When a firm looks to complete a joint venture, it is necessary to determine what type of exit strategy (or strategies) would be appropriate. This strategy allows the company to leave the agreement without facing extreme los, and it also allows the business to maintain the respect that they had gained in the industry already. In the proposed joint venture with the Murakami Mill in Japan, the risks have already been detailed, and it seems that the venture will be profitable to both parties. However, it would be irresponsible not to look at possible plans to leave the venture if it is not acceptable for some reason. In this section, exit strategies including divestiture of assets, allowing a joint venture partner to take the risk, diversification, shutting down the operation and other contingencies will be examined.
Divestiture of Assets
The goal of entering into a joint venture such as this is so that both companies will have a better financial outlook when it is over. Murakami wants to be able to sell more of its products, and the venture is attractive to the foreign investor because it gives them a local company to work with. Although there are a multitude of risks associated, it is possible that this venture could be completed in such a way that both parties come out of it in a better financial position. However, there is a possibility that the goal will not be accomplished and that the agreement will have to be struck. In that eventuality, divestiture of those funds that were committed to this venture could be necessary.
The reason for using this strategy is that it would allow the firm to move funds that were previously committed to the venture with Murakami to other ventures or other parts of the business. The goal here would probably be to sell the stake in the business back to Murakami. The reasons for the divestiture could be that the risk has become too great or that Murakami wants a greater stake in the business than was previously agreed. Whatever the reason, this type of plan would allow Murakami to continue with the plan, and allow a graceful exit also for the team.
Another reason that the team may determine that divestiture is valid is that the value of the partnership to another company is greater than it is to the team. If this is the case, it may be more profitable to divest and allow another party to take over (Smiley & Mason, 2008). This form of divestiture will be looked at in more detail later.
Joint Venture Partner
A joint venture partnership is established when one party does not have the capital required to adequately compete in a market or finance a venture that they have agreed to. It has already been established that the team might not be able to reach the favorable agreement needed with Murakami based on the capital that is presently being considered. If it is the case that Murakami needs both parties to put up more money than the original agreement called for, it might be possible to agree on a joint venture partner that could relieve the team of some of the financial burden.
Basically the purpose would be, according to Allen (2010), to form a "strategic alliance where two or more parties, usually businesses, form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits." Since it looks like this venture will be profitable, it would behoove the team to complete it if possible. The reason that this is being considered with the exit strategies is that it allows the venture to go forward, but the team does not have to commit the resources that would have originally been thought necessary to complete the deal. It will be possible to enlist the capital from another small firm to make it both profitable and possible for both. This exit strategy would not completely divest the team of the agreement, but it would allow the team to complete the transaction as written and still maintain as large a stake in the business, with the new partner, as they had originally agreed to. In other words, Murakami would not be able to demand 75% because the team could not come up with additional funds that were now thought to be needed.
According to Kotelnikov (2010), "The two principal objectives of diversification are improving core process execution, and/or enhancing a business unit's structural position." In this case, improvement of core processes is a secondary goal, but diversification could be needed to increase a structural position. This means that if the company is being harmed as a whole by the agreement with Murakami, then they may need to diversify to strengthen the core business of the team. This can be done in one of several ways.
The company can diversify along the value chain (Kotelnikov, 2010); meaning that the company would look into the suppliers it uses for goods to reduce its overall cost. The reason that the team may need an exit strategy in the first place is that the agreement is not meeting the goals that were originally set. By looking at the value chain for diversification possibilities, the team could make sure that both they and Murakami were getting the most out of their agreement.
Another method of diversification is horizontally which involves moving into a new industry. As a means of exiting the agreement made between Murakami and the team this could be a necessary solution. Horizontal diversification allows both companies to find new partners for new ventures. Murakami could partner with someone else in the venture first set in motion be the team, and they could look into other ventures that had less risk to them.
The third way that the team could diversify is to look into new markets for their products which is called geographical diversification (Kotelnikov, 2010). This may be the best exit strategy if the team is trying ways to minimize the risk that could be a result of this venture. Although Japan has one of the largest economies in the world, there is always the possibility that the country could experience either a bank crash like they had in the 1990's or they could face a nationally crippling natural disaster like they did in the Spring of 2011. Of course, either can, and has, happened to other countries, but it seems that Japan had a much more difficult time handling these emergencies than other industrialized nations have. That could mean that the venture between the two entities is doomed because there is no longer a market for the product. Geographical diversification means that the business is spread out over several regions or states to ensure the continued revenue stream. One of the major dangers to the team is that this venture will cause investors to leave. Because "The fundamental role of diversification is for corporate managers to create value for stockholders in ways stockholders cannot do better for themselves" (Kotelnikov, 2010). Investors look to the managers of the companies that they invest in to have the knowledge and foresight to make profitable decisions.
Shutting Down the Operation
Of course another exit strategy is that the two partners agree that the venture is not working and they shut it down by mutual decree (Carroll, 2012). Of course, the parties could agree to sell the venture to another firm or firms. However, that would take time during which he venture could be losing even more money and cause the investors even more financial strain. The best move may be to just leave the company, and try again. It is not the best solution because both parties would lose their initial investment, but if the risk or losses become too great, it may be the right thing to do.
Other Possible Exit Plans
There are actually as many types of exit plan as can be devised. A corporate partner in a joint venture such as this one is only bounded by the laws of the country in which they are doing business. Of course, the exit plan would have to be agreed to by both of the partners, but if the goal is to make more money for investors through this agreement, then it may be best to make sure that a solid plan is in place from the start.
Several more solutions present themselves that could be viable if the venture is making money, but it is not recouping losses fast enough or if the risk becomes too great. Many private ventures will become IPO's if more money is needed. This is only possible if the venture is between companies that are not already publicly traded. But the principle is the same if the partners are just looking for new investors without offering the stock up to the public (Robbins, 2012). One strategy that another company has used and is suggested by business guru Robbins…