Suppose you own a small factory that has made products to customers' specifications for years. Orders are steady, but customers push on price all the time, and a large customer once moved to another factory without warning. So you start to think about building your own brand. Now suppose instead that you own a brand that has always used a factory to make its products. Today the formula sits with the factory, the licences are in the factory's name, and you are not sure whether you would have anything to sell if the factory refused to continue.
Both sides are deciding the same thing: who controls the end customer, who holds the assets that make the product what it is, and who carries the risk when something goes wrong. This guide compares the two options from a business point of view and shows where the law and the contract change the answer. If you have already decided to change factory and need to pull back formulas, moulds and stock, see Switching OEM factory: who owns the formula, moulds, boxes and stock?. This guide covers the stage before that.
The core answer
Neither model is always better. OEM gives predictable production orders and needs no marketing investment, but the customer belongs to the brand and the bargaining power usually sits with the buyer. Your own brand gives you control over pricing and customer relationships, but you carry stock risk, marketing, licensing and consumer liability yourself. Many businesses do both at once if the contracts are arranged so they do not collide.
The rule (Thai law). The Trademark Act B.E. 2534 gives rights to the person who has registered the mark. The Liability for Damage Arising from Unsafe Products Act B.E. 2551 defines "entrepreneur" to include the manufacturer or the person who commissions manufacture, the importer, a seller who cannot identify those persons, and anyone who uses their own name, trade name or trademark on the product. The result is that owning a brand made by a factory does not move all liability to the factory. For products that need a licence or notification, such as food, cosmetics or medical devices, a specific law sets who files and who holds it.
Our practical view. Before choosing a model, ask three questions. First, if the main customer disappeared tomorrow, what in the business would still be ours? Second, in whose name are the formula, design, name and licences we sell under? Third, if the product injures a consumer, who is sued first and how do the parties share the cost afterwards? If you cannot answer all three, do not yet expand either model.
1. How OEM, ODM and own brand differ
These are business terms, not legal terms, so what they mean in each contract must be written out.
| Model | Who designs or develops the formula | Who holds the brand | Where law and contract matter most |
|---|---|---|---|
| OEM | The buyer supplies the design or formula; the factory makes to it | The buyer | Confidentiality of the design, quality warranty, incoming inspection, who owns the moulds |
| ODM | The factory already has the formula or design; the buyer chooses and adds its brand | The buyer, but the formula is usually the factory's | Right to use the formula, dependence on the factory, switching factory later |
| Own brand, own manufacture | The owner | The owner | Factory licence, product licence, direct liability |
| Contract factory that also has its own brand | Both | Both | Conflict with OEM customers, restrictions in existing contracts, separating information |
One important point: ODM looks easy for a new brand because you do not develop the formula yourself, but that ease has a price. You depend on the factory for what makes your product different from others, and several sellers may be using the same formula from the same factory.
2. The business trade-offs
The comparison is in words, with no figures, because the numbers differ greatly from business to business.
| Issue | Contract manufacturing (OEM) | Own brand |
|---|---|---|
| Revenue | Fairly predictable from purchase orders | Fluctuates with market success |
| Margin per unit | Usually thinner because the buyer negotiates | Potentially higher, but you carry marketing and channel costs |
| Working capital | Customer may order and pay on agreed terms | You must invest in stock before selling |
| Bargaining power | Low if there is one large customer | Higher if customers remember the brand name |
| Main risk | Customer moves to another factory | Product does not sell, and consumer liability |
| Assets that build up | Manufacturing expertise | Brand, customer base, sales data |
If one OEM customer generates most of the factory's revenue, read One big customer: dependency and concentration risk as well, because it describes the same risk that drives many factories to want a brand.
3. Trademarks: who owns the name being sold
The Trademark Act B.E. 2534 starts from the principle that the owner of a mark is the person who registered it, not the person who designed the logo, not the person who paid to print the boxes, and not the factory that printed the name on the product. Common situations in contract manufacturing are:
- The factory or distributor files the mark in its own name, saying it is "more convenient for dealing with the authorities", and the real brand owner later has to negotiate for a transfer.
- The brand owner has used the name for years but never registered it. Someone else may file a similar mark in the same class of goods first.
- The mark is registered in classes that do not match what is actually sold, so it does not protect goods the brand expands into.
Search for identical or similar names before using one, file in the name of whoever will really own the brand (possibly a company rather than an individual, so the brand is not tied to one person), and choose classes that cover your expansion plans. For the filing steps, see Trademark registration in Thailand: process, documents and timing. For who should own the brand from the moment the company is set up, see Who owns the brand?.
An OEM contract should say that the factory acquires no rights in the brand's marks, names, logos and packaging other than to use them to manufacture for that brand. The factory must not make goods bearing the same or a similar mark for others, and must destroy or return surplus packaging when the contract ends.
4. Formulas and designs: assets nobody registers
Product formulas, production processes and some designs may not sit in any intellectual property register, so protection comes mainly from contract and from keeping them confidential. A common problem is that the buyer believes the formula is theirs because they paid for development, but the contract says nothing, while the factory believes it is theirs because it came up with it, and nothing stops it making the product for others.
Points to include in the contract:
- State who owns each formula or design, separating what the buyer supplied, what was developed jointly and what the factory already had.
- If the factory owns the original formula, what the buyer should get, for example exclusive rights to the adapted version, or the right to have another factory continue production when the contract ends.
- A ban on the factory using a formula developed for the brand to make goods for others.
- Safe storage of the formula and who can access it. If the factory holds the formula alone, provide for a copy to be delivered or deposited with a third party on defined events.
- Moulds, dies and artwork the buyer paid for: who owns them, where they are kept, and a ban on using them for other work.
Disputes over formulas and moulds after a contract ends are usually harder to solve than they are to write down at the start. If one has already arisen, see the guide on switching OEM factories linked above.
5. Licences and notifications: who holds them
For goods that must be registered or notified with a regulator, such as cosmetics, food, supplements and medical devices, the question "who files and who holds it?" affects both liability and the ability to change factory. The specific law for each product type sets who may file and the conditions for the place of manufacture, so there is no single answer for every type.
Broadly applicable points:
- If the licence or notification is in the factory's name, the brand may have to file again when it moves factory, and the product may be off sale while it waits.
- If it is in the brand's name, the brand answers directly to the regulator for what the document says, such as claims and labelling, even though the factory makes the product.
- The place of manufacture stated in the document cannot be changed without notifying.
Specific guides: Cosmetic notification: who should be the holder? and Thai FDA approval for food, supplements and medical devices. Check the latest FDA announcements before you set up the structure, because details change, and our firm handles Thai FDA registration.
6. Product liability: putting your brand on it makes you liable too
The key rule of the Liability for Damage Arising from Unsafe Products Act B.E. 2551 is that an entrepreneur is liable to the injured person for damage caused by an unsafe product, and the injured person does not have to prove the entrepreneur was negligent. The definition of entrepreneur covers anyone who uses their name or trademark on the product. That means:
- A brand owner who commissions manufacture can be an entrepreneur both as the person commissioning manufacture and as the person using its own mark.
- The factory is also an entrepreneur as manufacturer.
- The injured person may sue any of them. How the burden is shared between them is a matter for the contract between the brand owner and the factory.
So a manufacturing contract should not simply say "the factory bears all liability". That may conflict with the law and does not help when a consumer sues the brand. Something like the following is better:
(Sample clause — adapt to the facts)
The factory warrants that the goods delivered are made in accordance with the agreed
specifications and standards. If the commissioning party becomes liable to a third party
because the goods do not conform to the specifications or because of a manufacturing
defect, the factory shall reimburse the commissioning party to the extent the liability
results from that defect. Each party shall notify the other promptly on receiving a
complaint or claim and shall cooperate in the investigation. The factory shall keep samples
and production records of each lot for the stated period.
Support this with incoming inspection, lot numbering and retained samples, so that when a problem arises you can trace which step caused the defect. Where the commissioning party itself specified an unsafe formula, the factory would not be responsible under the clause above, so the scope must be agreed clearly. Whether to take product liability insurance, if available, is a matter for an insurance agent; we do not advise on insurance.
7. Labels and advertising claims
Whoever sells under the brand must make sure the label complies with consumer protection law and the law specific to that product, including advertising claims, even if the factory prints the label. For what a label must show and who is liable, see Product labelling under consumer protection law. The OEM contract should require the commissioning party to approve the label artwork in writing before printing, and the factory must not change the wording itself.
8. If you are a factory that wants to build its own brand
The order we recommend:
- Review every existing OEM contract. Look for terms restricting competition, bans on using the customer's formulas or designs, confidentiality, and any term giving the customer a first right on similar products.
- Decide whether the new brand sits in the same legal entity as the factory or a separate one. A separate company separates assets and liability but adds accounting, tax and inter-company contract work. Discuss with your accountant.
- Separate formulas, customer data and access to OEM customers' information from the new brand, so you cannot be accused of using confidential information.
- Register the trademark and obtain product licences in the name of whoever will really own the brand.
- Notify large OEM customers as the contract requires, or prepare a plan for their reaction, because they may see you as a competitor.
- Transition gradually and do not give up existing revenue, since OEM income is often the cash flow that funds the early brand-building.
9. If you are a brand that uses a factory
- Check in whose name the formula, design, moulds, artwork and licences are held.
- Make sure the brand owner has enough of a copy of the technical specifications for another factory to continue production.
- Have a backup factory that has been preliminarily assessed. See Single supplier or factory dependency: a backup plan.
- Set minimum quantities and notice periods for when the factory stops production or changes prices.
- Set up incoming inspection and keep samples by lot.
10. Checklist before choosing a model
- You can say how many customers generate most revenue, and whether your contract with the largest one prohibits or restricts you from building a brand
- The trademark is registered in the name of the real brand owner, in the classes you sell in and plan to expand into
- The contract states who owns formulas, designs, moulds and artwork, and what must be handed over when the contract ends
- The licence or notification is in a name appropriate to the product type, and the place of manufacture matches the one stated
- The contract has an internal reimbursement clause between brand and factory, plus lot numbering and sample retention
- Labels and advertising claims are approved by the brand owner before printing
- Minimum quantities, notice periods and price change terms are clearly written
- There is a backup factory or a plan to change factory
- If you are a factory building its own brand, you have reviewed existing OEM contracts and separated each customer's information
Further reading
- Switching OEM factory: who owns the formula, moulds, boxes and stock? — what to pull back once you decide to move
- Who owns the brand? — setting up brand ownership when the company is formed
- Trademark registration in Thailand: process, documents and timing — filing steps
- Cosmetic notification: who should be the holder? — the notification holder and the OEM factory
- Thai FDA approval for food, supplements and medical devices — who must file
- Product labelling under consumer protection law — labels and who is liable
- Business models and legal structure for Thai SMEs — overview of the other options
Contract manufacturing or your own brand: the safe answer depends on who holds the trademark, the formula and the licences, not just who earns more per unit. Get those three into the right hands before you expand either model.
We help review and draft manufacturing contracts, set up brand ownership structures, register trademarks and register products for businesses that make or commission goods. For an initial consultation, call +66 92 254 2045 or send us the details. See also trademark registration and Thai FDA registration.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
