So you’re an importer with a product idea for a fairly common product that can be branded with your logo. What are your options to produce private label products in China?
What are ‘private label products?’
Private label products are manufactured for a company by a third party supplier using their branding or logo.
There isn’t really a limit on what kind of products can be private-labeled. Everything from homeware to cell phones which have been private-labeled can be found on the market.
An example to illustrate a form of private-labeling would be a range of kitchenware from a famous chef. She provides saucepans, salt mills, and knives with a logo, but all of these products are made by different 3rd party suppliers who already produce these types of goods. She may require small changes, such as a different color, certain items being packaged together, and, of course, the branding/logo being added, but the products use fairly generic designs that the suppliers already have in place.
So, who can manufacture private label products in China?
To summarise the video above…
There are 3 supplier options that you can choose if you’re looking to private label an existing product: ODM, OEM, or Contract Manufacturer. Each has its own benefits and drawbacks.
You will very probably start with an ODM (and distribute their existing product), and later you might decide to have that product made elsewhere by an OEM or a CM. Note: if that product design is really the ODM’s intellectual property, make sure you make sufficient alterations to avoid getting in trouble.
1. ODM (Original Design Manufacturer)
Most companies private-labeling existing products start out by working with an ODM. These suppliers usually already have the designs, products, and tooling necessary to produce the products you want, and perhaps you might find them on sites like Alibaba or Global Sources. Upon contacting them, you’ll be directed to a showroom where they display all of the products which you can then choose to go on and private-label.
You may have some flexibility on fairly small changes such as adding your logo, colors, and altering a material used, but it’s unlikely that the ODM will allow greater modifications to the product (as this is outside the scope of their design and they do not wish to invest time and resources into developing a new product and its tooling for you).
You also don’t need to worry about sourcing materials and working out how best to produce the products, as all of this is already in place, hence why using an ODM is often the starting point for beginners.
They might accept to sign an enforceable manufacturing contract with you; it would typically include your minimum expected quality standard and some kind of exclusivity agreement, among others. This will be to your advantage as otherwise, you’re in danger of an ODM misbehaving!
As we mentioned in this post, the negatives of working with an ODM are as follows:
Changing the supplier is difficult since they own the design.
The buyer is taking a risk — how to make 100% sure the supplier didn’t steal the design from another company? For example, Amazon might ban your product and you might have penalties to pay.
If your sales are high, the supplier will be very tempted to compete with you.
If you gave them the inspiration to make a variation of their existing product and they think it is promising, they might make it without you… I wrote more on this topic in this article.
You will probably have difficulties negotiating for favorable terms (payment terms, liability, etc.), since you are essentially just a distributor to them.
Essentially, if the ODM starts to behave unethically, they control you as you are merely ‘distributing’ their products.
Perhaps if you’re selling very cheap and simple products, or you’re only working with them on relatively small orders this won’t matter, but for growing businesses and/or products with a higher value, other supplier types may be preferable.
2. OEM (Original Equipment Manufacturer)
If your business is growing and you have a firm awareness of the type of product you need to get to market, an OEM who is familiar with manufacturing products in that space may be a better choice. They make similar products to those that you’re looking to private-label, but they will be developing your product and tooling from scratch, as you are not just choosing a pre-developed product from the showroom as you would with an ODM.
Since they’re developing the tooling, too, perhaps you can include your logo in the mold (this is more secure as it’s harder to then reproduce the products and sell them behind your back) and you also have more flexibility to work with them on designing a product with a unique style or features, as opposed to simply branding an existing product which may be used by many other brands, too.
They may even become a good partner and subsidize development costs if they see your business growing (which brings increasing orders their way) and time to market should still be pretty short if they’re truly experienced in your niche. Importers also still avoid the hassle of needing to source materials and components, as your OEM probably already has a mature supply chain ready to handle your kind of product.
Again, it’s wise to have them sign a binding manufacturing contract that covers the major risks like selling your product to others, raising prices very rapidly, keeping IP rights to themselves, and not adhering to your quality standard (a similar set of risks as faced with an ODM, too). Get this on paper as early as possible, or they will probably not sign it.
Here are the risks of working with an OEM in more detail where we can see how control can also be eroded:
- Changing the supplier is not very easy since you need to change your entire supply chain (the new assembler will need new component suppliers, and many risks come with this) — remember, in most cases, a Chinese OEM will NOT disclose the identity of the sub-suppliers.
- Since there is no visibility on the cost at which components are purchased, it is difficult to negotiate for slow price increases.
- Since the sub-suppliers are not disclosed, they might be switched without reporting to the buyer. Material and/or process changes might have a serious impact on product quality.
- If your sales are high, the supplier will be tempted to compete with you.
- You might have difficulties negotiating for favorable terms (payment terms, liability, etc.).
Generally, a good-sized business who wants to produce reasonably large orders, but also retain a good amount of control over the project, will work with an OEM. But be sure to keep control over the quality, cost, and IP by signing a contract with them, otherwise, they may still choose to compete with you later or hold your IP hostage.
Worst case scenario? If things really go wrong, you can find another OEM and go with them (having control over your IP and tooling will be very helpful in this case, though).
3. Contract Manufacturer
In some cases, it may be better to choose a Contract Manufacturer. If working with an OEM doesn’t provide enough control, you’re iterating a successful product and adding even more unique features, higher quality, and, of course, increasing sales, then a CM is going to be helpful.
A typical CM is a more professional manufacturer who will provide a higher quality of service, including advanced process engineering, in-house product development staff who can work with you on your product designs, etc, and is usually willing to sign a fair manufacturing contract.
This incentivizes them to get the production right, on time, and at your desired level of quality.
Essentially, their factory becomes your factory and you have as much control as you desire. However, there are drawbacks:
- There is more R&D work (and costs).
- Time to market is usually longer because of the R&D work.
As the importer, you take a central role in product development and sourcing in order to prepare everything to be ready for production by the CM, and, aside from the extra time and effort you need to spend, all of this comes at a price, too. Getting your production going with a CM is likely to be expensive if your project isn’t already reasonably large and with consistently high sales.
Who To Choose When Producing Private Label Products In China?
As you’ve seen in the video and graphs shown throughout, the choice of supplier to manufacture your private label products in China depends largely on two things:
- Your expected sales
- The level of control you need over your project and IP
If you’re a small business and are producing reasonably simple products in low quantities, starting off by working with an ODM should be fairly easy for you as they have ready-made products that just require your branding and can be made quickly.
As your business grows, working with an OEM will provide you with more manufacturing options, as you will be able to develop your products, adding new functions and other unique features, but they still handle the sourcing, development, and production much like the ODM and are relatively fast (provided the product is not complex) due to being set up for products like yours already.
With both the ODM and OEM it’s important to set your expectations and protect yourself and your IP with a Chinese enforceable contract (if they will sign one), as otherwise, they will hold a lot of power over you.
If you need more control and are producing sufficiently high quantities of products, then a CM provides the best control as it is a complete manufacturing operation ready for your orders, but this comes at a price and may take longer to get products to market.
What type of supplier do you usually work with to manufacture your products? Let us know in the comments!
Interested in designing or developing a new product to be manufactured in China? You will also like Sofeast’s Importer’s Guide to New Product Manufacturing in China!
This guide has been written specifically for entrepreneurs, hardware startups, and SMEs and gives you advance warning about the 3 most common pitfalls that can catch you out, and the best practices that the ‘large companies’ follow that YOU can adopt for a successful project.
- The 3 deadly mistakes that will hurt your ability to manufacture a new product in China effectively
- Assessing if you’re China-ready
- How to define an informed strategy and a realistic plan
- How to structure your supply chain on a solid foundation
- How to set the right expectations from the start
- How to get the design and engineering right
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