ODM and EMS - shall the twain ever meet? Not likely

Every benchmark study of the EMS and ODM industries that Technology Forecasters has conducted in recent years reaches the same conclusion: The ODM sector generally outperforms the EMS sector. This year's study is no different -- even when we reclassify all HonHai's ODM business as an EMS play. This raises the obvious question: Why? The short answer: Because there are fundamental structural, operational and cultural differences between the two sectors. Most ODMs are Taiwanese, and started in the ODM business - creating their own IP for end products - and only recently have tried to move into the EMS model. Most EMS companies are North American or European and started in contract manufacturing, where the Golden Rule is, "Thou shalt not compete with thine customer." When EMS companies develop products like an ODM would, OEMs see a conflict of interest. The same OEMs do not see conflict of interest when they sign up the ODMs. Is it possible for EMS providers to morph into ODMs? Some have tried, but it's doubtful that this will work in the long run. For one thing, ODMs tend to have more tightly integrated relationships with suppliers than EMS companies. ODMs often have minority or majority stakes in their suppliers. Hon Hai is an extreme example of this, but the others have tight relationships, too. To boost their margins, EMS players may be better off focusing on offerings in services like design support, logistics and repair, and staying away from the IP business. In these areas, they have an advantage over the ODMs. Many ODMs have not found the EMS model easy to adopt. BenQ, for example, has struggled since acquiring Siemen's cell phone factory in Germany two years ago. ODMs face their own challenges in becoming more like EMS companies, and vice versa. What are your thoughts?