The case on the international joint venture, Nora-Sakari: A proposed JV in Malaysia, is both a case and an in-class simulation. The core of the case involves the process of negotiations for initiating an international joint venture (IJV). This is often the process by which a company enters an international market. You should consider for this case several questions, which will help you prepare for the in-class simulation. The focus of the class, however, is on the simulation (see below). You have been divided into two teams, one to represent each company, and you will be asked to conduct the negotiation as an in-class simulation.
The simulation will focus on the five (5) main issues outlined below and discussed in the case. Please read the case and be ready to participate in the simulation.
Case:
Nora Sakari
Optional Readings:
Rousseau et.al. “Not so different after all: A Cross-Discipline view of trust”
Zaheer and Zaheer “Trust across borders”
Duarte and Garcia-Canal “The Choice between Joint ventures and Acquisitions”
Yan and Gray “Bargaining power, management control and performance”
For the in-class simulation you have been divided into teams to represent the two companies. You should read the case and consider both companies, however you will need to develop a strategic position for your company. Your understanding of both company positions should be helpful during the negotiation.
The main concern of the class will be in the negotiations concerning the IJV between Nora, a Malaysian company and Sakari, a Finish company. These are real companies and were engaged in an actual negotiation. The names of the companies are disguised, however.
For the in-class simulation there are four issues that will need to be negotiated. These are outlined beginning on page 13 of the case (as I recall). There are five main issues that are outlined below.
Because of the short time we will have in class to conduct the negotiations, I suggest that both teams focus on the first three issues (Equity, Technology Transfer, and Royalty Payment). The last two (Expat Salaries and Arbitration) are less important. From the case, your initial positions are below, but consider alternatives going forward.
1. Equity Ownership
Sakari proposed an equity split of 49% Sakari 51% Nora
Nora proposed an equity split of 30% Sakari 70% Nora
2. Technology Transfer
Sakari proposed to provide the basic structure of the digital switch and do assembly at the IJV
Nora proposed that the basic structure of the switch be developed at the IJV.
3. Royalty Payment
Sakari proposed 5 % of IJV gross sales
Nora proposed 2% of IJV net sales
4. Expat salaries and perks
Nora has taken an unusual stance of “take it or leave it” as outlined in the case on page 15, based on the cost of living in Malaysia..
Sakari has argued that it would have to provide a large subsidy to make up the difference in salaries if these are substantially different from those in Finland.
5. Arbitration
Nora would like the arbitration to be done in Malaysia.
Sakari would like the arbitration done in Finland.
You may use the following questions to assist you in developing your bargaining positions:
1. What industry are Nora and Sakari in? in particular is this a complex global, simple global or multidomestic industry?
2. How does a company create value in this industry for its customers?
3. What special or unique aspects of an IJV affect how it can create value for customers?
4. Overall, what are the advantages or disadvantages of the IJV mode of entry? (remember that a company can enter as a wholly owned subsidiary (either through acquisition (brown field) or through organic (green field) entry or through an IJV)
