An exclusivity clause that benefits a contract manufacturer is quite different. A typical exclusivity clause for a manufacturer will prevent the trademark holder from using other manufacturers for a certain period of time, but could only apply to one product in the brand owner`s product line; for manufactured products and any extension of this product line; or could apply to all current products of the trademark holder at the same time as any product developed by the brand owner in the future. Often, the exclusivity period lasts for the duration of the contract and the trademark holder may be granted a limited right to use other manufacturers when the mandated manufacturer is unable to comply with its legal obligations. Although the introduction of a brand is not a trivial undertaking for a contract manufacturer, a brand identity based on CM`s production progress would have immediate credibility. In addition, a CM working for several OEMs has experience producing a wider range of products than most of its customers, allowing him to focus on the most profitable production. And its cost structure does not necessarily bear the burden of investing in research and development. If the product of an equipment is not new and unique, its level of innovation, complexity and maturity in the market should determine the duration of the relationship between the CM and the OEM. If the novelty and complexity of a product requires a CM to devote time and other resources to mastering its manufacture, the CM needs a long-term contract to make these investments. A long-term contract will also protect the OEM`s own investments in CM`s control of the production process. In situations where the OEM product is new and complex, it becomes almost impossible for the OEM to quickly find a replacement CM.
Therefore, a long-term contract becomes valuable because it also prevents the CM from abandoning the OEM or extracting prohibitive conditions as a residual price. An additional reflection for an OEM is what a CM will do with the intellectual property of the OEM if the two parties are no longer legally linked to each other. Treaties developed to anticipate and deal with such contingencies cannot help but be complex themselves, although the costs and difficulties of preparing them are justified by the seriousness of the interventions. Contract manufacturing involves the equipment manufacturers` own intangible assets. A CM can use, for the benefit of his own brands, the knowledge acquired in the course of his work for a specific OEM; or the CM may (legally or not) transfer this knowledge to other customer OEMs. Such leaks can occur even if the CM assembles only components of others: three-dimensional scanning, computer-aided design and computer-aided manufacturing allow companies to copy components that may have taken years. The potential for abuse is high. CFM International, for example, a joint venture between General Electric and French manufacturer SNECMA, which manufactures parts for aircraft engines, has had to deal with repair and overhaul operations in the United States that have purchased counterfeit parts. Of course, OEMs can go to court, ban or lobby. But none of this is a panacea. The outcome of a dispute is uncertain and can only happen after years of costly litigation.
Meanwhile, profits continue to fall. Convincing other members of the industry to avoid the insulting CM also takes time, certainly faces opposition and may not object to the law of cartels. As globalization expands, the interventions of individual governments become less important. In any case, OEMs need CMs to specialize more, create added value and remain competitive.