November 13, 2012
Nora-Sakari: A Proposed JV in Malaysia
Two leading telecommunications companies are negotiating forming a joint venture (JV) called Nora-Sakari. Sakari Oy (Sakari) was a Finnish conglomerate a leader in manufacturing cell phone sets and switching systems and Nora was a leading supplier of telecom equipment in Malaysia. The proposed JV in Malaysia has the purpose of manufacturing and commissioning digital switching exchanges to meet the needs of the telecom industry in Malaysia and neighboring countries, particularly Thailand and Indonesia.
Both Companies- Benefits and Drawbacks of the JV
1. Market Demand
At the time of the negotiations, fixed network projects in Malaysia and Thailand were large and amounted to hundreds of millions of dollars. Given the conditions, it is imperative to their success that Nora and Sakari establish a competitive presence in this region to capture a share of the fixed network market. Low telephone penetration rates for most Southeast Asian countries also reflects the large potential for telecom facilities.
2. Host Country Conditions
Telekom Malaysia Bhd (TMB), the national telecom company in Malaysia, was given authority by the government to develop the country’s telecom infrastructure such that it is on par with developed countries and they were provided with the finances to do so. There is a strong need to upgrade telecom infrastructure in the rural areas to achieve the government’s Vision 2020 program that targets Malaysia becoming a developed nation by 2020. TMB was lacking in the expertise and technology to undertake massive infrastructure projects. It was common for local telecom companies to form partnerships for technological support, as Nora is considering doing with Sakari. Together they can submit their bid for a particular contract to TMB who is in need of technological expertise, and hopefully secure large telecom contracts.
3. Experience in JVs and Partnering
Sakari Oy has had successful experiences in JVs (Sakari-Vantala for mobile telephones and JV with Tandy Corporation). The JV with Tandy did in fact have operations in Malaysia and Thailand. Nora has been partnering with many firms such as Alcatel, for technology. Some firms are not yet ready to collaborate because they are resistant to sharing knowledge for instance, but these two firms are big collaborators which will most likely make their JV smoother.
Nora and Sakari disagree on a number aspects in addition to the percentage of the JV each company will get. For one, Sakari proposed to provide the JV company with the basic structure of the digital switch whereby the JV company would assemble the switching exchanges at the JV plant and subsequently install the exchanges in designated locations identified by TMB. On the other hand, Nora proposed that the basic structure of the switch be developed at the JV company in order to access the root of the switching technology. Also, both Nora and Sakari disagreed on the location for the dispute resolution. In addition, lack of preparation and lack of understanding on the differences due to national culture is another factor for failed negotiations.
Corporate Cultural Differences
Zainal Hashim, the vice chairman of Nora, has a number of years of experience with the company and the trust, mutual understanding, and complementary roles between he and Osman Jaafar, the founder, are attributes to the company’ success. They both had close relationships with Malaysian politicians which helped their reputation in the industry. They believed in the Japanese kaizen principal of taking small steps that will amount to major accomplishments in time. Nora is a big collaborator; it has been reaching out to other companies for technology but plans to develop their own in the future and expand their R&D that...