One of the best ways to break this barrier is through OEM (Original Equipment Manufacturer) agreements. Manufacturing companies that have difficulty marketing their products independently enter into such an agreement with larger, more established companies trying to sell the small business product or service under their brand name. This article provides an overview of the main aspects and conditions that a company must consider when signing OEM agreements. We will also discuss the pros and cons of concluding such agreements. On the other hand, there are some drawbacks of OEM agreements, especially for the small producer who is trying to enter the market with his product. In many cases, even if the product is sold (sometimes even successfully) by the distribution company, the smallest company remains unknown, since the product is more broadly linked to the prestigious distribution company. Therefore, such an agreement could not contribute to the potential growth and success of the small producing company (and perhaps even harm). The above description certainly does not cover all the important issues related to OEM agreements – a company must also take into account the way the product is paid, the responsibility for its installation, the deposit of the product file in the hands of an agent for the duration of the contract, tax issues, etc. As with any contractual commitment, the parties may enter into trade agreements with each other on the basis of interests and circumstances. However, there are several sections that are typically present in such agreements that are important to be familiar: the first issue is exclusivity. This clause is essential for OEM agreements in which the interests of both parties are conflicting (which is generally the case). The smallest company tries to limit exclusivity to the largest company and to use as many distributors as possible to market its products, increasing the chances that its products will enter the market in question. For its part, the large production company is required to market the product under its brand name and would not want several competitors and its marketing and distribution investments to go in vain.
The parties can resolve this issue by recognizing the nature of exclusivity (whether limited to a particular area, customers with characteristics or a specified period) or by finding that exclusivity depends on the achievement of certain sales objectives. The advantages of these agreements are obvious: the product of the smallest producer is marketed in the markets in question, while the company itself supports an insignificant marketing effort, since the marketing is carried out by the largest production company. As a result, an OEM agreement reduces marketing risks and costs for start-ups. The second entity is called “value added” (VAR) because it adds value to the original item by adding or integrating functions or services. The VAR works closely with the OEM, which often adapts designs to the needs and specifications of the VAR company.