1.0 SOURCE PROBLEMThe negotiations did not materialize into a joint venture due to the problem source of difference in cultures, difference in management styles as well and mindset difference that resulted and in ability of both parties to compromise of key issues.2.0 SECONDARY PROBLEMThe negotiation process has broken down due to the disagreement over numerous issues concerning the development of a joint venture. The disagreements of objectives are based in the areas of equity, technology transfer, royalty payments, and expatriate salaries.Below are the points of the negotiations disagreements.A) Equity OwnershipBoth agreed to form the JV with a paid-up capital of RM5 million, but disagreed on the equity share proposed by each side.
30 per cent for Sakari and 70 per cent for Nora split
Common practice in Malaysia as a result of historical foreign equity regulations set by the Malaysian government that allowed a maximum of 30 per cent foreign equity ownership
Concern for its ability to exert control
49 per cent for Sakari and 51 per cent for Nora.
Equity ownership was a major issue because it was associated with control over the JV company. Sakari was concerned about its ability to control accessibility of its technology to Nora.
B) Technology Transfer
Proposed that the basic structure of the switch be developed at the JV company in order to access the root of the switching technology
Nora felt that this was the only the technical aspects in assembling and installing the exchanges would be obtained. Sakari's proposal kept the core of the technology hidden from Nora.
Proposed to provide the JV company with the basic structure of the digital switch and assemble the switching exchanges at the JV plant and subsequently install the exchanges in designed locations identified by TMB.
By offering Nora only the basic structure of the switch, the core of Sakari's switching technology would still be well-protected.
knew that the technology was their core competency so in light of this Sakari felt it had to be retained
proposed a payment of 2% of the net sales.
Financial simulations prepared by Nora's managers indicated that Nora's return on investment would be less than the desired 10% if royalty rates exceeded three per cent of net sales.
Proposed a royalty payment of 5%t of the JV gross sales
Expatriates' Salaries and Perks
Senior experts - RM24,300 - RM 27,900
Expert - RM 22,500 - RM 25,200
Junior expert - RM 20,700 - RM 23,400
Plus other benefits
Short-term (temporary workers)
Senior Expert - RM1,350 per working day
Expert - RM 1,170 per working day
Plus other benefits
Reason: Felt Salaries Perks should be lower because of the average industry rates were lower and cost of living in Malaysia was lower than in comparison to Finland.