How SKD works
The SKD process involves exporting products that are partially assembled, with the final assembly taking place in the importing country where the products will be sold. Unlike shipping complete finished goods, manufacturers send incomplete products and component kits abroad to trading partners or subsidiaries. These kits can be supplemented with locally produced components to achieve stronger integration and meet regulatory requirements.
Key benefits for manufacturers
Companies adopt SKD strategies for two primary reasons. First, it allows them to benefit from lower customs fees compared to what would be applied to fully finished products. Second, the incomplete products and spare parts are assembled using cheaper local labor in the destination country, significantly reducing overall production costs.
This industrial practice is typically encouraged through preferential agreements from developing countries seeking to develop specific industries. These governments offer favorable conditions to attract foreign investment and create local employment opportunities.
SKD vs CKD
SKD is a variant of CKD (Complete Knock Down). The main difference lies in the degree of disassembly: CKD involves shipping all parts required to assemble a product, while SKD involves fewer components with less integration needed. In SKD, products arrive in a more advanced state of assembly compared to CKD.
Conditions and requirements
To take advantage of preferential fiscal and customs regimes under SKD arrangements, manufacturers must meet several conditions. They must achieve a minimum rate of integration of products in the recipient country and make substantial investments while creating jobs locally. Import/export quotas for SKD and CKD kits are often applied to ensure these requirements are met.
Practical application
In practice, the SKD export strategy requires efficient management of inbound logistics and transport operations, including collection of components from suppliers and potentially partial disassembly of products before shipment to the destination country.
