Why do some mobile phone manufacturers produce mobile phones on behalf of factories instead of building their own factories?

OEM may not be noticed by many people. But if you walk on the street, especially in Fujian and Guangdong, you will often see some shops selling original foreign trade orders. On Taobao, there are also many people engaged in the sales of related goods. In other words, OEM is very common in China. So, why do mobile phone brands choose foundries instead of producing them themselves?

First of all, say a slightly professional word, smile curve. This curve is very popular in economics, saying that the value-added products are mainly concentrated in R&D and sales, and the intermediate production links are actually meager. In the mobile phone industry, it can be said that this is particularly obvious. Chip is an important product of R&D. It can be said that even Huawei, a comprehensive mobile phone manufacturer with R&D strength, is restricted, which makes the chip the most expensive mobile phone. The value-added of sales links is mainly reflected in brand building, and big brands sell well when they are expensive.

Second, from the perspective of value chain division, some enterprises are willing to focus on production, that is, OEM; And some mobile phone brands are willing to outsource or contract their own production links, such as Xiaomi, which is the product of the division of labor in the value chain. It's like many chefs, but when you ask him why he doesn't go out to open a restaurant, people say he doesn't want to worry. Conversely, if you ask the restaurant owner why he doesn't cook, people will say, just hire someone.

Third, what are the advantages of mobile phone brands looking for foundries? The most important thing is to save worry and effort, and don't worry about producing this piece. Moreover, due to the scale factor, the cost of the foundry is lower than that of the enterprise itself. When the economy is bad, production outsourcing can also save capital investment and reduce business risks.

When it comes to mobile phone OEM, the first thing that comes to mind is Foxconn, the largest OEM company in the world, with customers such as Apple, Huawei and Xiaomi. So many people are curious, why don't these mobile phone manufacturers build their own factories to produce?

OEM is also the mainstream of production. As the saying goes, "there is specialization in the industry", mobile phone manufacturers belong to solution integrators, while OEM manufacturers produce mobile phones. Just like the relationship between developers and builders in real estate, real estate companies either develop themselves or contract to specialized construction companies.

In the era of functional machines, Nokia and Samsung, mobile phone manufacturers, built their own factories and produced their own products. Including domestic bird mobile phones, which are produced by our own factory. At that time, Bird built the largest mobile phone production base in Ningbo, with an annual output of 20 million units. However, with the rise of MediaTek (MediaTek packaging scheme) and the participation of many small brands, mobile phone OEM has become popular. But what really changed this pattern was Apple and Foxconn, which almost subverted the entire mobile phone manufacturing industry.

What are the benefits of OEM? As far as I know, only vivo among domestic mobile phone companies still insists on all independent production (even the entry-level thousand yuan mobile phone has not been outsourced). In addition, Huawei, OPPO and Xiaomi are all outsourced OEM+self-produced, including Samsung. The only company that doesn't build its own factory is Apple, which is why the back of Apple's mobile phone is printed with "Designed in California, Made in China"!

As for which model is better, there are advantages and disadvantages, but in general, it is more advantageous to build a factory by yourself than to send it out for OEM. This is also the reason why companies like Huawei and Xiaomi have switched from OEM mode to self-built factories. As for apple, it is an alternative existence.

First, light asset mobile phone manufacturers need a lot of money to build factories. From land, plant, equipment and labor, to post-production, supply chain, quality control and delivery. These are real heavy assets. Many mobile phone manufacturers have low shipments and limited profits, and cannot afford such a large investment. To put it bluntly, outsourcing, even if it goes bankrupt, is the biggest risk borne by the foundry. If you build your own factory, it is equivalent to all of it (see LeTV).

Second, flexibility: in addition to transferring investment, flexibility is also a big advantage. For example, if the mobile phone sells well, you can add a bill. If one factory can't produce it, you can even place orders with several factories. If it doesn't sell well, then cut off the order, without worrying about the production capacity or the adjustment of equipment and personnel. These are the foundry's own business. The mobile phone company only needs to place an order and receive the goods when it is due. No intermediate links, simpler and simpler!

Where is the short board of OEM production? However, we find that domestic mobile phone companies produce more high-end mobile phones themselves, but outsource low-end mobile phones instead. Why?

First of all, OEM enterprises also want to make money, the cost is too low, the processing fee is too low, and people will not take it. Therefore, the higher the cost of mobile phone OEM, the more expensive it is (of course, the cost has indeed increased). Mobile phone companies are reluctant to transfer this part of their profits to foundries, so they set up their own factories and integrate their own supply chains to maximize profits.

As for the low-end machine, it won't make much money anyway. As long as the quantity is large enough, the cost can be reduced. Therefore, most ODM manufacturers OEM low-end machines, unless they do not build their own factories, they are outsourced.

Secondly, when the product sales are high enough, it will be distributed to several enterprises for OEM, and the product quality cannot be guaranteed. After all, everyone's technology is different, and the suppliers are different, so the products produced are different, which is fatal to high-end flagship machine (look at the mobile phone screen, which supplier everyone will choose, and where Apple phones will be produced). Therefore, everyone is willing to build their own factories to produce high-end machines and grasp the quality in their hands. Even Xiaomi, a manufacturer who has been OEM, produced a part of it after the release of Xiaomi 10Ultra. In addition to profit, quality control is also a big reason!

With the increasing sales of mobile phone manufacturers, the scale of self-built factories will gradually increase. It is the general trend to integrate upstream and downstream and completely control the products in their own hands. The reason why Apple produces in China is that it values the production cost in China (similar to Tesla's factory in Shanghai). If Apple really goes back to the United States to build a factory, the cost will go up, and OEM Foxconn is also a helpless choice.

In recent years, when it comes to new 5G mobile phones, a common keyword in consumers' minds is "out of stock", especially domestic mobile phone manufacturers such as Huawei and Xiaomi. Whenever a new mobile phone is released, it is in short supply, which has become the default norm. Although some people say that some manufacturers deliberately hunger for marketing and control the previous mobile phone supply chain, thus creating a very hot feeling, because most new mobile phones are released in the spring of the year, the capacity pressure of mobile phone foundries is really great, and the supply of goods is often not available.

Some people ask, since demand exceeds supply every year, why do mobile phone manufacturers go to foundries instead of building their own factories to produce their own mobile phones? This is because the mobile phone foundry can't be built if you want. Not to mention the huge input cost in the early stage, and the profit problem in the later stage will make mobile phone manufacturers uncomfortable. After all, no mobile phone manufacturer can rely on its own mobile phone capacity to meet the normal operation of a factory. Only by seeking more customers and OEM more mobile phones and other products can we hope to make a profit.

Moreover, for a foundry, it is necessary to continuously invest in the cost of building factories, upgrading production lines and personnel salaries, which leads to greater financial pressure on mobile phone manufacturers and exhausts limited mobile phone R&D funds, which is actually not cost-effective in the long run. If you build your own factory just to ensure output, it may hinder product research and development. Even if the production capacity is no problem, the competitiveness may decline, resulting in a big decline in sales. In this case, it is obviously not worth the loss.

In fact, it is not just mobile phones that are OEM, but also many industries. This was unimaginable before. At that time, everything was done by myself. A factory is a hodgepodge at best, and nothing is specialized. Huge asset management, personnel management, fund allocation, so that enterprises are exhausted, the final outcome is to close soon.

With the development of modern enterprises, the required technical content and talents are getting higher and higher, which makes the specialization and intensification of enterprises inevitable, which is popularly called "professional team".

Enterprises need a lot of money and time to build factories, first of all, site selection, then construction, and at the same time, recruiting personnel. The cost of building a factory may exceed the research and development cost of a single product, and such a large amount of manpower, material resources and financial resources are unwilling to be done by ordinary companies.

They have a common idea that professional things should be done by professional teams. After all, a company is not so expert in everything, and your shortcomings are only the advantages of others.

In addition, enterprises are alive. After a factory is built, they need orders, that is, for mobile phones, which orders their own factories simply can't eat enough. The factory could not have a month's holiday last month. If you are in a semi-production state every day, then the result is brain drain and factory closure.

If you place an order for a factory, the factory will be full, and mobile phone manufacturers don't need to spend a lot of money and energy to manage and operate the factory.

Of course, not all mobile phone manufacturers process and produce for others. At present, due to BBK's past industrial reasons, blue-green factories basically produce their own mobile phones, while manufacturers such as Xiaomi and Apple process and produce them for others.

As far as China is concerned, there is also a well-known mobile phone foundry, namely BYD Electronics, a subsidiary of BYD, which produces cars. It is reported that if BYD's production lines are all completed and started, it can produce more than 400 million mobile phones a year.

Personally, OEM is not a bad thing. While saving money and time, mobile phone manufacturers can launch products that meet the requirements, and also give other enterprises living space.

Of course, outsourcing processing is also disgusting. For example, when the United States sanctioned Huawei, Flextronics (an American company), a foundry in Zhuhai, seized 700 million yuan of materials from Huawei, which caused Huawei a lot of economic losses.

Personal opinion, do you agree?

2020- 12-4

Thank you for reading.

Why do mobile phone manufacturers produce mobile phones on behalf of factories instead of building their own factories? Your feeling is not correct, because domestic mobile phone manufacturers have started to build their own factories, including Huawei and Xiaomi.

Then why don't all mobile phone manufacturers build their own factories and produce their own?

The fundamental reason is whether the factory can make a profit.

To sum up, if you can't make a profit by building your own factory, it is the only choice to ask others to help with production.

First of all, not all mobile phone manufacturers are looking for foundries to produce mobile phones. For example, two brands of mobile phones, OPPO and VIVO, are produced and sold by themselves. In addition, Huawei, ZTE and Samsung also have their own mobile phone factories.

Of course, there are also many mobile phone manufacturers whose mobile phones are produced by foundries, such as Apple and Xiaomi, and some of Huawei's mobile phones are also produced by foundries.

If you set up your own factory, the investment in software and hardware facilities in the early stage and the recruitment of production personnel are all big problems, which need a lot of money and time to solve.

As we all know, the configuration of smart phones is extremely complicated. In addition to the core component chip, there are also requirements for the configuration of screen, camera, processor, CPU, memory and other components. These requirements require many different types of factories to undertake their work. As a smart phone brand company, it has been under great pressure in the smart phone market competition. Under this pressure, they put the company's focus on building core technologies.

Therefore, many smart phone companies with big brands have provided markets for smart phone processing enterprises such as Foxconn, Pegatron, Flextronics and BYD in line with the principle of concentrating on doing big things.

In addition, the current mobile phone OEM giants are mature in technology, and their mobile phone products are reliable in quality and have guaranteed production capacity.

Compared with mobile phone manufacturers' self-built factories, OEM mobile phones have greater cost advantages. Mobile phone manufacturers can also focus on R&D and sales.

Of course, the foundry also has defects. For example, when the United States sanctioned Huawei in 20 19, Flextronics, an American-owned foundry in Zhuhai, seized Huawei's production materials.

With the development of science and technology, smart phones have now spread to everyone's life. We will find that in many domestic mobile phone brands, mobile phones are produced by foundries.

First of all, the mobile phone factory is not just built, and it needs to invest huge capital costs in the early stage. Regardless of the cost of investment in the early stage, the profit problem in the later stage will make mobile phone manufacturers very uncomfortable. After all, without any mobile phone manufacturer, their mobile phones can meet the normal operation of a factory. Only by finding more customers and OEM more other mobile phone products can we achieve the hope of profit. Now it's just a mobile phone with its own brand, which can't meet the needs of the factory at all. Instead, it needs to invest more money to maintain the normal operation of the factory, which has become a burden for mobile phone manufacturers.

For a factory, it is not only the cost of building a factory, but also the need to invest in various equipment requirements in the early stage. More importantly, post-maintenance and personnel salaries need to be balanced in the future. If we only rely on our own products, we can't completely achieve balance, and even need to invest a lot of extra foreign capital to maintain the factory. In the long run, it is not cost-effective. Outsourcing to the foundry not only ensures its own supply demand, but also does not need to invest unnecessary funds, which is more cost-effective for product research and development.

Generally speaking, there is no need for mobile phone manufacturers to build their own factories. After all, there are many domestic manufacturers who don't need to invest unnecessary funds. On the other hand, it is not cost-effective. Our own products can't meet the demand of a factory, but the loss outweighs the gain.

This is actually a cost issue. The self-built factory has invested a lot of money, including building a factory building, building staff quarters, machine production lines, raw material inventory and so on. This requires a lot of financial support, and the cost is much higher than that of the foundry, which can easily lead to poor management! On the other hand, branding is much simpler. It only needs to formulate the design scheme and quality standard in the form of contract and hand it over to the foundry. Later, it only needs to receive the goods, and nothing else needs to be taken care of. Moreover, foundries will OEM many brands, and the prices of raw materials will be lower. Therefore, for all manufacturers, the cost and efficiency of the foundry are higher, which is an inevitable choice for marketization.

You should know, "Why do mobile phone manufacturers produce mobile phones on behalf of factories instead of building their own factories?" , please see below:

In fact, not only mobile phones are OEM, but almost all brand-name products are OEM.

This makes many people have doubts: making products by themselves is more conducive to monitoring, providing quality assurance, reducing circulation links and improving profitability.

Throughout the history of OEM, you can easily find that:

Before the famous brand manufacturers are their own research and development, their own production, their own sales and their own services.

What about now?

Basically, they are self-developed, OEM by others, authorized or agent sales, and service outsourcing.

Why is this happening?

Because the society and times have changed now, workers have become "expensive" (wages have increased, welfare has increased, and the burden of work-related injuries has increased), and they are no longer treated as "slaves" as before.

In view of this situation:

1, self-developed, which is equivalent to mastering the core technology. Generally, the most advanced, high-end and best-performing mobile phones on the market are not the latest research and development achievements, because no one will take out their latest and core research and development achievements and wait for others to imitate and copy them. Although there is patent protection, litigation is not the first choice, but a helpless passivity. If someone follows the trend, immediately reduce the price and put in a higher "version" of the mobile phone, so that the followers "lose all their money."

2. Let others do OEM work: the price of mobile phone spare parts is basically "dead". Everyone can figure out the cost of making a mobile phone, and then give some benefits to the main engine factory, so as to get rid of the problems of land investment, factory construction, production equipment investment, employee benefits and work-related injuries. In other words, the thankless things are left to the foundry.

3. Authorized or agent sales: it also saves the construction and investment of facade or chain. Moreover, there are regulations on the sales volume of licensor or agent, and how much must be sold within a specified time. Of course there is a floating ratio. If you fail to complete the task, you will be disqualified and face compensation or fine.

4, service outsourcing: it is a matter of running errands, and it is very annoying to repair it well.

In short, it is the wisest choice for mobile phone manufacturers to do so, seize the core and main profit points, throw the others to others, let themselves go into battle easily, and cultivate a large group of followers behind their butts, which also achieves the goal of a rising tide lifts all boats. Otherwise, it will form a beautiful forest in the forest, and the wind will destroy it; When piled up on the shore, the water will surge; People must make mistakes when they walk higher than others. "

This should be more of a cost issue!

After all, there are many problems to be considered when building a factory, such as the site selection of the factory, personnel management in the later period, personnel training and maintenance of manufacturing equipment, product warehousing and logistics, etc. Each item can be said to be very complicated, and it can not be solved only by investing money.