Our team decided on the case study titled “Nora-Sakari: A Proposed JV in Malaysia” by the Richard Ivey School of Business (The University of Western Ontario) because of its interesting content and as a team we feel that this particular case is very informative because it coincides with the material learned in International Business MGMT 650 and provides a great deal of insight into the internal activities of developing, negotiating, and the attempting to facilitate a joint venture between a local business and a foreign entity. Our team has analyzed the details surrounding this particular case and look forward to providing a full analysis of the case, which includes a summary of facts, statement of assumptions, analysis of the situation and summary of problems, plan of action, alternative options, and other solutions that may be viable in this the circumstance of the case study.
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In particular this case study involved three parties: Nora Holdings SDN Bhd, Sakari Oy Company, and Telekom Malaysia Bhd, though the latter had little involvement except for providing the capital for the initial bid and deciding on the winning bids. In 2002 Telekom Malaysia Bhd (TMB), the national telecom company of Malaysia, was given the authority by the Malaysian government to develop the country’s telecom infrastructure. Telekom Malaysia Bhd did not possess the technology and expertise to take on a project of this magnitude. For these reasons TMB called for tenders to bid on a five-year project worth RM2 billion (6,305,000.00 $USD) for installing digital switching exchanges in various parts of Malaysia.
The final objectives of this project would be as follows and were in line with the Malaysian government’s Vision 2020:
1. Invest in the digitalization of its network in order to offer services based on the ISDN (integrated services digitalized network) standard;
2. Invest in international fiber optic cable networks to meet the needs of increased telecom traffic between Malaysia and the rest of the world; and
3. Facilitate the installation of more cellular telephone networks in light of the increased demand for the use of mobile phones among the business community in the capital of Malaysia (KL) and in all major cities and towns in Malaysia.
Background information on parties involved
Nora Holdings Sdn Bdh
Nora Holdings Sdn Bdh of Malaysia was established in 1975 with a paid-up capital of RM2 million. Nora became a leading company in the telecom industry in Malaysia and consisted of 30 subsidiaries including two public listed companies: Multiphone Bhd. And Nora Telecommunications Bhd. Nora employed 5,669 employees and since its establishment gained experience in cable-laying projects; manufacturing telephone handsets; installing, operating, and maintaining payphones in the cities and major towns of Malaysia; and distributing Apple computers; distributing radio-related equipment; supplying equipment to the broadcasting, meteorological, civil aviation, postal and power authorities in Malaysia and; manufacturing automotive parts.
Sakari Oy of Finland was established in 1865 and began as a pulp and paper mill production company. In the 1960s Sakari expanded into the rubber and cable industry. In 1975 Sakari entered into the computers, consumer electronics, and cellular phones industries via a series of acquisitions, mergers and alliances. In 1979, a JV between Sakari and Vantala, was set up to develop and manufacture mobile telephones and gained a large percentage of the world, European including the United Kingdom, Malaysian, and Thailand market for the production of mobile phones and mobile phone handsets. In using the technology gained from their previous acquisitions and working experience, Sakari Oy gained an edge and distinct advantage in the telecom industry by selling switching systems licensed from France’s Alacatel and by developing the software and systems to suit needs of small Finish phone companies. In order to avoid competition, Sakari concentrated on developing dedicated telecom networks for large private users such as utility and railway companies.
In 2001, Sakari was Finland’s largest publicly-traded industrial company and derived the majority of its total sales from exports and oversea operations. However, in recent years the company made efforts and succeeded in globalizing and diversifying its operations to make the most of its high-tech capabilities. As a result, Sakari emerged as a more influential player in the international market and had gained international brand recognition. One of Sakari’s strategies was to form JVs to enter foreign markets. Sakari attributed its emphasis on R & D as its key success factor in the telecom industry.
Summarization of Events
In January 2003, Nora Holdings SDN Bhd submitted its bid for TMB’s RM2 billion contract to supply switching exchanges supporting four million telephone lines with the assumption that the Nora-Sakari JV would materialize by the time they would begin operations. Nora was one of seven companies short listed by TMB. Each company was awarded one-fifth share (1,261,000 $USD) of the RM2 billion (6,305,000.00 $USD).
Nora felt that was eager to secure this bid because of both the financial gain, but most importantly it was due to the added benefit of acquiring the knowledge in switching technology from its partnership with a telecom Multi-National Cooperation (MNC). Specifically Nora was interested in Sakari Oy for the following reasons:
·€ Sakari’s technical knowledge and expertise – Sakari’s SK33, a digital switching system, which enabled the use of standard components, standard software development tools, and standard software languages.
·€ Components of the SK33 could easily be found in the open market.
·€ SK33 was a modular system, its software could be upgraded to provide new services and could interface easily with new equipment in the network, and eventually lead to the development of new switching devices.
·€ Flexibility in production – Sakari’s smaller size enabled them to develop/produce customized products according to Nora’s needs, while in contrast large telecom companies were less will to provide custom-made products; instead they offered standard products that were inconsistent with the needs of the customer.
Sakari Oy was interested in this prospect because it would enable them to begin operations in a new market, specifically the Asian-Pacific market. Following the award of the bid Nora and Sakari Oy sent their respective teams to apeak with each other because of the initial concerns that each party had about one another.
1. Nora’s capability in penetrating the south-east Asian market.
2. Sakari’s concerns over the efficiency of Malaysian workers in the JV in manufacturing the product, maintaining product quality and ensuring prompt deliveries.
Nora and Sakari Oy met 20 times for the period of a year. The key points of negotiation were equity ownership, technology transfer, royalty payments, expatriates’ salaries and perks, and arbitration. In the section “Analysis of the situation” our team will discuss the specific negotiation points outlined in the case study and provide suggestions as to what each party could have done, followed up with alternative actions that Nora could possibly do to simply complete the task and find a viable partner to enter a joint venture with. Below is a list of the reasons as to why the negotiations did not materialize into a joint venture:
1. Difference in cultures;
2. Difference in management styles; and
3. Inability of both parties to compromise on key issues;
PART II: STATEMENT OF ASSUMPTIONS
PART III: ANALYSIS OF THE SITUATION AND SUMMARY OF PROBLEMS
(start of miniru’s section)
Analysis of Situation and Summary of Problems
Analysis of Situation
The situation in the case is that the Nora has obtained a contract to from TMB, and needs a collaborator to help fulfill the agreement. To ensure fulfillment of the terms within the TMB contract, a joint venture agreement with their first choice, Sakari, must be successfully negotiated. The negotiation process has broken down due to the disagreement over numerous issues concerning the development of a joint venture. The overall issues for this breaking down of the negotiation process are that they both have different objectives, conflicting underlying goals, and cross cultural mis-communication issues. The disagreements of objectives are based in the areas of equity, technology transfer, royalty payments, and expatriate issues. The underlying goals of both of the companies are focused the futures of both companies. Nora hopes to possess the Sakari’s technology, help the development of its country’s infrastructure, generate profit, and becoming player in South East Asian market. Sakari main goal is to move into the Asian due to market potential growth at the lowest cost possible. Also, both companies have failed to realize that cultural communication issues are playing a major role in how the negotiations are being conducted.
Individualism is the one side in opposition to its opposite, while collectivism is the extent to which individuals are incorporated into groups. Malaysia has a much great focus on the group with a rating of 63 on the Hefstede’s matrix in terms of how individualized the population is. This result would mean that Malaysia is a high context society where leadership within the group is of extreme important. The case states at one point the top Malaysian managers did not attend some of the negotiations, namely the very last meeting before the process broke down. Without top management involved, lower level Malaysian managers within the negotiation process may have felt weaken by the loss of their leadership. We find Finland on the individualist side with a score of 26. Societies such as Finland’s we find that people are more focused on the development of individualistic persona and skills. This led to Finnish management team relying less on leadership and more on the ideas of each other being applied within the negotiation process. The result of this methodology being applied to the negotiation process led to one of their employees being sent home and possibly intimidating the leader-less Malaysian management.
From Noras perspective, accepting the terms proposed by Sakari enables it to fulfill the TMB’s contract. Furthermore Nora does not have to search for other companies and in essence start from scratch all over again. However, an obvious disadvantage is that some terms are not favorable to Nora.
Option 2: Terminating the negotiations
From Nora’s perspective, terminating negotiations would mean starting all over from scratch. It will take time for it to find another right partner, to enter into negotiations with it and to then plan and form a JV with the chosen partner. Time is already running short as under contract, Nora is obliged to install the digital exchanges in five years. The lack of time may also affect the choice of partner Nora makes in the future and that choice may not be the best one and best suited to the requirements of the company. There is also the possibility of the worst case scenario coming to pass whereby Nora fails to come to any agreement with the new chosen partner during the negotiations phase. The choices available to Nora are not as attractive since the solutions offered by companies other than Sakario aren’t as customized and hence serve not only urban environments but also rural ones. The solutions offered by companies other than Sakari are apparently not that adaptable and compatible either.
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