse them with new power of upgrade, these ways include absorbing the technology spillover, reverse OEM, industry-university-research coordination, Independent R&D.

Key words: OEM; ODM; Opportunity windows; Upgrade; Innovation paths

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Thirty years of development after the Reform and Opening up makes China becoming the world's manufacturing center of many products, and widely regarded as the "factory of the world". According to related statistics, over 1/3 of the OEM business are provided by China, while more than 20% of the domestic brand market use OEM (Yang, & Liu, 2009). However, Chinese companies rely more on the world's multinational corporation who have advanced design capabilities, technology, brands and sales channels to carry out OEM production, resulting in the low-end processing mode and low profit margins. With the growth of domestic economic and the development of Southeast Asia as well as other emerging countries, China's cheap labor advantage is disappearing, making it even more difficult to rely on the original OEM production mode.

Global competition makes OEM industry's unfavourable characteristic, such as weak value-added capacity, low-level technology, significantly weak brand competitive disadvantages, more significant. Therefore, OEM is urgently needed to upgrade to higher level of the value chain. Domestic and foreign scholars drawn the enterprise upgrade path from OEM to ODM and then to OBM with cases and related theories(Wang, & Mao, 2007; Hobday, 1995). In this process, the technological innovation is one of the core elements of the upgrade. If enterprises have valuable, scarce, inimitable and irreplaceable resource, they will have access to potential sustainable competitive advantage (Jiang, & Sun, 2012). Following the route of technological innovation to acquire the proprietary technology for competitive advantage, then to accomplish the upgrade to ODM model, is an important way for OEM enterprises to achieve transition towards high-tech and branded mode.

As a result, to recognize the opportunity and to find the paths upgrading from OEM to ODM is important. This paper try to construct a modified A-U model to analyze the opportunity and propose corresponding upgrading paths.

1. THE ADVANTAGE OF ODM

ODM is a production mode of which the fiduciary enterprises with basic R&D and product design capabilities design, produce and machining products in accordance with the needs and authorization of the brands enterprises. It means that the ODM also undertake business like products' depth processing and processing and designing besides assembling and simple production (Liu, 2005). Compared to the OEM, ODM enterprises have more advantages in the industrial chain.

Firstly, ODM enterprises have equivalent core competence. From the value chain point of view, manufacturer operates value chain activities mainly by development & designing, assembling & manufacturing, brand promotion & marketing etc., the modularized division of work in value chain lays a good foundation for manufacturer choosing his business scope, as well as the division of labor between manufacturers (Sun, 2007). Under ODM, enterprises could win the dominant right of development & designing with strong manufacture advantage, thereby possessing complete product capacity. …

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