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Copy of Nora-Sakari

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on 13 August 2013

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Transcript of Copy of Nora-Sakari

Nora-Sakari: A proposed JV in Malaysia

Blake Butler
Ha Sook Kim
Chun Li
Kindra O'Connor
Chris Okeke
Lesa Theurer
Stephen Zornes
Nora Holdings

Founded by Osman Jaafar (1975)
One of leading telecom industries in Malaysia
30 subsidiaries
Approx. 3,000 employees
Nora Holdings past businesses include:

Sole distributor for Nortel's private automatic branch exchange
NEC's mobile telephone sets

Nora's Distribution activities include:

Radio related Equipt

Supplying Equipt to:
civil aviation
postal/power authorities
manufacturing auto parts for local auto companies

2003 - Nora entered into contract with Telekom Malaysia Bhd.

Purpose - To supply digital switching exchanges to aid in providing 4 million telephone lines

Nora would need to negotiate an alliance with reputable partners in order to fulfill this obligation (Sakari Oy)
Sakari Oy

Located in Finland

Leading manufacturer of cell phone sets & switching systems

Nora seeking Sakari as a partner to fulfill TMB contract

Have been negotiating for two years without coming to an agreement
Question #1 - Part #1

Why have negotiations so far failed to result in an agreement?

Is the formation of the joint venture between Nora & Sakari the best option for both companies to achieve their respective objectives?
May 21, 2003 - 1st Meeting

Cultural Differences

Finland's negotiations team was:
Serious, reserved and cold
Lack of facial expressions

United Kingdom Contract
Group 1 vs Group 2
July 8, 2003 - 2nd Meeting

Equity Ownership
Technology Transfer
Royalty Payment
Expatriates' salaries and perks
Equity Ownership

Paid up capital of RM5 Million

-proposed 49/51 split

-proposed 70/30 split - historically common practice
Technology Transfer & Royalty Payment

Technology Transfer:
Sakari provide basic structure of their digital switch

Nora wanted "access to root of switching technology"

Royalty Payment:
Sakari proposed 5% of JV gross sales

Nora proposed 2% of net sales
-Need to keep desired 10% ROI
Expatriates' Salaries & Perks

Nora asked Sakari to provide necessary training for JV employees
Sakari agreed with stipulations
- Short term basis experts receive $1,260/day plus travel exp.
- Long term experts receive $20,000/month

- Response: not comparable to industry rates
- Proposed own salary ranges and perks

Agreed to negotiate further disputes; Did not agree on location

Sakari wanted Helsinki
Nora wanted Kuala Lumpur
End of meeting

Both parties extremely upset
Nora solved a few issues by consulting Zainal
Sakari had to bring many issues to the board
Question #1- Part #2

Is the formation of the joint venture between Nora and Sakari the best option for both companies to achieve their respective objectives?
In a successful joint venture:

Nora would benefit from the technology transfer, and an opportunity to learn from Sakari's previous successes.

Sakari would acquire knowledge and gain access to the markets of South-east Asia.

With respect to joint venture formation, the achievement of their respective objectives is still very debatable
Disparity in culture

Has proven to be a significant barrier when it comes to:

Knowledge flow
Task Assignments
Conflict Resolution
According to Geert Hofstede

1) There are different cultural dimensions that are stronger or weaker for various countries

"In partnership selection, there should be some comparable characteristics, and a great amount of comfort as well as competence. These values will help the business flow seamlessly."

A JV will help 2 countries reduce competitive intensity and essentially exclude potential conflict

The alliance will build a complex, integrated value chain that can act as barrier

Leverage complementary skills and resources
"A key to successful alliance building lies in defining as simple and focused, a scope for the partnership as is adequate to get the job done but retain at the same time the possibility to redifine and broaden the scope if needed."

(Bartlett & Beamish, pg. 520-521.)
As Zainal, what would you do to ensure that Nora fulfills the TMB contract?
Question #3

If Zainal decides to renegotiate (and assuming Kuusisto agreed), how should he restructure the terms of the deal?
If the two companies are able to form an alliance:

1) Potential to secure significant revenue

2) Recognize Sakari is an expert digital switchboard producer

3) Recognize Nora is a successful company in Malaysia

4) Technology expertise paired with market expertise
The terms can be restructured as follows:

Equity ownership:
Nora should assume the task of managing the project more directly
Regulations set by the Malaysian government (30-70 foreign-Malaysian)
Sakari should not be granted 49% of ownership

Technology Transfer:
Nora should agree to Sakari's proposal
Developing a new R&D subsidiary

Royalty Payment:

Nora should insist on its proposal
Sakari could accept Nora's proposal of 3% net sales ensuring its 10% ROI

Salaries & Perks

Living in Malaysia vs. a typical European city
Remain as tabled by ASakari
Justifies paying the experts according to Sakari's proposal

Meet at an unbiased territory

Periodic meetings that alternate between each location

Sakari needs to be more considerate of their business partner
Question #3 - Part 2 & 3

Explain the options available. Advantages and disadvantages for the two parties?
To complete the TMB Contract
Option 1. To Accept Sakari's Proposals and Compromise Nora's Interests
Option 2. To Seek a New Partner
Available Options
Advantages & Disadvantages for the 2 Parties?
Main Conflicting Issues

Cultural Differences
Equity Ownership
Technology Transfer
Royalty Payment
Expatriates' salaries/perks
If JV would become successful..

Nora would benefit by gaining:
Technology transfer

Sakari would benefit by gaining:
Access to SE Asia
We feel it is POSSIBLE to build a strong partnership
If they can reconcile their differences and focus
on each other's strengths
Nora has a few options

1) Take Sakari's offer
2) Try to renegotiate
3) Seek new partners

We choose #2
(Nora is in a bit of a bind, may have to choose #1 if they won't budge due to time constraints)
If Zainal did get an opportunity to renegotiate they should:

1) Restructure by offering 49% ownership to Sakari
2) Agree to Sakari's tech transfer of basic digital switching
3) Insist on a 2% net sales for royalty
Unless they can guarantee 10% ROI at 3%
4) Salaries s/b indexed at Malaysia's cost of living
5) Accept Sakari's offer for perks
6) Alternate arbitration locations of settle for unbiased territory

Question #2
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