Companies hire contract manufacturers when they make the strategic decision to focus on product development, customer service, and similar aspects of the product creation and delivery process, rather than actual manufacturing. A contract manufacturer manufactures contracted products for other companies. Contract manufacturers use specifications, drawings, formulas and similar information to mass-produce products for their customers. Contract manufacturers serve the OEM or OEM market. They specialize in certain fields – for example electronics or pharmacology – and in subfields – for example computer hardware or gaming electronics. Let`s understand the purpose of this document with an example: If ABC Industries wants to manufacture a simple mechanical component that is useful for a particular machine, but Mr.M already has the trademark license for that particular mechanical component. In this case, ABC Industries must enter into a license agreement with Mr. . M and draw up an agreement stipulating that ABC Industries has the rights to manufacture said mechanical component only for a specific customer and only in certain quantities. IBM essentially created the PC industry. However, it won`t be long before the company`s nameplate disappears from PCs and IBM leaves the company, with the exception of the joint venture it recently formed with PC maker Lenovo.
Lenovo was founded in 1984 as a device distributor of IBM and other companies in China and will eventually put its own logo on PCs. This is also the case for Sanmina-SCI, the current manufacturer of some IBM PCs in the United States: it recently acquired some of the factories where computers are manufactured. Like Lenovo, Sanmina assembles products for a variety of well-known brand owners. However, the company has expanded its role and now designs and builds custom electronic components. These two companies are representative of a large number of previously anonymous manufacturers of branded products, which the brands themselves dismiss. In fact, the complexity of IBM`s environment challenges the conventional view of contract manufacturing as nothing more and nothing less than the anxious recourse of owners of large brands suffering from reduced profit margins. As mentioned earlier, in non-commodity situations, OEMs should seek close relationships with trusted subcontractors to minimize the risk of intellectual property leakage and protect their investments. Such proximity would have the secondary advantage that CMs would depend on OEMs for financing and technical advice. But such relationships should not be exclusive; Otherwise, OEMs will be isolated from industry innovators or deprived of the maximum achievable economies of scale that CMs can achieve by serving many customers. OEMs that rely on CMs disconnected from industry developments will end up marketing products whose cost and quality cannot compete with those of competitors. OEMs can also try to restore merchant loyalty.
Distributors may be exceptionally receptive to CM offerings because they refuse to be pressured by OEMs looking for short-term savings. Even in cases where OEMs act generously, merchants` fears of disintermediation and possible replacement by electronic channels lead them to accept companies that promise fair treatment and lasting relationships. OEMs that make credible commitments to distributors, even if they may incur higher costs, can help tie retailers to OEM brands and keep aggressive CMs at bay. These obligations may include payment for the training of a dealer`s personnel in the maintenance and repair of OEM products; cover the costs of a treatment system adapted to the requirements of both parties; or integrate the distributor`s identity into an OEM`s marketing campaigns. In particular, the last commitment is aimed at preventing the distributor from thinking about becoming a brand himself. OEMs could also consider granting territorial exclusivity to a distributor, which would improve the dealer`s revenue and encourage it to specialize in OEM products. If the distributor is still tempted to transfer their loyalty to a new OEM, they know they will have to bear the cost of learning how to sell and maintain the new brand. As a result, an OEM must have a close relationship with a CM that already has relationships with other OEMs. In fact, some companies may expect and even encourage their CMs to find other customers. Subcontractor Flextronics bought a plant from Swedish equipment manufacturer Ericsson in 1999 after receiving an order from that company. Only a third of the plant`s production capacity is dedicated to Ericsson products; More is dedicated to the production of Motorola mobile phones, two-way pagers and other devices.
By selling its plant to Flextronics, Ericsson has fostered a closer relationship between Flextronics and one of its main competitors, which it hopes to benefit from. It is also unlikely that Microsoft has set up a wireless research center in Sweden to be close to this manufacturing know-how center. If Ericsson had wanted an exclusive relationship with his CM, he could certainly have found one willing to accept his terms – although probably a second-rate CM. The contract must then be signed and approved by the trademark owner and manufacturer before it becomes legally valid. An agreement is not enough. It is important that your agreement is tailored to your own business model and businesses. A good practice is to regularly review your contracts to determine if the clauses and provisions best meet your current needs. The honest truth is that many companies, even large companies with impressive legal services, have contracts that they don`t pay enough attention to. It is common for contracts such as manufacturing and delivery to be created, signed and then deposited. That being said, there are a number of consequences if there is no agreement: A license agreement between a trademark owner and a manufacturer is an official document that states that the manufacturer of a product has permission to manufacture the product of the company or person who protected it under trademark law.
However, the trademark owner may select the license terms of this Agreement. A key element of a contract manufacturing contract is who retains the rights to the design of the product – the manufacturer or their customer. .
