Abstract
This study seeks to explore the strategic alternatives for the many small and medium-sized manufacturing firms in China that play an OEM role in the global value chain. Declining margins due to rising production costs and intense competition from emerging manufacturing industries in Southeast Asia necessitates the transformation of China's traditional manufacturing industry. The result is opportunities for the creation and manufacturing of domestic brands. A multiple-case study methodology is used with primary data collection through in-depth interviews, supported by secondary data on the subject firms. The findings reveal an awareness of the opportunities afforded by the trend towards the development of domestic brands as well as the vision, strategy, tactics, and forecasting related to a transition to brand creation. This chapter could be of interest to those with an interest in manufacturing transition, brand development, and providing direction to OEM SMEs in China that seek to develop a strategic roadmap during the imminent industrial evolution and transformation.
TopLiterature Review - Background
The inexorable growth of China’s economy after a series of economic reforms post-1978 has been the primary driver of the booming manufacturing sector (Tokatli, 2013a). The rising cost squeezed the margin of OEM manufacturers, in particular, small and medium-sized manufacturers. OEM manufacturers in China are looking for upgrading opportunities available to manufacturers. The challenges and cost of transformation and upgrades add to the pressure for OEM factories to adapt to survive. The transformation and upgrade are taxing in the update process; either OEM upgraded to ODM or OBM. Manufacturers that operate in global networks upgrade in production. Still, they face discouragement and obstacles when upgrading into higher value-added activities, such as design, brand-name manufacturing, marketing, and retailing (Tokatli & Kizilgün, 2004a).
Key Terms in this Chapter
OEM (Original Equipment Manufacturer): An Original Equipment Manufacturer or OEM is a company that manufactures and sells products or parts of a product that their buyer, another company, sells to its own customers while putting the products under its own branding. OEMs commonly operate in the auto and computer industries.
LPS (Lean Production System): Also known as lean production, just-in-time manufacturing and just-in-time production (JIT) is a production method derived from Toyota’s operating model and aims primarily at reducing times within the production system as response times from suppliers and to customers.
EU (European Union): A political and economic union of 27 member states located primarily in Europe and have a shared currency and single internal market and system of laws.
ASEAN (Association of Southeast Asian Nations): An economic union comprising ten member states in Southeast Asia, the largest of which include: Singapore, Malaysia, Indonesia, Philippines, and Thailand.
ODM (Original Design Manufacturer): A contract manufacturer that uses its own designs and intellectual property (IP). An ODM product can either be the result of the supplier’s own product development efforts – or a replica of another product already on the market and can be branded with the buyer’s logo.
SME (Small and Medium-Sized Enterprises): The sizing or categorization of a company as an SME can be based on a number of characteristics. The traits include annual sales, number of employees, the number of assets owned by the company, market capitalization, or any combination of these features. Generally, they are independent firms with less than 50 employees and not more than 250 employees. However, the maximum number of employees is different from one country to the next.