What's the Difference Between ODM and OEM

Original design manufacturers (ODMs) and original equipment manufacturers (OEMs) both play a key role in helping companies bring new products to market, but with key distinctions in areas like product development, production, and branding. 

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In this article, you’ll get a foundational understanding of what ODMs and OEMs are, their differences and benefits, their value in the data center industry, and factors to consider when choosing an ODM or OEM partner.

What Is ODM?

An ODM, or original design manufacturer, is a company that develops products themselves before manufacturing them for another company – typically a brand or retailer. ODMs handle the entire product development process in house, including research and development (R&D), design, engineering, and manufacturing. 

One application involves private labeling or white labeling, where the ODM produces its products and then licenses the products to another company to handle the branding and sales. 

What Does ODM Mean in the Data Center Industry?

In the data center industry, ODM refers to original design manufacturers that specialize in the designing, testing, and manufacturing of data center hardware products and systems, including servers, networking equipment, storage devices, and related infrastructure products. They often partner with data center OEMs, who brand and sell the end products.

Examples of ODMs in the data center industry include Foxconn Technology Group, Wiwynn, Quanta Computer, and Inventec.

What Is OEM?

An OEM, or original equipment manufacturer, is a company that produces and assembles products or components for use in the creation of another company's end product.

OEMs specialize in large-scale manufacturing and supply chain management, allowing for low costs and higher volumes. Additionally, OEMs can manufacture products to the exact specifications required by their clients, who then sell the final products to consumers.

What Does OEM Mean in the Data Center Industry?

In the data center industry, OEM refers to original equipment manufacturers that design, produce, and sell data center hardware components, systems, or infrastructure under their own brand name. 

Examples of OEMs in the data center industry include Dell Technologies, Apple, Hewlett Packard, Cisco, and IBM.

What Is the Difference Between OEM and ODM?

For the uninitiated, it's easy to confuse these two terms – but understanding their key differences is crucial to any hardware strategy. The below table breaks down what you need to know when comparing OEM vs. ODM.

Can/Do OEM and ODM Manufacturers Collaborate? Can They Be Used in Conjunction With One Another?

Yes. ODMs and OEMs can collaborate when a company wants to leverage the respective strengths of both ODMs (product design, engineering, prototyping) and OEMs (manufacturing, supply chain management, and large-scale production).

For example, an ODM can source specialized parts from an OEM to create a finished product. The ODM provides the product specifications, and the OEM produces and assembles the components. 

Another example involves a company working with an ODM to research, design, and prototype a product. Once the design is finalized, the company can engage with an OEM to manufacture the components or products at a large scale.

Benefits of Working With OEMs and ODMs

1. Higher quality products

ODMs and OEMs have extensive expertise in their respective domains, product design, and development for the former, and manufacturing processes for the latter. They also have well-established quality control procedures, quality assurance teams, and testing processes, ensuring exceptional quality products for clients.

2. Greater customization

ODMs can tailor existing designs to meet specific client needs, and OEMs can manufacture a part or product from scratch to meet a client’s exact specifications. The ability and flexibility to provide this level of customization can help clients cater to their consumer’s needs. 

3. Shorter product development cycles

ODMs can help clients streamline their product development cycle because they specialize in product design and development, thereby significantly reducing the time needed to bring a new product to market.

4. Greater product availability

Companies with limited in-house manufacturing capabilities can leverage an ODM or OEM’s manufacturing capacity and supply chains, thereby ensuring greater product availability.

5. Lower costs

ODMs and OEMs have highly-specialized expertise and optimized manufacturing processes, which allows companies to reduce costs through efficient resource allocation, reduced production costs, and bulk purchases than if they were to manufacture their own products.

6. Higher level of customer satisfaction  

Clients can experience a higher level of satisfaction from a combination of unique customization, product security, IP protection, efficient communication, timely delivery, and high-quality products by partnering with an ODM or OEM.

7. Greater brand recognition

Clients who partner with reputable ODMs and OEMs can experience greater brand recognition and credibility for choosing trusted, industry-known manufacturing partners.

At-a-Glance: OEM vs ODM Comparison Table

Factor OEM (Original Equipment Manufacturer) ODM (Original Design Manufacturer) Who designs the product? The client The manufacturer Who owns the IP? The client The manufacturer Customisation level Full custom product Limited customisation, rebranding or minor alterations Speed to market Slower (requires client R&D) Faster (product is pre-designed) Typical use case Unique, highly specific product concepts Businesses wanting ready-made or lightly customised products

Understanding OEM versus ODM

Original Equipment Manufacturers (OEM) sell highly customised products designed to suit a client’s specifications. Meanwhile, Original Design Manufacturers (ODM) produce their own products and essentially lease them out to clients on a private label or white label basis so they don’t have to invest in building their own consumer brand.

OEM and ODM are two manufacturing business models

What is OEM?

An OEM is a type of manufacturer capable of creating a product to a customer’s precise specifications – or at least as close to spec as the manufacturer is capable of, given any equipment or supply restrictions.

OEMs are a vital piece of the product development puzzle for companies that have all the skills and resources required to ideate a product and perform the required market research, but lack the manufacturing capacity to produce it (especially at scale). Essentially, OEMs allow a business to produce a product and get it to market without needing to build, staff and run a factory.

Depending on the client’s requirements, an OEM may produce a wholly custom new product or a product from the OEM’s range that has been heavily customised. OEMs also sometimes offer guidance on product design to ensure the end result can actually be manufactured. In any case, the client generally retains their intellectual property rights as it is their design, and would only give up parts of their IP if they have had to rely on the OEM for more than just manufacturing.

Additionally, OEMs may produce sub-components, for their clients to use within their own manufacturing process.

What the OEM’s customer does:

• Product design
• Market research
• Marketing
• Product testing

What the OEM does:

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• Manufactures the product

OEM versus Contract Manufacturing (CM)

Contract Manufacturing (CM) is a step beyond OEM. While an OEM may offer products to be customised or may otherwise guide and help in the product design stage, a CM is just that – a manufacturer for hire.

If you run your business as a CM, clients approach you with their product specs and all you are required to do is produce the product. The client retains all IP rights but, in return, must provide all design requirements.

Apple runs an OEM model and employ Foxconn to make their phones

Example of an OEM business

Apple’s relationship with Foxconn is one of the most well-known examples of the OEM model. Apple is a multinational corporation with huge R&D resources, but it lacks a manufacturing component. Instead, Apple outsources its manufacturing to the Chinese company Foxconn which then builds products such as the iPhone. Apple retains its IP and receives a high-quality manufactured product.

In addition, Apple also frequently engages other OEMs to produce sub-components that are then sent to Foxconn.

What is ODM?

Original Design Manufacturers work differently from their OEM counterparts in that they typically do a lot of the product design work in-house, and in a sense lease out their products for other businesses (clients) to sell.

Companies will often use ODMs as either a way to get an idea to market very quickly, with less R&D cost, or because they see an opportunity in the ODM’s line of products and decide to approach the ODM to lease some of them. In these cases, the products are actually the ODM’s, and they have simply been altered in some way – usually just rebranded, but sometimes slightly customised in other ways – to suit the brand that wishes to sell them. This is also known as white label manufacturing. 

That said, not all ODMs operate exclusively as white label manufacturers. Some offer a custom product service for clients who have great ideas but lack the resources to design them.

For example, if a client had an idea for, say, a new footwear item but could not design it on their own, they might approach an ODM – almost like pitching a new business idea. If accepted, the ODM would manufacture it to be sold as a private label product (see below). In this case, most of the IP rights remain with the ODM.

What the ODM’s customer does:

• Product ideation
• Spots a new market opportunity for their brand

What the ODM does:

• R&D
• Product testing
• Product manufacturing
• White or private label offerings

As an ODM manufacturer, you can offer white label or private label products

Do ODMs offer white label or private label products?

First, some definitions. It’s common for the terms ‘white label’ and ‘private label’ to be used interchangeably, and while they are close in definition, they’re technically different.

What’s the difference between white label and private label?

• White label: If you offer white label products, you are designing and producing generic products that clients (i.e. retailers) can purchase from you and re-sell under their brand. You control the IP, multiple clients may purchase the same product, and customisation is limited – typically only the branding. You’re basically producing a complete product with a blank label, hence the name.
• Private label: If you offer private label products, it’s basically the same as white labelling except more exclusive. When you engage in a private label manufacturing contract with a client, you are offering your product to them exclusively for re-selling and you will likely offer a greater degree of customisation.

As we’ve hinted, you can get either of the above from an ODM. In both cases, the ODM does most of the product development legwork and retains the majority of IP rights. It is, after all, their product.

When clients want to take advantage of a market opportunity quickly without minimal up-front investment, they may opt to buy white label products that are market-ready more or less instantly. However, their product may look like a clone of some of their competitors depending on how many businesses in their area also purchase the same white label product.

If a client feels they have a little extra time to ‘get it right’, as it were, they might choose the more exclusive private label option and opt for an extra degree of customisation – with the added advantage of exclusivity.

Of course, if they really want heavy customisation, they may look instead to an OEM instead of an ODM.

• Learn more about manufacturing: What is Good Manufacturing Practice, and why is it important?

The Pros and Cons of becoming an OEM

There are cost benefits to being an OEM, from a product development standpoint. One of the big pros is that you will have few if any costs associated with researching, designing and testing new products – clients will bring their ideas to you, and you just have to be able to make them.

Additionally, you may not need to upgrade your facility yourself to produce custom products for big clients. A lot of the time, OEMs pass on the cost of new tooling and moulding equipment to their clients in the form of up-front fees, or by building them into their pricing. Of course, this may mean they have more leverage over your facility and can demand that you only use the equipment to service their needs, but even in that scenario you’re getting an upgrade that you pay comparatively little for.

The flip side, however, is that there are a lot of OEMs on the market. In , the healthcare OEM market was valued at $273.96 billion. healthcare OEM market was valued at $273.96 billion. By , it’s expected to reach $850.37B at a 15.21% CAGR. That means, right out of the gate, you will have strong competition in a lot of specialist niches and will need to work harder to differentiate yourself and grow your customer base.

The Pros and Cons of becoming an ODM

As an ODM, you will be able to produce a highly cost-effective facility. Because you get to choose your own products, you can also select and build equipment and processes that best increase the efficiency of producing those products. As you become more experienced and, perhaps, specialised, you will likely be able to continue to improve this efficiency with further upgrades such as automation and specially designed manufacturing software.

Another way to increase cost efficiency is to get really good at selling your white label products to clients. ODMs with white label opportunities can find themselves expanding revenue rapidly compared to other manufacturers as they are able to offer market-ready products to a host of brands without reinventing the wheel for each contract.

Of course, it all comes at a cost – and that’s one of the major cons to point out. The up-front costs of becoming an ODM can be steep. Selling your own products means designing them, which means going through the costly R&D process in order to find market opportunities and produce products that you can capitalise on. Then comes the marketing budget, as you seek out clients to purchase those products.

Which is right for my manufacturing business?

This is ‘how long is a piece of string’ question, and you’ll need to identify the right path for your circumstances.

On one hand, the OEM business model enables you to build a specialised facility capable of producing high-quality goods for potentially major brands. By taking this path you can become an expert in your niche and find your business associated with some of your industry’s most beloved products.

On the other hand, the ODM model is more suited for businesses with expertise that goes beyond making products, and have big ideas for their own unique ways to capture market attention. This often suits companies that already have great product ideas but don’t necessarily want to invest the marketing budget in building their own brand. They can package up their unique IP and sell it on to consumers via the brands they already know and love.

OBM Meaning

An OBM (Original Brand Manufacturer) is a manufacturer that not only designs and produces a product but also markets and sells it under its own brand. Unlike OEMs and ODMs, which manufacture products for external brands, an OBM handles:

• Product ideation
• Product design
• Manufacturing
• Branding
• Marketing
• Distribution

OBM is effectively the next evolution beyond ODM. A manufacturer that no longer sells to other brands but instead builds its own market presence and product identity.

Pros of ODM

• Highest margins and revenue potential - OBMs capture value across the entire supply chain (design, manufacturing, distribution and direct sales) resulting in significantly higher profit margins compared to OEMs or ODM manufacturers.
• Full control over brand identity - Owning the brand allows OBMs to shape how customers perceive their products, build loyalty, and develop long-term brand equity.
• Greater resilience and independence -Where OEMs and ODMs rely heavily on client demand, OBMs control their own product roadmap and can diversify through retail channels, e-commerce, or partnerships.
• Stronger market positioning - Successful OBMs establish themselves as standalone brands, allowing them to compete directly with household-name products instead of being hidden behind other companies.
• Direct customer insights - Because OBMs interact with end consumers, they receive real-time feedback, enabling faster product improvements and more accurate forecasting.

Cons of ODM

• High initial investment - OBMs face substantial startup costs: branding, marketing, packaging design, distribution network setup, and customer support infrastructure.
• Increased operational complexity - Manufacturing alone is challenging; adding brand management, marketing, sales and logistics significantly increases organisational demands.
• Full responsibility for product success - Where OEMs and ODMs share risk with clients, OBMs own the entire risk profile, from product development to market performance.
• Higher ongoing marketing spend - To compete against established brands, OBMs must invest heavily and continuously in brand awareness, advertising, and customer acquisition.
• More competition in crowded markets - Entering consumer markets means competing not just against peer manufacturers but also long-established branded companies with large budgets.

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