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OEM and MOQs

by Eugenia Alliegro

There’s God, and then there’s the Devil. There’s Hercules and Hades, Batman and the Joker, Dorothy and the Wicked Witch of the West, Harry Potter and Lord Voldemort… and so the list goes on forever. Every hero has a villain who comes along and ruins everything; makes a simple daily task become a life-threatening mission! And in the world of China manufacturing, things are not too different.

Meet our Chinese super-hero: OEM.

OEM stands for: original equipment manufacturer. Basically, this means that you can get a product that was designed, researched, and developed by someone else’s hard work and simply put your logo on it. And just like that you have your very own branded product – or product line.

Someone else did all the fighting with the factory, the molding and remolding (and remolding once again because the whole thing was wrong the first two times), the 200-page specifications manual, the training of the employees, the sampling… Someone went through hell and back, succeeded, and then every factory in China followed suit and copied it. All you have to do now is log onto alibaba.com, type in the thing you are looking for, send a PDF file with your logo, and wait for it to arrive at your doorstep.

This is China heaven. There is no product development that will take months and consume all of your energy. It is in an out, one click away, all from the comfort of your home.

It means that if you want to open your own boutique, for example, you can go online, buy some styles that someone else already developed, sew on your custom label and be ready to open shop as soon as the shipment arrives.

And it gets better. Since most of these “OEM” products are copied from manufacturer to manufacturer there is a lot of competition in the market. This means that you will get a more-than-fair price if you play your cards right.

Ask for a price quotation

Tell them that it is too high, that you will not make any money; that you need a better price.

Once they have invested time into your potential order, mention that you have found the product for much cheaper through other suppliers and “Thank you for your time but I will be using someone else since your price is nowhere near my budget”.

Expect them to fight back. “Our quality is better, we have faster production, we are giving you the best price/quality possible”

Play this game for a few rounds until you get a price that you are satisfied with.

If you have no idea what the real price should be, negotiate with several suppliers at the same time until you get a feel for what the standard price is for your product. Go harder on some (which means you might make them angry and lose their interest) just to test the waters. And save the suppliers that you are interested in most for the end, when you have a better notion of the price and can negotiate with more certainty.

All of this is great if you just want a quick fix. A nice product with your logo on it that people will like, and hopefully purchase. But what if you wanted to go above and beyond what’s already out there and create your own original designs?

Let me introduce you to the biggest villain in Chinese manufacturing: MOQ.

MOQ stands for: Minimum Order Quantity. And trust me, it will be your worst enemy.

So you have a dream of opening your own boutique. You design a 30-piece collection and want to use innovative, high quality materials at a reasonable price. Then you come to China and realize that you cannot buy fabric unless you buy 1000 yards (per style, per color!). You cannot make a dress unless you make 1000 of the EXACT same one! And just that fast, your dream evaporates into thin air.

It is science behind prices being so cheap in China is simply economies of scale. But you will never envision the true meaning of “mass production” until you try to manufacture an original design in China. When you buy OEM products your MOQs are much smaller because the same product is being mass-produced and then sold through traders in smaller quantities. But if you want your own original design you are the only potential buyer for this design, so you must be ready to buy in very large quantities.

So when you are thinking about developing a product, or creating a brand, don’t go design-happy and create 30 different things in five different colors each. Remember that unless you are willing to buy OEM, you must think about MOQs and plan your brand accordingly. Or you will waste months in research and development just to go back to the drawing board once you realize you need two million dollars and a warehouse the size of your house to store all the products you will need to manufacture in order to meet the minimums!


Eugenia Alliegro is a CSIC Columnist & co-owner of Squid Packs.

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