In 2002 the Malaysian government gave Telekom Malaysia Bhd (TMB), the countrywide telecom company, the expert to build up the country's telecom infrastructure. TMB did not have technology and know-how to defend myself against this project and for that reason called for tenders to assist over a five-year project well worth RM2 billion (6, 305, 000. 00 $USD), installing digital turning exchanges in a variety of parts of Malaysia (Lander n. d. ).
The goals of the task were developed good Malaysian government's Eyesight 2020:
Invest in the digitalisation of its network to be able to provide services based on the ISDN (included services digitalised network) standard;
Invest in international fibre optic cable networks to meet the needs of increased telecom traffic between Malaysia and all of those other world; and
Facilitate the installation of more cellular mobile phone systems in light of the increased demand for the use of mobile phones among the business community in Malaysia.
NoraB Sdn Bdh in and Malaysian home name, one of the leading companies in the telecom industry was proven in 1975 with a paid-up capital of RM2 million. Nora Holdings contains 30 subsidiaries, including 2 public-listed companies: Multiphone Bhd and Nora Telecommunications Bhd (Bartlett, Beamish & Ghoshal 2008).
Since Nora's establishment they may have gained experience in cable-laying assignments; manufacturing mobile phone handsets; installing, functioning, and maintaining payphones in the places of Malayasia. There is also experience in distributing Apple pcs; distributing radio-related equipment; delivering equipment to the broadcasting, civil aviation, postal and power specialists in Malaysia and; manufacturing motor vehicle parts (Weblog 2008).
Sakari
Sakari Oy was established in 1865 in Finland and started out as a pulp and newspaper mill development company. In the 1960s they widened into the rubber and cable television industry (Bartlett, Beamish & Ghoshal 2008).
In 1975 they inserted into the pcs, gadgets, and cellular phones industries through a series of acquisitions, mergers and alliances.
In 1979, a jv between Sakari and Vantala, was develop to increase and manufacture mobile telephones and gained a large ratio of the world. These market segments are European including the UK, Malaysian, and Thailand for the production of cell phones and cellular phone handsets.
In 2001, Sakari was Finland's greatest publicly-traded professional company and produced nearly all its total sales from exports and over-sea functions.
In January 2003, Nora Holdings SDN Bhd submitted its proposition for TMB's RM2 billion agreement to supply switching exchanges helping four million telephone lines.
Nora experienced that was eager to secure this proposition because of the profit, but most importantly it was due to the added benefit of obtaining the knowledge in transitioning technology from its relationship with a telecom Multi-National Assistance (MNC).
There were many reasons Nora and Sakari were considering each other; to be joint ventures. Nora decided Sakari because these were internationally regarded company, that they had special specialized knowledge and knowledge (SK33); and Sakari was the leading telecom company in European countries that has already established experience with using high technology to permit a small country to truly have a fast growing overall economy. Nora was seeking to doing the same in Malaysia (Weblog 2008).
Sakari also experienced many reasons to choose Nora Holding because they could access knowledge and new technology, Nora's capability to penetrate South-East Asia markets, Nora was looking to extending their R&D, Nora experienced a lot of experience working long-term with japan companies and culturally different negotiations. Also Nora already has experience with delivering and distributing; furthermore they were awarded a license from the UK to market their products in South East Asia as well as 8 other market segments (Bartlett, Beamish & Ghoshal 2008).
Nora and Sakari Oy fulfilled 20 times for the period of a time. The key points of negotiation were: equity ownership, technology transfer, royalty obligations, expatriates' salaries and perks and arbitration
The explanations why the negotiations didn't materialize into a jv:
1. Difference in cultures;
2. Difference in management styles; and
3. Incapability of both gatherings to compromise on key issues
Question 1) Why have the negotiations failed to result in an agreement? May be the creation of the JV the best option for both companies to achieve their respective aims? (Hint: Consider the determination of every company)
To ensure that Nora fulfils the terms within the TMB agreement, a joint venture with Sakari must first be effectively negotiated. The negotiation process has yet come to a agreement due to the disagreement over numerous issues concerning the development of the joint venture. The overall known reasons for the unsuccessful consequence of the negotiation process are that they both have different goals, conflicting goals, and motivations and mix ethnical miscommunication issues. The disagreements of goals are located in the regions of collateral ownership, technology copy, royalty payments, and expatriate issues. The conflicting goals of both companies were focused on the future trends of both the companies.
However, there are many perks mentioned in the event that initially motivated the two companies to form a joint venture. In Sakari's point of view, the motivations emerged by means of entering a new market in Southeast Asia, while to Nora these were more determined by Sakari's telecom technology and the opportunity of using this technology in the foreseeable future.
With the framework set, why the negotiations did not materialize into a jv involved the next reasons:
Difference in culture
Difference in general management style; and
Inability of both get-togethers to compromise on key issues.
With the help of Hofstede's Value Dimension there are a number of issues that hindered the two companies from reaching a mutual contract. In Table 1. 1 a value sizing model is employed to compare Finland's prices to prospects of Malaysia; consequently the model shows a difference in relevance (by almost 50%) in each aspect. "
Table 1. 1 (Data: Hofstede/ITIM International)
In accordance to the diagram the darker shaded regions presents Malaysia whilst the lighter regions stand for Finland.
Using Hofstede's Combination Cultural Communication matrix it demonstrates the way the vitality of individualism and doubt avoidance played a significant role in the breakdown of the negotiations. Both companies failed to identify the ethnical differences that affected what sort of negotiation was approached.
Table 1. 2 Individualism and Collectivism
Malaysia (Nora)
63
Finland (Sakari)
26
Individualism is one whose people are anticipated to build up and screen their individual personalities and choose their own affiliations, while collectivism is the magnitude to which individuals are much more likely to work in groupings. According to Stand 1. 2 Malaysia has a much higher concentrate on the group with a rating of 63 on the Hofstede's matrix in conditions of how individualized the contemporary society is. This ranking means that Malaysia is a high context world where management within the group is important. That is shown evident in the case where at one point the top Malaysian managers did not attend some of the negotiations, before next to end of the meeting before the process broke down. Without top management involved, lower level Malaysian professionals within the negotiation process felt weakened by the loss of their leadership. Alternatively Finland have scored a rating of 26. People in Finland will be more focused on the introduction of individualistic persona and skills. Because of this the Finnish management team relied less on control and much more on the ideas of one another being applied within the negotiation process. The result of this management being applied to the negotiation process led to one of their workers being sent home because he was "regarded as extremely arrogant and insensitive" and perhaps menacing the less authority in Malaysia.
1. 3 Doubt Avoidance Index
Malaysia (Nora)
36
Finland (Sakari)
59
The next dimension that the firms differed on was the uncertainty avoidance. The doubt index details how tolerant a countries management is to uncertainty (miniru). With this dimensions, Nora was more likely to take risks involved in building a jv. They were accountable for the founding of the stock (manufacturing) as well as operational (managerial) offices, while keeping the business in good conditions with the federal government. On the other hand, Sakari's higher doubt avoidance made it more challenging with the negotiations due to lengthy issues with technology exchanges and collateral ownership distributions between companies.
Lastly, another major contribution to the unsuccessful agreement between your two companies was that Sakari negotiators were not as experienced rather than as well prepared as those representing Nora. That is evident in the case, where there was a lack of full support at Sakari headquarters in Finland as well as the lack of research on the Malaysian cost of living that should have been done by Sakari.
Question 2) As Zainal, what do you do to ensure that Nora fulfils the TMB contract?
There are three options that Zainal can make in order to fulfill the TMB agreement:
Accept Sakari's conditions (which can be unsustainable)
Forget JV with Sakari and consider other partners
Re-negotiate - choose a win-win solution
For Zainal to accept the terms suggested by Sakari, it would enable them to sign the offer, and progress with the delivering of the 800, 000 phone lines for TMB as lay out in the 5 year contract. They would likewise have the possibility to learn from Sakari's technology, although Sakari would only provide them with limited gain access to.
The cons for Nora, if they were to follow the requests of Sakari, would be to give up on what they needed from the negotiation. Since Nora had already decided to make additional investment funds, such as structures and a turning plant, they would discuss royalties of only 2%. However, if Sakari acquired their way, royalties would be higher, at the pace of 5% suggested by the Sakari negotiators. Nora's profits on return would thus be significantly less than the required 10% if royalty rates exceeded 3% of world wide web sales. Giving directly into a 5% royalty rate, would be one of the major downfalls for Nora. Furthermore, the incomes and benefits would be much higher than originally expected, because the standard of surviving in Finland is much higher than in Malaysia.
Another disadvantage for Nora would be the positioning for dispute resolutions. The arbitration process would happen in Helsinki, following the norm commonly employed by the Finnish organization, rather than in Kuala Lumpur, as Nora possessed preferred. Since the majority of the stakeholder in the JV was Nora it was therefore much preferred to have the arbitration process occur in its home country.
In terms of the technology transfer, Nora preferred to really have the transitioning system developed at the JV Company in Kuala Lumpur, so that Nora could acquire the root of the switching technology. If Nora submits to Sakari's demands to just provide the JV Company with the essential composition of the digital move, Nora won't have usage of the central of the technology it so needs.
A second item for Zainal to consider to be able to complete the TMB contract is to not admit the JV to check out a fresh partner. From Nora's point of view, the benefits of this step would be that they may find a company that contain similar pursuits in the fields of salaries and benefits, which would make it a lot easier for Nora to reach a package.
On the other hand, the loss to Nora would also be substantial. Nora and Sakari got very similar passions in R&D, with both companies believing that it was one of the most crucial branches for a corporation. Having a partnership together, the two would target more on research and development, and have the potential to accomplish great results.
Moreover, by concluding negotiations with Sakari, Nora would need to adamantly visit a new spouse. Companies such as Siemens, Samsung and Lucent could be potential lovers; however, the options available aren't as attractive because the solutions proposed by each company weren't as personalized, adaptable and compatible. This may verify difficult, and possibly a lot more work than compromising with Sakari.
The third option to consider is always to continue negotiations with Sakari in the hopes that they can make certain compromises regarding each company's aims and requests. With a valuable high progress opportunity in the South East Asian market, the JV Company is actually a hub to go into these market segments for Sakari, which would be of huge gain to them. Although the company lacks local knowledge, Sakari could study from Nora and take advantage of the perks associated with being a first mover in your community. Since the likelihood of getting the UK deal were quite low, it might be useful for Sakari to consider the collaboration with Nora. Nora subsequently would benefit from the extensive technology knowledge that Sakari could bring them.
Question 2) Should Zainal contact Kuusisto and renegotiate or not? Justify your answer.
Yes, Zainal should renegotiate with Kuusisto. It might be of benefit for Zainal and Nora to forge work to renegotiating the JV deal with Kuusisto and Sakari as time is of the fact as searching for a new spouse may be difficult as well as possibly fruitless. It had been nearly per year into the four yr TMB contract and a jv possessed still not materialised. This would leave Nora with around four years to complete the task. There is prospect of much more difficulty, extra time and work to be put along the way of looking for a new partner for the jv rather than reducing and renegotiating the offer between Nora and Sakari.
There are benefits in acknowledging a jv partnership as Nora would gain from the extensive technical knowledge that Sakari would bring forth. Sakari already has low likelihood of securing contracts with the united kingdom and for that reason would also benefit from the deal as they would be enabled the business opportunity to enter into Asian-Pacific market.
Renegotiation between Nora and Sakari would require compromises with respect to both parties included. Both people have a competitive advantages that both functions should recognise with each other and catered for. "Nora [is] a respected provider of telecommunications (telecom) equipment in Malaysia. " (Ainuddin 181) whilst Sakari is an extremely innovative niche market distributor of digital switches, and attributes their past success to intensive research and development. Sakari would be considered as the driving force behind the scientific development of the JV whereas Nora is renowned as a strong force in Malaysia for their expertise. Jointly, the advantages of both these entities, a big amount of revenue could be actualised.
The matters necessary for discussion, to be able to attain a middle floor for each subject, include the key points of equity possession, technology transfer, royalty payments, expatriates' earnings and perks, and arbitration.
In terms of equity possession, Nora owns the benefit in this spectrum due to their current business position in Malaysia, with their close relations with Malaysian government representatives. Sakari was calling for 49 per cent of the collateral show which is too much, as Sakari was not supplementing any monetary value into the start-up cost of the operations. However, Nora's offer was also suprisingly low. A better and fairer suggestion would be for Sakari to offer a 40 % share of the equity ownership percentage and for Nora to hold on to an equity ownership of 60 % in the JV.
Technology transfer is a sensitive point for Sakari as it quite and proper basis to what is valuable about their company. A compromise should be enabled where Nora allows Sakari to keep the technological development of the switches in house, and allow Sakari's assembly and installation layout as Sakari has the most and required experience in building the digital switches.
Royalties should be jeopardized towards Nora's suggested plan, as Nora has affected the most up to now. Sakari would be obtaining side benefits from the JV's usage of Japanese technology utilised in the assembly of the SMD components which is more complex and developed than Sakari's current technology. Sakari accepting 3 percent of online sales would maintain the pivotal demand of Nora's demand of ten percent return on investment.
Expatriate wages and benefits should amend based on the conditions of Kuala Lumpar. Nora had research the expense of living expenses in Malaysia and acquired devised a salary and perks program that was reasonable and catered to the needs of employees of Sakari and for the location of the JV.
For arbitration, research must be conducted regarding arbitration guidelines between the federal government regulations of each country. As an easy and clear-cut solution that extends to middle earth, the get-togethers could consent to manage their arbitration issues on a physical point that can be found between Helsinki and KL, such as Switzerland.
