Restructure specialist suggests JV partnerships to revive sick industries

Many industries in Sri Lanka are ‘sick’ and several of them have closed down.Various representations have been made to the authorities but no action has been taken. Over the years warnings have been given to the authorities to rehabilitate or review viable, sick and closed industries, and also to take necessary steps to prevent further industries going against the wall. Many industries have fallen sick or closed down due to reasons beyond their control.

These reasons include inability to compete with cheap imported products, import of second-hand products- furniture, electrical goods, raw materials having higher rates of duties than finished goods, in some cases ad hoc policy changes, under invoicing imported goods, unsettled conditions in the country, comparative disadvantages with competing countries like higher interest rates, more holidays, lower technology, lower productivity, higher cost of raw materials, lack of skilled managers and other staff, and regular foreclosures of enterprises by parate executions by banks.

Speaking to The Sunday Times FT, Winston Pathiraja, CEO of the Industrial Restructuring Consultancy (IRC) of Sri Lanka which is actively involved in consultancy services aimed at transforming sick industries/enterprises into viable and sustainable ventures, said that the only way these sick industries could be saved from becoming defunct is to strategically attract FDI in the form of joint venture partnerships, mergers, conglomerates, strategic alliances, acquisitions, franchising, licensing, etc.

The IRC under its Industrial Restructuring Exercise has the capacity, proven skills and expertise and competency to bring about healthier solutions through its links with International Business Partnering Opportunities (IBPO). The most prominent, popular and advantageous tool is the joint, venture partnership, especially in the current economic and political scenario of the country in which the industrial sector is placed, he said. Today in the current scenario around 40 to 50 percent of the industries/enterprises are falling sick and around 10 to 20 percent are becoming defunct.

He added that the joint venture partnerships if successfully and strategically arranged, will transform most of the sick industries/enterprises into viable and sustainable ventures. The joint venture partnership with an international collaboration will bring in the necessary foreign market, advanced technology, R and D facilities, modernized and sophisticated machinery for economies of scale production, value addition process, etc.

This will give a boost to industries and enterprises, on the verge of collapse, to be transformed into viable and sustainable ventures.

This transformation can be both industry-specific and firm-specific. He was also of the view that even locally joint-venture partnerships, mergers and acquisitions could be widely practiced to prevent industries/enterprises falling sick and becoming defunct.

The successful completion of a joint-venture partnership involves a negotiation process to be carefully executed in constant consultation and discussion with either party in order to reach an agreement considering the plus points put forward by either party with factual information. The share of profits is based purely on the outcome of the negotiation process and once the deal is finalized, either party commences fulfilling their obligations under the agreement. Management and operations of the newly created joint venture partnership are shared by either party on the basis of their shareholdings.

He added that the partnerships will be able to function independently without looking for help from governments which are wittingly or unwittingly saddled with more complex issues. Pathiraja also said that there is no need to privatize public corporations as they could be transformed into viable ventures through strategically sourcing international joint venture partnerships.