1. A) Why have the negotiations so far failed to result in an agreement?
According to us, the main hurdle was the approach with which Zainal the Vice Chairman handled the whole negotiation process. He had used a similar approach, which he generally uses with his counterparts from the U.K or U.S. We believe this is because of the fact that Zainal believed that Finland will have a similar cultural bearing to United Kingdom [or U.S.] as both the countries were within a distance of just a little more than 1000 miles within the same continent. Delving more into the nature of negotiators, the case study speaks of U.S. based Negotiators being hailed as very verbal, open and extrovert, whereas the negotiators from Sakari were said to be very serious, reserved and cold in contrast. Therefore, the contrasting nature of the negotiations from both different sides of backgrounds have so far failed to result in an agreement1.
Alongside, internal politics and the decision of two opposing “Camps” within Sakari led to complications with one camp opposing the idea to the Joint Venture with Nora and wanting Sakari to enter the U.K market and thereby gaining access to the EU market. They also strongly did not trust Nora's motive in this Joint Venture. They felt that Nora would duplicate Sakari's technology and emerge as a regional competitor. The Anti-Nora camp also preferred the concept of a wholly owned subsidiary as a JV can result in problems like Joint control, Joint profits and a possibility of technology leak.
There was also a clash in terms of the split of Equity ownership. Sakari had proposed a 49 % stake to Sakari and 51% stake to Nora but Nora demanded a 70% stake instead due to the foreign equity regulations in Malaysia. Along with this, Nora did not want to give excessive control to Sakari as there was a possibility of it affecting Nora's strategy of developing its' own high tech products.
Then there was a royalty issue, which also backfired between the two parties as Sakari needed a royalty of 5% on the gross sales and Nora thought the rate to be too high as their ROI would be lesser than the desired ROI of 10% and Nora had already made significant investments in relation to the JV.
Along with this, Malaysia and Finland clearly have major differences in standard of living with Finland having one of the highest standards of living in the world and Malaysia not even being close to being on the higher side. There were concerns being raised about the training of the Nora's employees, Sakari had decided to provide training for the technical employees for the JV Company based in Malaysia. The salary level quoted by Sakari for their expatriates' was too exorbitant according to the Nora negotiation team.
Arbitration problems also arose as Nora, being the majority stakeholder, was adamant on holding arbitration in KL, whereas Sakari insisted on Helsinki, which was the company norm.
B) Is the formation of the joint venture between Nora and Sakari the best option for both companies to achieve their respective objectives?
Nora was a leading supplier of telecommunications equipment in Malaysia, while Sakari, a Finnish conglomerate, was a leading manufacturer of cellular phone sets and a niche player in global switching market.
Þ Sakari, being smaller in size compared to Nora, would expand the reach of the market. Sakari would bring standard systems in place but at the same time was prepared to provide customised products, which large telecom companies do not.
Þ Nora, in particular would benefit from technology transfer, while Sakari would gain knowledge and access to South-east Asian markets.
Þ Nora coud bring in its long-term working relationship with Japanese partners into the JV.
Þ Sakari would benefit by entering into a JV with a company as large as Nora and can thus enhance its marketing capability and strengthen its position in the market.
Þ The JV would manufacture and commission digital switching exchanges to meet the needs of the telecom industry in Malaysia, Indonesia and Thailand.
Thus Entering into a JV would result in a lot of benefits for both parties.
2. A) What can be done from Nora's perspective?
Nora should be ironing out and sort the problems which came in the way of not reaching an agreement with Sakari.
Looking at the Nora perspective:
Þ If Nora decides on not reconciling with Sakari, then they should explore new opportunities because time is running and they have to fulfil the switching contract for which they definitely need to enter into a JV with another company providing switching technology.
Þ Since Nora had a long term working relationship with Japanese partners, JV with Fujitsu can be considered as a good idea.
Þ Nora can also approach companies which failed in getting the switching exchange contract by TMB despite having access to the necessary technology, like Samsung, Siemens and Lucent.
Þ Entering into a JV with Lucent could be a smoother process in terms of negotiations as Nora's Zainal seems comfortable in negotiation with his U.S counterparts.
B) What are the main pressures Nora has to cope with?
The main pressures that Nora has to cope with could include the following:
Þ The pressure of fulfilling the contract secured by TMB would be a source of major source of worry for Nora.
Þ Nora should understand the Finns and their culture and negotiate in a manner which is suitable to them.
Þ Nora should make all efforts in their negotiation process that Sakari's management trusts Nora to deliver its part of the deal.
Þ If the agreement is really what Nora wants, then the Nora management should convince the Sakari management as to entering a JV would prove more beneficial as compared to entering the EU market.
Þ Nora should decide the location of arbitration with Sakari as this was one of the key issues.
Þ Having limited resources.
Þ Sorting out the equity issue, in which there is a big difference of the claim being upto 19%.
3. If the parties decide to renegotiate, how should the terms of the deal be restructured?
In the case of a renegotiation, it would be quite essential for both Nora and Sakari to compromise and focus on a strategy, which will be beneficial to both. In times of a conflict, both parties have the following options – collaboration, competition, avoidance,accommodation or compromise - to work towards resolution of the same and be in a win-win situation.
1. Equity ownership:
Here, the ‘Collaborative' style of negotiation would be in the best interest of both the parties. This also is, an ‘Accommodating' style from Nora's point of view. Nora was more at risk when compared to Sakari, as it had already put its goodwill to stake. In case of a renegotiation, Sakari could demand for a 40% stake of ownership which would pave way for Nora to have a 10% higher stake than Sakari. If this does not work then Nora could give up some percentage of the ownership and let Sakari work on the SK33 technology for a 50% stake.
We believe that, Sakari should be that of ‘Collaborative' and ‘Accommodating' style. Along with this a fixed royalty rate should be considered. If Sakari could take the responsibility of financially supporting one of the plants, they could receive a royalty of 4%. Financial simulations prove that rates higher than 3% would hamper the desired ROI of 10%. Also, Nora believed Sakari would receive side benefits from the Japanese technology, which was more advanced than Sakari's technology, which justified the rationale behind keeping royalty rates below 3%.
Sakari should ‘Compromise' on this stance. As far as the research on the standard of living is concerned, Nora had done their homework and it would have been best for Sakari to accept the income levels or do their own research.
4. Technology transfer:
Sakari was not comfortable in sharing its knowledge on the switching technology; where as the primary reason for Nora to go in for a JV was to get complete information on switching technology. In case of a renegotiation, Sakari may give Nora access to some more information, which could make the deal successful.
Nora and Sakari must both agree that the location of arbitration can definitely be dealt with a renegotiation. Either of the companies has to compromise. This could not be a part of the major reason why the companies did not enter into a Joint Venture.
1] Appendix material:
Negotiating patterns and interactions vary between countries based on several factors in addition to situational factors. These factors include cultural and economic differences among countries. Some nationalities and cultures, competitive or argumentative or open negotiations may be accepted, whereas in another country, negotiation patterns could be of the serious, reserved and precise kinds.
Alternative Negotiating Conditions and the Choice of Negotiation, a Cross-cultural Comparison Tactics by Roger J. Volkema Maria Teresa Leme Fleury
2) Negotiation Styles
Ghauri, P.N. & Usunier, J.C. (eds), International Business Negotiations, Pergamon
London, 2nd Edition, 2003.
Ghauri, P.N. & Usunier, J.C. (eds), International Business Negotiations, Pergamon Press: London, 2nd Edition, 2003.