Turnkey projects meaning
Turnkey Project is one of the strategies (mode) of entering into the foreign market by the firm. In a Turnkey Project, the firm agrees to design, construct, train personnel and startup turnkey plants for the foreign client. After the project is completed by the firm, it is handed to the foreign client .With the use of Turnkey Strategy, the firm transfers’ process technology to the foreign countries.Turnkey projects are those that are designed, developed, and equipped by a company. Upon becoming ready to operate, it is turned over to the buyer. Turnkey projects are of course built for the cost agreed upon in the contract by the company developing them. Turnkey projects are designed, fabricated, installed, supported aftermarket and technical serviced by the company.
Turnkey Projects Examples
The following are the examples of the industries that are mainly involved in the turnkey projects.
• Chemical Industries
• Pharmaceutical Industries
• Petroleum Industries
• Metal Refining Industries
Advantages of Turnkey Project
- Very useful strategy for earning a high economic return from the asset.
- This strategy is also useful in countries where there are restrictions imposed for Foreign Direct Investment (FDI) by the host government.
- Turnkey Projects are less risky (risks of nationalization or risk of economic collapse) than conventional Foreign Direct Investment (FDI).
- Risk and uncertainty are reduced
- Completion of projects faster
- Improved efficiency and reduced costs
- Responsibilities and accountability are centralized
- Controlling quality and managing projects better
- Coordination and management of projects are reduced
- Collaboration between stakeholders and improved communication
- Ensure that core business activities are prioritized
- Resources and expertise are no longer required in-house
- The ability to expand or modify the system in the future with increased flexibility.
Disadvantages of Turnkey Project
- The firm entering into the turnkey deal will have no long term interest in the foreign country.
- The firm that enters into the turnkey project with the foreign enterprise may inadvertently create a competitor.
- The firm who sell their process technology (that is a source of competitive advantage to them) means selling competitive advantage to the competitors.
- The design and layout of turnkey projects are often predetermined, which limits customizing the project and making changes to meet the needs of the client.
- Dedicated turnkey projects require the contractor to handle all aspects of the project, making it essential for the client to depend on the contractor for timely and cost-effective delivery.
- Contractor manages the construction process on behalf of the client, who has little control over the day-to-day operations of the project.
- During construction, unexpected challenges or complications can lead to cost overruns on turnkey projects.
- A turnkey project limits the client’s ability to negotiate the terms of the contract and the project’s price.
- Change management is limited with turnkey projects, as the contractor is responsible for delivering the project in accordance with the contract terms.
- It is the contractor’s responsibility to deliver the project to the specified standards, so the client has limited control over quality.
- The contractor is liable for any defects or issues that arise during the building process, which limits the client’s ability to hold the contractor accountable.
Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets?
Which of the following statements is true of turnkey projects?
Which of the following is an advantage of turnkey contracts?
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