NORA-SAKARI: A PROPOSED JV IN MALAYSIA (REVISED)
SYNOPSIS
This case presents the perspective of a Malaysian company, Nora Holdings Sdn Bhd (Nora), which was in
the process of trying to establish a joint-venture (JV) company with a Finnish company, Sakari Oy
(Sakari). The rationale for the formation of the JV was for Nora to acquire knowledge of Sakari’s 4G
soon.
POSITION IN THE INTERNATIONAL MANAGEMENT COURSE
This case was prepared for a course in international management to meet the needs of a section covering
the formation of international joint ventures (IJVs). The case examines some of the most common issues
involved in a negotiation between two companies. At the end of the case discussion students should be able
1. Why have the negotiations so far failed to result in an agreement? Is the formation of the JV between
Nora and Sakari the best option for both companies to achieve their respective objectives?
SUGGESTED CLASSROOM PROCESS
(1) Discuss assignment question 1 (10 minutes).
(3) Prepare for role play in groups (20 minutes).
(5) Describe a possible way forward and conceivable outcome to students (2 minutes).
(7) Explain major lessons from the case (3 minutes).
ANALYSIS
(1) Why have the negotiations failed to result in an agreement? Is the formation of the JV
between Nora and Sakari the best option for both companies to achieve their respective
objectives?
1. Lack of full support
The management at Sakari had split views on the JV formation with Nora. There was competition for
the company’s limited resources from those who wanted to invest in the United Kingdom and
eventually penetrate the European market. It was mainly Sakari managers positioned in the Asian
2. Lack of preparation
The Sakari negotiators seemed to lack an awareness of local industry standards when they presented
their proposal on royalty rates for the SK4LTE technology and expatriate salaries. Apparently, they
3. Lack of understanding on differences due to national cultures
Although Nora had previous experience in cooperative arrangements with Nortel (Canada) and GPT
(United Kingdom), they were unaware that the Finns are culturally different from the Canadians and
the British. It was a mistake on the part of the Nora negotiators to assume that the Finns were
culturally similar to the other western cultures they had dealt with before.
In determining whether formation of a JV is the best available alternative, consider the motivation of each
company as follows:
NORA
Nora is motivated to form the JV for the purpose of diversifying into a new, related business. The company
has been in the telecom industry for more than 30 years but has only recently ventured into the mobile
Sakari for the supply of components. In addition, modular systems are more customer-oriented, a feature
which Nora would like to incorporate in its own systems.
SAKARI
Sakari’s motivation to form the JV is to expand into new markets with its existing technology. The South–
east Asian market offers vast potential in view of the current low mobile broadband penetration rates and
the most densely populated urban areas in the world, along with sizeable yet dispersed rural populations.
The rapid economic growth in these countries in recent years is also an indicator that the demand for
mobile broadband networks will be high. However, these markets are “restrictive” because the national
governments and local business practice tend to limit foreign equity participation. Therefore, the choice of
entry mode into these markets is limited to licensing and JV. Although licensing the technology to Nora
(2) As Zainal, what would you do to ensure that Nora fulfills the TMB contract?
Zainal has at least the following three options:
1. Accept Sakari’s terms at the end of the negotiation;
From Zainal’s perspective, Option 1 is not feasible because some of the terms in the proposed agreement
(3) Prepare for role play. Apply assignment question 3 (20 minutes)
Split the class into two sections, each section representing Nora and Sakari in a “make” or “break”
negotiation. Assignment question (3), “If Zainal plans to renegotiate (and assuming that Kuusisto agreed),
(4) Role play and discuss the issues listed in Exhibit TN-2 (25 minutes)
Allow the student team representing Nora to present their new terms of the deal as a total package before
the Sakari side is allowed to respond. From our experience teaching this case, students may reach an
agreement within a short period of time. It is the role of the instructor to question whether each team has
2.
In examining the issue of equity ownership, the most important criterion to be considered is the purpose of
forming the JV. From Sakari’s perspective, one purpose would be to use the JV as a short–term strategy to
acquire knowledge about the country and the region. Once such knowledge has been acquired, Sakari
could divest and subsequently pursue other alternatives or seek cooperation with other partners to enter the
strategy to develop new products based on the SK4LTE platform. Because Nora had willingly made
additional investments in support of the proposed JV, it is likely that Nora would eventually acquire the JV
if Sakari decided to divest. Based on this perspective, Nora should negotiate for a greater equity share, low
royalty payment, high discounts for the components and low salaries for the expatriates.
On arbitration, the issue of the location of any arbitration process can be resolved by choosing a neutral
location in a third country, such as the United Kingdom, Germany, or Switzerland.
Apart from differences due to national cultures, difference in corporate culture is also apparent in the case.
As a large public-listed company, Sakari’s directives were provided by the company’s board and the
negotiators could not make quick decisions for terms that went beyond the limits set by the board. In
(5) Describe a possible way forward and conceivable outcome to students (2 minutes)
A meeting between Nora and Sakari was scheduled in the first week of April, 2013 at Dusseldorf,
Germany. The meeting took place at a hotel even though Nora has a subsidiary company in Germany.
Nora was represented by Zainal and his managing director, Ariffin Osman, while Sakari was represented
by Kuusisto, Urkulla (President of the Networks Division), and Ghazi. Ariffin and Urkulla were involved
in this project for the first time.
not participate in the March meeting in order to provide an avenue for a renegotiation of the unresolved
issues. They allowed their managers to have the opportunity to resolve as many issues as they could and
leave the more difficult ones to Zainal and Kuusisto.
appointed the managing director.
Two years after startup
During the early stage of the JV they had 25 expatriates (mostly technical employees) at one time. The
number was reduced gradually. The JV’s local technical employees have established counterparts in
equivalent areas at Sakari headquarters in Finland. Direct communication was allowed when seeking
assistance.
A year after the JV was formed, Sakari and Nora established their second JV in Malaysia to develop
software for telecommunications equipment. Sakari has long-term objectives for the JVs in view of the
Malaysian government’s advanced telecom infrastructure project, which is key to its Vision 2020 program.
(6) What decision rules might have been used to sort out the issues to be negotiated? (10
minutes)
Decision Rules for Sorting the Issues
1. What is best for the actual JV? (As opposed to what is best for either partner).
• Can each partner live with this philosophy?
(7) Major lessons from the case (3 minutes)
The creation of an international JV is costly, requiring extensive preparation and managerial commitment.
Some managers may wish to explore other modes of achieving their company’s objectives before they
decide to set up a JV. However, a JV may be the best available alternative especially when there is a strong
underlying strategic logic or when there are regulations concerning equity ownership.
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EXHIBIT TN-2: UNRESOLVED ISSUES FROM THE MARCH MEETING
Issues
Sakari (Finland)
Recommended
Terms Of New Deal
Nora (Malaysia)
Equity
51% Nora
49% Sakari.
70% Nora
30% Sakari.
Technology
JV assembles the base stations.
JV develops the base stations.
Royalty
5% of gross sales.
2% of net sales.
Expatriate
salaries
US$ levels (higher cost)
Malaysian levels (lower cost)
Arbitration
location
Helsinki
KL
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EXHIBIT TN-3: HOFSTEDE’S DIMENSIONS OF NATIONAL CULTURE
Hofstede’s study on differences between national cultures provides a framework which can be used to
explain the effect of national cultures on the formation of the JV between Nora and Sakari. Hofstede
(1983)
2
identified four dimensions of national culture:
Based on Hofstede’s study, the dimensions for Malaysia and Finland are estimated as follows:
Dimension
Malaysia
Finland
Individualism
Low
High
Power distance
Strong
Weak
Uncertainty avoidance
Weak
Medium
Masculinity
Medium
Low
A low score on individualism indicates that the Malaysians are bound by their societal values. This can be
seen in the case when Nora showed concerns over the need to provide assistance to develop Malay
The second cultural dimension, power distance, relates to the extent of inequality among individuals due to
differences in intellectual and physical capabilities. In the context of an organization, Hofstede suggests
that this inequality relates to issues on decentralization and the extent of autocratic leadership. Malaysia
has a strong power distance, reflecting a tendency to favor centralized decision making and dependence on
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Nora’s management, on the other hand, tends to be too focused on Sakari’s technology, and perhaps, the
managers were not keen to oppose strongly the decision that was made by the vice-chairman.
Hofstede’s third cultural dimension is uncertainty avoidance, a dimension that relates to how society deals
with the fact that the future is highly uncertain and the extent to which precautions are taken to cover
unpredictable risks. Hofstede found that in Malaysia, the level of uncertainty avoidance is low, while in
societies are those traditionally associated with the feminine role — emphasis on relationships, quality of
life, and preservation of the environment. In the context of this case, both parties reflected the
characteristics of a “feminine” culture since both saw the importance of building relationships and women
lawyers were represented in the negotiating teams.
Unlike the Finns, however, the Nora managers were less concerned over the “environment” and were not