An original equipment manufacturer (frequently abbreviated "OEM") is a company that builds products or components which are used in products sold by another company (often called a value-added reseller, or VAR). An OEM will typically build to order based on designs of the VAR. For example, a hard drive in a computer system may be manufactured by a corporation separate from the company that markets and sells the computer, or a loudspeaker in a stereo system made by a company that specializes in audio manufacturing.
In some usages, a VAR is sometimes called an OEM, despite this being a complete reversal of the literal meaning of both terms. This misunderstanding arises from use of the term OEM as a verb. For example, a VAR might say that they are going to OEM a new product, meaning they are going to offer a new product based on components from an OEM.
In the automotive industry, status as an OEM is a legal identification. OEM status (in the United States) signifies that the company's automotive products have been tested and validated according to Federal Motor Vehicle Safety Standard and Department of Transportation regulations. Examples of OEM automobile companies include General Motors, Ford Motor Company, and Toyota. The last remaining small OEM automobile company in North America is Saleen, Inc.. Small "tuner" companies do not qualify for automotive OEM status as they do not bear legal liability for vehicle safety or performance.
Some OEMs have also taken on a larger role in the design of the product they are manufacturing. The term Original Design Manufacturer (ODM) is used to describe companies that design and manufacture a product that is then sold under other brand names and does not necessarily acknowledge the Original Design Manufacturer brand.
OEM hardware can be purchased by end users at considerable savings of 30% or more. For example, OEM hard drives are purchased in a simple plastic bag without the additional cables or bulky box found in the more expensive retail package.
An Original Design Manufacturer (ODM) is a company which manufactures a product which ultimately will be branded by another firm for sale. Such companies allow the brand firm to produce (either as a supplement or solely) without having to engage in the organization or running of a factory. ODMs have grown in size in recent years and many are now sufficient in size to handle production for multiple clients, often providing a large portion of overall production. A primary attribute of this business model is that the ODM owns and/or designs in-house the products that are branded by the buying firm. This is in contrast to a Contract manufacturer or CM.
This model is especially used in international trade, where a local ODM is used to produce goods for a foreign company which sees some advantage in the transaction (such as low labor inputs, transport links, proximity to markets, etc.). This is also used where local ownership laws possibly prohibit direct ownership of assets by foreigners, allowing a local firm to produce for a brand company for either the domestic market or export.
This type of business is part of 'Outsourcing'. An example is Compal Electronics, which makes notebook computers and monitors, and operates as mass producers for numerous brand companies, assisted by low labor costs, low-cost transport, and the near commodity nature of the physical inputs (in the case of Compal Electronics computer components).