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Types of companies supplying devices

Are you a local company in Asia, Africa or elsewhere who wishes to introduce Electric Cooking appliances in your local market?  The question then is from whom you should procure the appliances. There are several supplier options, with pros and cons for each.  

Image credit: Nick Rousseau.
  1. A Fully, Vertically Integrated Supplier

This supplier provides and, therefore, controls all aspects of the product from its design, development and manufacturing, but also its sales, marketing and distribution in global markets, including your local market.

  • Pros: Their product is market-ready; you may be able to procure small quantities to begin with from stock they have in-country. This can manifest in different modes but ultimately offers the most support for how to engage with the market, generally with a well-developed business model. Working with a partner like this can be a good way to start and develop your understanding of the market, the products and business model that will work best, and build confidence in how to best develop your own business.
  • Cons: You have no control over the product. Hence, if you have insights on how to improve the product so it is a better fit for your local market, you can provide feedback to the company, but whether that feedback is incorporated into future product improvements may depend on how important your company or your market is to the supplier. You may be competing for sales with other channels the supplier has into your local market.

2. A Brand Name Supplier

This supplier has designed, developed and manufactured a product that they supply under their brand name. In a large market, they may invest in setting up their own sales, marketing and distribution team.  In smaller markets, they may prefer to partner with local companies to sell and distribute their products and may offer marketing support to promote their brand locally.  Or they may have a global strategy to only work through local agents or distributors in all markets – large or small.

  • Pros:  Since the supplier has already invested in the product’s design and development, you can procure a market-ready product and immediately generate sales for it in your local market, if the product is a good fit for your market. They will have a range of products that have been designed and manufactured based on market research and will come with some level of warranty, back up support and established logistics arrangements.   If the company’s brand is a recognized brand (and is associated with good quality, reliability and service), or they offer sufficient support in promoting the brand, it can help in driving product sales. The supplier may only wish to work with local agents or distributors resulting in fewer conflicts in your local market if the supplier is committed to building a structured distribution network. Working with an established supplier should enable you to access valuable support and backup but you will be fully responsible for all aspects of your sales, business model, etc.
  • Cons:  The product may not be an ideal fit for your market, or the price at which the supplier offers it to you may mean it is a premium product and limit the size of the potential market. If the brand is not recognized in the local market or is not well-supported, it will not provide any added value for the product.

3. ODM1 Manufacturer

A manufacturer that has invested in the product’s design and development.  

  • Pros:  Working directly with a manufacturer, you can procure the product at a lower cost than if working with a brand name or fully vertically integrated supplier.  No upfront investment is required for product design and development. You can sell the product under the factory’s brand, if they have one, or use your own private label/brand to sell the product in your local market, giving you more control on the sales, marketing and distribution of the product.  Companies may sell existing ODM products initially (with minor tweaks) and once they have traction in the market, then start to create new product lines that involve a redesign. ODM manufacturers may be willing to make minor adjustments to the products’ features to make it more appropriate for your local market and if this does not necessitate a major change in their manufacturing, this could not lead to significant price increases.
  • Cons:  Working factory-direct, the Minimum Order Quantity may be relatively high, especially if you are at an early stage and testing the market.  You have to manage more upstream processes to even bring the product to your local market, assuming the ODM manufacturer is overseas.  This might include getting the product registered or approved by a local Standards Board and coordinating all logistics from an overseas port (or the factory location) to your country, and local import clearance.

4. OEM2 Manufacturer

A manufacturer that you can work with to design and develop a product to your specifications and requirements.

  • Pros:  You have greatest control over the product and can ensure it is a good fit for your local market or target customers. You can sell the product under your own brand and have more control over its local sales, marketing and distribution. This enables you to retain the Intellectual Property, potentially enabling you to source from multiple manufacturers to reduce risk and control price – if you have allowed for this in the terms you agree with your supplier. 
  • Cons: Involves the highest upfront costs to design and develop; you may encounter unexpected costs and delays with the product’s development ultimately making it too expensive for the local market, or requiring a long time to recoup the upfront investment. Time to market is longer and market conditions or demand for the product could have changed by the time you launch the product in the market. As with an ODM manufacturer, you also have to manage more upstream processes. This suits those with a mature understanding of the market, considerable capacity to work closely with the supplier (including checking their products comply with the agreed specification) and the ability to develop and implement all related services, etc. Also, unless you can order a large volume the unit cost is likely to be high, as will be the Minimum Order Quantity.

Given these factors, there are a range of issues you should thorough explore and understand before selecting a supplier:

  • What is their business model and what role does the local agent have?  What are the financial and other terms of the agreement?
  • Who will manage logistics and import arrangements?
  • Do they have other channels into my market?
  • What product(s) are they offering and what is their specification?
  • What scope is there for (joint) branding? 
  • What scope is there for influencing/directing the product design, specification, etc.?
  • What scope is there for us to specify a variant on existing product to better suit our market?
  • Is there a Minimum Order Quantity?  How does the size of order affect price?
  • What support will they provide you for marketing, technical training, after sales, spare parts, managing warranty?

1 Original Design Manufacturer

2 Original Equipment Manufacturer