Turnkey Project
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 start 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 the Turnkey Strategy, the firm transfers process technology to 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 sells its 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.
➨ The 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.
References
- Turnkey project; Definition | Law Insider. (n.d.). Law Insider. https://www.lawinsider.com/dictionary/turnkey-project
- Turnkey Project Advantages and Disadvantages: What to know before signing a contract. (n.d.). https://www.hm-ec.com/blog-posts/turnkey-project-advantages-and-disadvantages-what-to-know-before-signing-a-contract-hm#:~:text=A%20turnkey%20project%20is%20a,from%20detail%20engineering%20through%20construction.
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MBA,BBA.
I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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