58279938 case analysis nora sakari

7/26/2019 58279938 Case Analysis Nora Sakari

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Q.1 What are the unique advantages and disadvantages of International Joint Ventures?

Try to relate to the case when you answer this question.

The case illustrates the possibility of a Joint Venture between Nora, a leader in telecom

equipments in Malaysia and Sakari, a Finnish Conlomerate that deals in the manufacturin of

cellular phone sets and switchin systems!

Joint Ventures between local players in de"elopin countries and forein companies ha"e

become an apt means for both manaements for satisfyin their business needs and ob#ecti"es!$ocal partners brin local e%pertise of the taret market, familiarity with local o"ernance and

o"ernment reulations, understandin of the reional work ethics and culture, while, the forein

players et the latest technoloical know&how, ad"anced operational frameworks and access to

e%port markets to the table! 't can be seen as a symbiotic tryst between two mutually codependant parties!

'n the liht of the aforementioned case, some of the unique ad"antaes and disad"antaes of an

'nternational Joint Venture are as follows(

Advantages of an International Joint Venture:

• )ccess to new markets and a wider distribution capacity( )s shown in the case, Sakari

was interested in enhancin its lobal market share by means of a Joint Venture! ) JointVenture allowed it to foray into lesser known forein markets with the help of an

established local player! This allowed the Finnish company to ain the much needed

e%pertise and foothold in a relati"ely alien market!

• Cap the hih rowth potential of "irin markets *usually the de"elopin countries+ ( ) JV

allows a company to enter a market and tap the hih rowth opportunities almost

instantly! The case illustrates that the mobile telecommunication network is anticipated to be about -. a year in )sia in the ne%t / years! )lso the low telephone penetration rate

in Malaysia as opposed to its de"eloped counterparts allowed for lucrati"e ains in thenear future! They pro"ide hiher returns compared to trade related and contractual

e%pansion modes!

• 'ncorporation of New and )d"anced Technoloy( The entities in a #oint "enture benefit

from each other by poolin in resources and technoloy to attain sustainable competiti"e

ad"antae o"er the other players! 0ne of the e%amples of the same would be Sakari1s

product S233, a diital switchin system, which worked on an open architecture! This

product would definitely le"erae Nora1s chances of winnin the TM4 bid on a fi"e year pro#ect worth 5M6 billion for installin diital switchin e%chanes across the country!

• Sharin of risks and costs with a partner( ) #oint "enture allows the participatincompanies to mitiate the risks and distribute the fi%ed and "ariable costs!

• )ccess to a reater resource base includin speciali7ed staff, technoloy and financial

resources!

• 8ro"ide access to countries where complete ownership is restricted ( For e%ample, the

Malaysian o"ernment had strict norms related to participation of forein equity! The set

standard was in the ratio 3-(9-, wherein the forein player could in"est not more than3-. in the equity of the #oint "enture!



isadvantages of an International Joint Venture:

• 5isk of equity partner becomin a future competitor ( Sakari feared the chances of Nora

ainin the much needed e%pertise and becomin a future competitor in the

telecommunication equipment market worldwide!

• Manaement issues due to reional and cultural differences( The work culture and thecultural en"ironment of Malaysia were sinificantly different from that of Finland!Malaysian culture promoted a lare deree of separation between the upper manaement

and the line workers, while the Finnish preferred a decentrali7ed orani7ational structure!

The notable difference is the "alue set and professional mannerisms did cause a conflictand reduced the chances of a harmonious Joint Venture between the two entities!

• :ifference in oals, ob#ecti"es of the parties may lead to future conflicts( Sakari and Nora

did ha"e a lot in common in terms of their business ob#ecti"es and functionalities!;owe"er, there e%isted a few moot points that could lead to future clashes and conflicts

in terms of the re"enue sharin and other manaerial equations!

• 'ssues arisin due to sharin of trade processes, know&how( Sakari was known for its

ardent support for 5<: in the telecommunication related arena! )bout =9. of its annualsales re"enue was in"ested in 5<: and product de"elopment units across Finland, >!2!and France! This stratey had allowed Sakari to de"elop an impeccable ede in product

inno"ation, de"elopment of new technoloies *like the S233 switchin de"ice+ o"er the

years! Nora on the other hand still had a lon way to o in terms of reachin lobal 5<:standards, it planned to increase its 5<: spend to around /&?. in the comin 6&3 years!

The status quo howe"er made Sakari quite skeptical about di"ulin its trade secrets,

processes and implementation procedures to Nora!

• 0perational 'ssues( ) host of operational issues also result in failure of Joint Ventures

world o"er! Some of these operational issues could arise due to the followin (

@ 'ssues related to multi&nationality (

@ A%port :isputes@ :ifference in ta% policies of the participatin nations

• Valuation 8roblems( The participatin entities brin with them certain financial and other

assets to the JV and often it is deemed cumbersome to assess the current worth of these

assets! For instance, the product that already has an inrained technoloy is nowincorporated in the JV! Bhat is the worth of such assets ;ow should they be "alued

Such problems often arise in case of Joint Venture neotiations and areements!

These were some of the cumulati"e ad"antaes and disad"antaes of a Joint Venture! JV

relationships are often "ery fraile and ha"e to be backed by articulate documentation

and consolidated common understandin to a"oid future conflicts that miht result in JV

failures!

!



Q.! In the conte"t of the case# why have the negotiations so far failed to result in an

agree$ent? Is the for$ation of the JV %etween &ora and 'a(ari the %est o)tion for

%oth co$)anies to achieve their res)ective o%*ectives?

The neotiations between Nora and Sakari ha"e been takin place since a considerable

time *o"er 6 years+ and o"er 6- meetins ha"e been held in either 2$ or in ;elsinki!)lso, an estimated amount of 5M3 million had already been spent in promotin the

proposed JV between the 6 entities! ;owe"er, e"en after these efforts an areement had

not been reached and the participatin companies were still not sure about the future of the Joint Venture!

The mutual benefits souht from the collaboration ha"e been clearly mentioned in the

case! From Sakari side, the JV allowed it to set foot in the South Aast )sian market while Nora was moti"ated by the possibility of acquirin and emulatin Sakari1s inno"ati"e

telecom technoloy that would pro"e to be instrumental in the TM4 contract!

The formation of the proposed JV would definitely benefit the two companies in more

ways than one!

The reasons why the neotiations between Nora and Sakari ha"e not materiali7ed can be

summari7ed as follows(

• Notable :ifferences in the work ethics and "alue sets of the two companies (

0n an analysis of the workin en"ironment and the orani7ational structure of the

participatin countries, it is seen that there e%isted some ma#or differences in the

workin styles of the nations! Malaysian preferred a more centrali7ed approach to

decision makin, as Nora1s e%ecuti"e had the power to make on the spot andinstant decisions related to the JV while on the other hand, the Sakari team had to

report e"ery minute detail to the Company 4oard before they could take anyfurther steps!)lso, the Malaysians preferred a hierarchical approach in terms of the manitude

of the power distance! There e%isted a lare deree of separation between the top

manaement and the staff and line workers The Finnish, on the other handfollowed a much rela%ed approach towards the same!

• $ack of trust between the contractin parties( )s a reader, one feels that the Sakari

neotiators ne"er "ested enouh faith in the industry practices and ideoloies of

Nora! They were skeptical about a complete technoloy transfer areement and

proposed to pro"ide only the basic structure of the diital switch to Nora! Nora was not happy with this proposal as it felt that the root of the switchin

technoloy would still be unknown to them and only the technical aspects inassemblin and installin e%chanes would be obtained!

• 'ssues arisin o"er Aquity ownership( The parties had areed to form the JV with

a paid up capital of 5M/ million! ;owe"er, no common round could be reached

on the distribution of this capital between the companies! Sakari proposed anequity split of D(/= *D.&Sakari and /=.&Nora+ while Nora1s proposal was of a

3-(9- split, as mandated by the Malaysian Eo"ernment! Sakari percei"ed this as a



lack of control in protection of its interests in the future and did not aree to the

same!

• 'ssues related to 5oyalty payment( Sakari proposed a royalty payment of /. on

the JV ross sales while Nora proposed a payment of 6. on net sales! ) common

understandin could not be reached on the same!

• 'ssues pertainin to the A%patriates salaries and perks( Nora neotiators clearlyfollowed a more collecti"e and less indi"idualistic approach and were aimin at amutually "iable JV for both the companies! 0n the other hand, the Sakari

neotiators were only bothered about e%tractin better portions of the pie for

themsel"es! They followed an indi"idualistic approach and asked for e%orbitantsalaries and perks for the on&site enineers and e%perts! The outraeous demands

made by them were without any reasonin and lacked reional considerations! For

instance, Sakari1s arroant enineer that was asked to lea"e and the notableshortcomins in the local research conducted by the Sakari team!

• :isareement on the location for dispute resolution or arbitration( Sakari insisted

on ;elsinki while Nora proposed 2$!

These were some of the ma#or hiccups that resulted in a sour relationship between the 6companies!

Q+.As ,ainal# what would you do to ensure that &ora fulfills the T- /ontract?

't is noteworthy that while Sakari had an alternati"e choice of e%pandin its operations in the A>

Market, Nora was left with no or little choice! Nora had already committed itself to the TM4contract and was in dire need of a technoloy partner to complete this contract successfully!

The TM4 Contract requires it to deli"er --,--- telephone lines o"er a period of fi"e years

Considerin the aforementioned situation, as Gainal ' would try to achie"e reconciliation with

Sakari by tweakin the terms of the contract to suit both parties!

The reason why this looks like the best alternati"e is that, Nora had already spent o"er 6 yearsand a si7eable amount of 5M3 million in nurturin a relationship with Sakari and clearly with

the deli"erables of the contract round the corner, Nora was runnin short of time and did noten#oy the liberty of startin a neotiation with another player from the scratch!

The other options like )lcatel, a French company could ha"e been a potential partner but the

technical standards of the two companies were not compatible! NAC and Aricsson were already in"ol"ed with local competitors and could not be considered!

Sakari emered as a "iable option owin to "arious reasons, like(

Sakari1s S233 an inno"ati"e diital switchin system was based on an open architecture which

allowed the use of standard components and lanuaes! )lso the S233 components were widelya"ailable in the open market!

Sakari was a small player in fi%ed networks but these networks were readily adaptable to urbanas well as rural needs!Sakari also showed willinness to customi7e its offerins based on Nora1s requirements and

needs! The larer telecom companies did not offer such customi7ation options!

)lso Nora and Sakari had "ery similar interests in 5<: and accepted its importance in the lonrun! Nora could ha"e made the most of learnin from the sophisticated Finnish technoloy and

implemented the learnin in its future pro#ects!



These were some of the ma#or reasons why Sakari en#oyed an ede o"er the other competitors in

the same niche!

$ookin forward a compromise should be reached because Nora and Sakari are equallynecessary to each other, if the companies reali7e this a middle round could be reached at as far

as the terms of the Joint Venture are concerned!

Some of the key issues can be addressed as follows(

Ei"en that Nora has tremendous foothold and local e%pertise in Malaysia and has e%cellent terms

with the o"ernment as well, it is only #ustified that it has a ma#ority stake in the equity partnership! )lso, the o"ernment reulations pre"alent in Malaysia fa"or this break up!

Sakari is also bothered about the nature of technoloy transfer as it fears Nora will ain the much

needed e%pertise and become a future competitor once the contract ends, Nora should allow

Sakari to protect its technoloy and stick to Sakari assembly and installation plan! This is also because they ha"e a reater e%perience and know&how in diital switch makin!

)s far as the payment of e%patriates and e%perts is concerned, Nora should try and de"ise a

compensation plan based on the current industry standards in Malaysia but at the same time

ensure that the Finnish staff is i"en enouh perks and incenti"es to deli"er its "aluable support!These e%perts are of utmost importance as they are oin to be the torch bearers in the entire

implementation process of "arious technoloical platforms in the Joint Venture! Bithout themthe quality standards may suffer and the processes may et disrupted! ;owe"er, if Sakari is

adamant on the pay packaes of these employees, Nora can take a step back and amend its

compensation packaes to meet the ;elsinki standards!;owe"er, royalties should be compromised upon as Nora has been the lenient partner so far!

Nora and Sakari should accept a royalty payment 3. on net sales, this would enable the

preser"ation of Nora1s request of a =-. 50'! Sakari should understand the constraints on Nora1s

part and i"e in to this demand of theirs!The location for arbitration should be chosen as a neutral territory equidistant from ;elsinki and

2$! This can remo"e the bone of contention between the two parties o"er the same!

)s Gainal ' would try and con"ince the Finnish counterparts o"er the necessity and ad"antaes of

the deal! Sakari should be con"inced by quotin the e%cellent rowth potential in the South Aast

)sian reion and the importance of this JV for them for enterin these emerin markets!

This is seeminly the best option for Nora to complete the TM4 contract within the stipulated

time!

58279938 case analysis nora sakari

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