These Slim Margins are not by Design

These Slim Margins are not by Design
Taiwan's original design manufacturers face intensifying competition in their high-growth market.

In the beginning, electronics companies made the products they sold. After some time, companies with famous brand names found it more efficient to concentrate on design and marketing, so they turned manufacturing over to specialists known as electronics manufacturing services (EMS) companies.

Now the electronics business model of the moment is to entrust not just the manufacturing but the design as well to original design manufacturers (ODMs). With the number of product lines growing and the life cycle of any given model shortening, OEMs have to either bulk up on design capabilities or get outside help. That's where ODMs come in. "OEM companies face a shortage of engineering resources, find it tough to keep up with market demand for new product models and so are turning to Taiwan's ODMs," says Sheaffer Lee, president and chief operating officer of BenQ, an ODM that specializes in consumer electronics and mobile phones.

The ODM business model falls along a continuum between two different approaches. Under what's called the off-the-shelf approach, an ODM designs a product and offers it to brand-name vendors. Under the other, the OEM takes specifications and design requirements to several ODMs and negotiates a deal.