MID-TERM EXAM: Nora-Sakari: A Proposed JV in Malaysia

Introduction:
This case, set in 2003, involves setting up of a joint venture (JV) between a Malaysian company,
Nora Holdings Sdn Bhd (Nora), a Malaysian company, and Sakari Oy (Sakari), a conglomerate
from Finland. Nora is one of the leading suppliers of telecommunication solutions in Malaysia
while Sakari has expertise in mobile phones, digital exchanges, is a niche player in the global
switching market, and has a major share of the Finnish mobile market. Nora submitted a bid for
tenders that were floated by Malaysias national telecommunication company, Telekom Malaysia
Bhd (TMB), to develop the countrys telecommunication infrastructure to align with the
governments Vision 2020 program. TMB neither had the technical know-how nor the
expertise to take on the massive infrastructure project.
Nora was one of the seven companies short-listed by TMB to install digital switching exchanges
in various parts of Malaysia to support four million telephone lines. It needed the JV with Sakari
to ensure it could meet the obligations for the TMB contract, learn from their success, and
replicate their model in the Malaysian market. It had government ties, had won a part of the bid,
wanted to enter the South Asian market piggy backing on Sakaris technology, and above all, had
knowledge of the Malaysian market. Sakari, on the other hand, wanted to enter the Asian market
because of the opportunities it offered, and had technology that Nora was looking for. The
negotiations between Nora and Sakari included twenty meetings and each side had invested not
less than RM3 million in securing the JV. The following personnel participated in the
negotiations:

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

Sakari: Ossi Kuusisto (VP), Junttila, Ghazi (Senior Manager), Aziz (Manager), three engineers,
and Julia Ruola (lawyer).
Nora: Zainal Hashim (Vice Charirman), General Manager for Corporate Planning Division, an
accountant, two engineers, and Marina Mohamad (lawyer)
Problem & Issues Identification:
Many problems occur when companies begin operating globally. These include significant
differences such as business ethics, distribution channels, culturally embedded value systems and
legal regulations. These differences often require the marketing strategies, product features, and
operating procedures to be customized to best match conditions in the target country. The issues
which stalled the negotiations on the JV between Nora and Sakari stemmed from the following:

Cultural differences both parties were not prepared for the culture shock:

Different management styles and work ethics

Intransigence on part of both parties on key issues, which were

o Equity ownership
o Technology transfer
o Royalty payment
o Expatriates salaries and perks
o Arbitration
EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

The other sub-issue was that both Nora and Sakari were not prepared for negotiation
planning.

Analysis & Evaluation:

Cultural differences both parties were not prepared for the culture shock:
o Nora instilled Islamic values in its workforce, which focuses on relationships;
assumed Finns were like Americans who tend to be open, enthusiastic, and
responsive; dealt with their Finnish counterparts in the same way as they had with
North American and European counterparts.
o Finns are perceived as cold, aloof, obstinate; focused on individualism; prefer to
be silent; in fact, due to the aggressive nature of one of the team members led the
Nora team to ask him to leave
Alternatives: Both the companies should have attended a class or seminar in
communication across cultures and cross-cultural negotiations and decision
making. This would have exposed them to the other parties culture, work ethics,
and would have removed communication gaps and misconceptions.

Different management styles and work ethics

o Malays favor centralized decision making and depend on the main lead. Zainals
absence from the meeting on July 8th, 2003, could be the reason for the breakdown

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

of the negotiation process. Noras management, led by Zainal, had zeroed in on

Sakaris technology, and did not oppose the decisions made by him
o Finnish work culture provides for greater equality between members of the
organization resulting in greater opportunity for employees to participate in major
decisions; also provides them opportunity to strongly disagree with decisions that
are less beneficial for the company
o The two companies did not pick the right team for negotiations
o There was no support from Sakaris main office for the deal there were two
camps, and one of them wanted to focus on the European/ UK market.
Alternatives: Both the companies should have picked good teams and should have
appointed a chief negotiator at the outset of the JV formation process. Kuusisto
should have taken Sakaris HQ into confidence about the JV, and addressed all
concerns of the camp that wanted to focus on UK/ EU. They should have had
BATNA defined.

Intransigence on part of both parties on key issues, which were

o Equity ownership: both sides agreed to the JV with an initial investment of RM 5

million, but didnt like the equity share proposed by the other side. While Sakari
suggested 49 -51 percent split between itself and Nora to control the JV, Nora put
forth a 70-30 split between itself and Sakari based on the historical foreign equity
regulation set by the Malaysian government

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

Alternatives: Nora should have been flexible and offered 35 40 percent of equity
stake to Sakari to alleviate any doubts.
o Technology transfer: Nora proposed that the development of the basic structure of
the switch take place at the JV company so that it could access the root of the
switching technology. Sakari, to protect its intellectual rights, proposed to provide
the basic structure of the digital switch and assemble the switching exchanges at
the JV plant and then install them at required locations
Alternatives: Sakaris proposal of assembling the switch for the TMB contract at
the JV is a good alternative.
o Royalty payment: Sakari suggested a royalty payment of five percent of the gross
sales from the JV; Nora proposed a payment of two percent of the net sales
Alternatives: There was no discussion by the two parties on this issue.
o Expatriates salaries and perks: Sakari proposed daily rate of US $1,260/day for
short-term employees and US $20,000/day for long-term employees. Nora
proposed short-term rate of RM 1,170-1,350/day and long-term rate of RM
20,700 - 27,900/month based on experience.
Alternatives: Nora reached a point of take-it or leave-it when Sakari came up
with exorbitant amounts (according to them). Though this was uncalled for,
Nora had clearly researched the cost of living in Malaysia, and offered a package
that was fair and matched those of other expatriates working in Malaysia.

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

o Arbitration: Both parties agreed that arbitration should be pursued in the event of
a dispute, but didnt agree on the location. While Sakari insisted on Helsinki,
Nora wanted any arbitration to be held in Kuala Lumpur.
Alternatives: Both firms should have agreed to a neutral place for negotiation. It is
not clear from the Case if this was considered by either of them.
o The other sub-issue was that Nora and Sakari were ill prepared for negotiation
planning.
Alternatives: JV negotiations should accomplish the following - Establish the
potential partners interest and test their strategic fit, provide opportunities to
create trust and mutual respect, establish business plans for the proposed JV. At
the end of the process, both parties should equally share the risks and benefits.
Overall Alternatives for Nora:
Nora has three options before it, and are as follows:
1. Accept current terms proposed by Sakari. This would enable it to fulfill TMBs contract.
This would also mean that there are no further costs in trying to form a JV with another
firm. The drawback of this approach is that it will end up with some terms that are not
favorable to it.
2. Terminate the negotiation with Sakari Though this option would mean getting away
from difficult negotiators, it would have to spend more time, effort and capital in forming
a JV with another entity to fulfill TMBs contract, and wont have access to Sakaris
switches. Also, in light of the time required, it wont be able to spend enough time in
vetting the potential partner.
EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

3. Nora can renegotiate, and Zakalia can reach out to Kussisto. It could be that Sakari would
be willing to renegotiate and form an alliance with new terms, but more costs would be
involved.
Recommendations:
Based on the case presented, I have the following recommendations:

Both the companies should have attended a class or seminar in communication across
cultures and cross-cultural negotiations and decision making. This would have exposed
them to the other parties culture, work ethics, and would have removed some of the
misconceptions and communication gaps.

After the above seminars and classes, they should have taken efforts to chalk out a
negotiation process. This should have covered the following(from Prof McCabes
handout on Executive Negotiation skills):
o

pre-negotiation preparations: forming a good negotiating team, and finalizing the

agreement.

o Research the other side

o Determine interests and goals
o Know the bottom-line and walkaway points
o Be flexible and creative

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

o Adopt a win-win approach

o Maintain high aspirations and personal integrity
o Be patient
o Think of mediation, arbitration and negotiation
o Points to be included in the agreement should have covered the mission of the JV,
its structure and governance, ownership and control details, identification of
performance objectives and milestones, conflict resolution procedures, and
provision for termination of the partnership.

The companies should define their BATNA (best alternative to a negotiated agreement),
anchors and framing

Deadline should be defined

They should deduce commonalities and minimize differences

Establish the negotiators authority upper and lower limits on bargaining ranges

Overall recommendation on the issues that were affecting the JV are as follows:
o Equity ownership: Noras share be 55 60%, Sakaris be 35 40%

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)

o Technology transfer: The JV assembles the telecommunication switch for TMBs

contract and develop a new switch for export puposes
o Royalty payment: 3 4% on net sales
o Expatriates salaries and perks: Rates proposed by Nora
o Arbitration: Neutral and geographically central place such as Belgium or
Switzerland.
Conclusion:
This case presents a variety of strategic, cultural and political issues as well as places the reader
in decision making on issues such as strategy, culture, social responsibility, technology and
human resource management in the global arena. The case is classic example of issues facing
companies from two different cultures and geographically diverse parts of the world.

EMBA-Organizational Behavior Fall 2009 Deven Verma (ID: dv89)