Beyond Contract Manufacturing: India's Path to ODM Manufacturing Success

India's manufacturing sector is poised for significant growth. To truly excel, however, the nation needs to strategically choose between two key models: contract manufacturing (CM) and original design manufacturing (ODM). Let's discuss in deep detail what are the key requirements of Global players and what are our offerings. But first, let's discuss the definition of a CM and ODM;

Contract Manufacturing (CM): Contract manufacturing is when one company agrees with another to produce components or products over a specific timeframe. This is outsourcing on a manufacturing level, and like outsourcing employees, it lets companies compete in areas that were previously unreachable. There are majorly 3 types of CMs that are available such as:

1. Private Label Manufacturing: This is the most common type of service category where a CM delivers a finished product as per the brand specs and is delivered to the warehouse or directly to the market. Most of the e-commerce brands such as Amazon, Flipkart etc. and other consumer electronics companies follow this pattern. Some of the key Indian players are Dixon, PGEL, Amber etc. whereas global players such as Flex, Jabil etc. This can be partial as well as complete end-to-end manufacturing.
2. Individual Component Manufacturing: This type of manufacturing is more popular in automobile and aerospace industries where the manufacturing process and Tech stack are protected by IP and the sub-assembly part itself is complicated. These parts later either move to the brand's own factories or Private label manufacturers. For eg. Tecumseh world a renowned supplier of Compressors, similarly companies like Continental, Marelli (Magneti Marelli), Denso, JBM, Motherson, Sandhar, Bharat Forge, FIAT etc. provide critical components and parts to automobile manufacturers.
3. Service Subcontracting: This type of service provider are major part of the contracting where a larger contract manufacturer appoints smaller firms to do the non-critical tasks such as packaging, labelling etc. for the contract manufacturer, these parts/products are directly shipped to the contract manufacturing site. Note: Sometimes we do call contract manufacturing as EMS (Electronic Manufacturing Services), especially when it's consumer electronics manufacturing.

Original Design Manufacturer (ODM): ODM stands for Original Design Manufacturer, which is a business model where a company builds a product based on the specifications of another company or individual. The company then designs and manufactures the product, which is then rebranded by another company for sale. ODMs allow companies to get products to market without having to design the hardware or invest in production facilities. There are no different types of ODM but different capabilities and regional presence of such ODM around the globe. In India, Dixon is regarded as the most capable ODM whereas at the regional level brands such as Compal, Wistron, Quanta, TDK, and Celestica and at the Global level such as Foxconn, Flex, Benchmark, Pegatron etc. Most of the names you have recognised are most popular and have a strong presence around the world.

Let's talk about the benefits and drawbacks of ODMs:

• Benefits: Higher profit margins due to brand ownership and potential for premium pricing.Greater control over product roadmap and innovation.Fosters domestic R&D and design expertise.
• Drawbacks: Requires significant upfront investment in R&D and design infrastructure. Longer lead time to market compared to CM. Increased risk of product failure due to dependence on own IP.

Certainly becoming an ODM is no easy task, for a contract manufacturer to become an ODM path is difficult but not impossible. In fact, every ODM was once a CM at some point in time. Let's discuss a roadmap if a contract manufacturer wants to become an ODM.

• Step 1: CM-Focused Growth: Capitalizing on existing manufacturing expertise and attracting foreign investment in Contract manufacturing, not only builds brand trust but it develops your skills in process engineering, and understanding the DFx and CTQs which are the baseline qualities for an early ODM.
• Step 2: Building ODM Foundations: CM should invest a minimum of 10-15% of their overall profits into the R&D team, design centres, knowledge hubs and critical component alignment. At this stage, your customers will start realizing your potential and ambitions which may lead to supporting you by giving orders for non-critical accessories.
• Step 3: ODM Expansion: Once you start understanding the DVT, EVT, PVT, FMEA, PFMEA, PPAP and other core engineering design stages and critical documentation then you can start discussing with your client for 15-20% of the total MOQ.

Example: Taiwan is a successful example of how you can transition from Contract manufacturing to ODM, they have the strongest presence in the market leading with Foxconn, Pegatron, Wistron and so on. We need to also understand the CM to ODM transition is a marathon, not a sprint. India has significant potential, but this journey requires sustained commitment from the industry, the government, and educational institutions.

India's manufacturing potential is vast, but the path to success requires a nuanced approach. Contract manufacturing provides a fast track to growth and experience, while investment in ODM holds the key to long-term innovation and value creation. By strategically embracing both models and addressing key challenges, India can ascend the manufacturing value chain and become a global powerhouse in consumer electronics.