Question 1: Provide case facts in a brief narrative manner?

Negotiations were going on whether the Nora and Sakari joint venture agreement should
materialize or not. Nora was a leading supplier of telecommunication private limited company in
Malaysia, while Sakari was a leading telecom private limited company in Finland. The joint venture
would be established in Malaysia to manufacture and commission digital switching exchanges in
Malaysia and neighboring companies. This joint venture will help Nora in terms of technology
transfer and Sakari to acquire knowledge and gain access to market of South Asia.

The Telecom Industry in Malaysia:

Telecom Malaysia Bhd is a national telecom company who was given the authority to develop the
country’s telecom infrastructure and provide telecom services that were on power with those
available in develop. To be in line with government region 2020 i.e; become a developed nation,
TMB has to upgrade its telecom infrastructure in rural areas, install fixed networks, and expansion
of telecommunication in rural areas. TMB lacked the expertise and technology to it has to invite
bids from local telecom companies.

Nora’s Search for a JV Partner:

In October 2002, TMB called for bids for digitalized system (a 5 year contract worth RM 2 billion).
Nora was interested in RM 2 billion contract share and also the knowledge of switching technology.
Initially, Nora considered Siemens, Alcatel, and Fujitsu appropriate candidates. Later, Nora
considered Sakari as appropriate because of Sakari’s SK33 digital switching system which enabled
standard components, software development tools, and software languages to be used. It can also
be upgraded to add new features and services and can also interface with new equipment in the
network. Sakri is ready to workout customized products according to Nora’s needs. RM3 million
were invested in promoting the relationship.

Nora Holding Sdn Bhd:

The Company: Nora is a leading telecom company with paid up capital of RM 2 million. Last year
turnover is RM 320 million.

The Cable Business: Nora has secured two cable lying projects. The later one with Sumitomo
Electric Co. and Marubeni Corp. (2 japanses companies) because of financial package and
technological assistance.

The Telephone Business: Nora has a well-known telephone manufacturing business in Malaysia. It
sold telephones in 1980 on rental basis to TMB. In 1985, Nora secured license from Siemens and
Nortel to manufacture telephones. And subsequently developed its own telephone sets NS 300S
(Single Line), N300M (micro-computer controlled), and N300V (hands-free, voice activated)
models. Nora lost a 600,000 N300S contract to Taiwanese manufacturer as a result of lower bid.

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The Payphone Business: It was the most profitable business for Nora with revenues of RM 60
million/year. A 15 year contract to install payphones was also secured. Nora under license from
GEC Plessey Telecommunications (GPT) of UK also stated manufacturing card payphone and
started selling to neighboring countries.

Other Businesses: Nora was also involved in following businesses:

1. Distributor for Nortel’s private automatic branch exchange (PABX).
2. Distributor for NEC’s mobile telephone sets.
3. Distributor for Apple computer in Malaysia and Singapore.
4. Distributor for radio-related equipment.

The Management: Nora was established by Osman Jafar, and managed with his wife Nora with 7
employees. Osman did not like quick capital gains. He was trained in telecom in UK. Zainal Hashim
held a degree in microwave communication from British University and had worked with NEC was
hired is now vice chairman. Both Zainal and Osman played complementary and key role in success
of Nora. Risk and Development was formed as a result of Osman and Zainal’s obsession for high-
tech. Zainal liked to work on the basis of Japanese theory of kaizen. To enhance activities R&D was
evolved in a subsidiary Nora Research Sdn Bhd (NRSB). It also facilitated private clients. Zainal
promoted Islamic values like relationships, sincerity and consistency in the Nora’s environment.

Sakari Oy:

Sakari was established as a pulp and paper mill then it entered to rubber and cable manufacturing
business. As a result of oil crisis it expanded itself into computers, consumer electronics and
cellular phones via a series of mergers, acquisitions and alliances. Sakari-Vantala JV captured 14%
of world’s market and held 20% market share in Europe. Sakari sold switching system licensed
from France’s Alcatel and developed software and systems for small Finnish phone companies and
avoided head on competition with Siemens. Sakari held 49% market for digital exchanges. It is also
a niche player in global switching market. R&D is a key success factor which helped develop SK33
system. Current strategy of Sakari was to emphasize on global production and R&D. Sakari was a
small company and was remained hidden until it started maketing under the Sakari’s name. In 1990
the sales declined substantially due to two main factors; weak demand of electric products and
trade with Soviet Union had halted. Sakari divested in basic industries, sold Sakari Marco
(computer subsidiary). Three areas were focused: telecom systems, mobile phones, consumer
electronic products and cables and related products. Sakari in 1990s played a major role in the
Finnish telecommunications equipment manufacturing sector. In recent years, company made
efforts and succeeded in globalization and diversification and had gained international brand
recognition.

The Nora-Sakari Negotiation:

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Nora and Sakari helped themselves in finding the potential of forming the JV. Nora checked the
SK33 compatibility with Malaysian technology whereas Sakari assess the feasibility of market and
Nora’s manufacturing capability. Nora placed its bid with TMB based on Nora-Sakari JV. The
successful companies announced by TMB are; Alcatel, Fujitsu. Ericsson, NEC and Sakari.

The May 21 Meeting: Nora’s team included five-members. Sakari team included eight members.
Main issue for the meeting was capability in penetrating South-east Asian market and efficiency of
Malaysian workers in manufacturing of products, maintaining product quality and ensuring prompt
deliveries. Zainal commented that negotiations with Sakari are difficult with respect to countries in
North America or UK. Sakari negotiators tend to be very serious, reserved and cold. The internal
politics in Sakari led to formation of two camps. One camp supported UK telecom recent tender
arguing that Nora has the potential to copy Sakari’s technology and becoming regional competitor
whereas other in favor of Nora arguing that Nora has already obtained the contract in Malaysia. The
camp in favor of Nora was asked to further justify its proposal.

The July 8 Meeting: In this meeting a new Sakari member Solail Pekkarinen was added. But in the
third meeting he was requested to leave the meeting because he was extremely arrogant and
insensitive to local culture. Zainal did not participate. In this meeting there were some issue which
sometimes led to heated arguments and those are:

1. Equity Ownership: Both companies agreed upon a paid-up capital of RM 5 million.

However, Sakari proposed the split of 49% for Sakari and 50% for Nora whereas Nora
proposed the split of 30% for Sakari and 70% for Nora. Nora was practicing the Malaysian
law which was recently liberalized also Nora was concerned about the ability to control
(long-term strategy to develop its own digital switching exchanges) but Sakari wanted the
control for protecting its interests.

2. Technology Transfer: To protect the Sakari technology, Sakari proposed that switching
exchanges would be assembled at JV plant. On the other hand, Nora proposed to develop the
switching exchanges in JV company to access the root of the technology.

3. Royalty Payment: Sakari proposed the royalty of 5% of JV gross sales while Nora proposed
2% of net sales. For Nora 5% was high because Nora return on investment would be less if
it exceeds 3% of net sales. Nora had already agreed to make investments in building for JV,
plant that will provide JV with surface mounted devices.

4. Expatriates’ Salaries and Perks: Nora suggested that Sakari provide the training to JV
technical employees. Sakari agreed to provide 8 engineering experts on two contract basis
long-term and short-term. 3 will be attached to JV, after 2 years only 1 will be left. Sakari
proposed that for short-term basis daily pay would be US$1260 plus
travel/accommodation. And for long-term US$20,000 per month. According to Nora this
was a high pay rate proposed by Sakari. Because the cost of living in Malaysia is lower as

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 compared to Finland. So, Nora proposed the contract for salary made with other JVs with
other foreign parties reasonable.

5. Arbitration: Both parties agreed to arbitration but there was a dispute in the place of the
arbitration. Nora wanted any arbitration to take place in KL, whereas Sakari insisted on
Helsinki (following the norm of the company.)

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 Question 2: Should Nora consider the possibility of reconciliation with
Sakari on the JV agreement? If yes, on what terms should Nora be
flexible, and on what issues to assert upon?

Yes, Nora should consider the possibility of reconciliation with Sakari on the JV agreement because
that they would benefit from the technology transfer. The Sakari switching system SK33 was based
on open architecture i.e; the SK33 switching system can be customized and can be used with other
upgrades and technologies. This could lead to a new switching system and also could be used to
meet the customized needs of the customers. SK33 technology uses the tools and components that
is available in the open market. Sakari networks were easily adjustable and could cater large
exchanges in urban areas and small exchanges in rural areas as well. Nora was looking to expand its
R&D department from 5 – 6 % over the next 2 – 3 years whereas the Sakari is already using its 17%
of the revenues for R&D and looking for open research centres in leading market.

Nora should assert upon the following unresolved issues:

1. Equity Ownership: Nora and Sakari both want to have majority equity ownership to have
strategic control, technology access and activities of the JV.
2. Technology Transfer: Sakari proposed that the basic structure of the switching system
would be provided by Sakari and will be assembled in the JV plant whereas Nora wanted
that the digital switch be manufactured in the JV manufacturing plant instead so that they
would be able to understand the Sakari’s technology.
3. Royalty Payment: Sakari proposed a 5% royalty payment of the Nora-Sakari JV gross sales
whereas the Nora proposed the 2% royalty payment of Nora-Sakari JV net sales also they
noted that Sakari would be the beneficiary of the large infrastructure investment on behalf
of Nora.
4. Expatriates salaries and perks: Sakari prosposed that the experts should be hired fro the
Helsinki and should be paid according to Helsinki’s standards. While Nora proposed that the
experts are living in Malaysia and the cost of living in Malaysia is relatively lower. And the
temporary experts should be paid daily wages and should not be reimbursed for the
transportation and lodging while in Malaysia.
5. Arbitration: Sakari proposed that the arbitration should be done in Helsinki whereas Nora
proposed that the arbitration should be done in Kuala Lumpur.

I think that Nora should assume 70% equity ownership leaving 30% equity ownership to Sakari
because Nora is most suitable managerial force of the two in Malaysia. Second as to the technology
transfer the Nora should let the development of switches in the Sakari’s house and stick to Sakari’s
proposed assembly and installation plan because they have more experience in providing the
digital switches and also because the digital switching system SK33 is the most valuable to the
company so it should be well protected. Third issue is the expatriates’ salaries and perks which
should also be according to Sakari’s proposal because without the experts the quality and efficiency
may diminish. And Sakari propose that the experts should be paid according to the Helsinki’s
conditions. Royalties should be compromised according to Nora proposal, because 3% of the net
sales will show Nora’s willingness to go as far as it could go. It would also be fair because the Nora’s

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request for 10% return on investment would also be accomplished. Last issue, the arbitration, they
can choose the neutral site between the Helsinki and Kuala Lumpur.

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Question 3: Describe the difference in mindset of Malaysian and Finnish
executives in the light of pursuing their relative business interests as
evident during the negotiation process.

The negotiations continued between Nora and Sakari for two years. Nora engineers were sent to
Helsinki to assess the SK33 technology in terms of compatibility, while Sakari managers travelled to
Kuala Lumpur to assess the Nora’s capability in manufacturing switching exchanges and the
feasibility of gaining access to the Malaysian market. In May 21 meeting the main issue raised was
Nora’s capability in penetrating the South-east Asian market and efficiency of workers in JV in
manufacturing, maintaining product quality and ensuring deliveries. Zainal the vice chairman of
Nora faced the problem during the negotiations which can be explained by the Hofstede Value
Dimensions of both the Malaysian and Finnish countries.

The data has been taken from http://www.clearlycultural.com/

Power Distance Individualism Masculinity Uncertainty

Avoidance
Malaysia 104 26 50 36
Finland 33 63 26 59

120

100

80

60 Malaysia
Finland

40

20

0
Power Distance Individualism Masculinity Uncertainity Avoidance

From the chart we can see that Malaysian power distance score is higher than that of Finland which
was also clear from the case that the Vice chairman of Nora had the power to make the contractual

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decisions on the spot while that of Finland has to discuss with the board before they could make
any decision. The second is the uncertainty avoidance which was most clear from the case that the
Malaysian has less uncertainty avoidance as they were always taking the risk. First they took the
risk of not forming the JV before the contract and secondly they were taking all the risk regarding
the manufacturing and operating activities. Whereas the Sakari or the Finnish company has greater
uncertainty avoidance which is clear that they took more time in negotiations and they also had
problem with the terms of technology transfer and equity ownership distributions. The
individualistic cultural dimension is also clear from the case that Malaysians are more collective
because they were working to ensure collectively and mutually beneficial JV for both the
companies, while Sakari (Finnish company) was seeking ways to ensure that they get the best deal
possible only for themselves ( individualistic approach).