International Operations: International Monetary
System, Accounting andFinancial Management
Objective 1. Examine forces that shape international markets in money and energy, and the impact of these forces on business.
Objective 2. Determine how the choice of business models affects business success and requires adaptation in response to changes impacting on business.
Competency: Quantitative
literacy, critical thinking, effective communication.
Assignments
Discussions: Individual Activity
Topic 1. Financing International Operations: Prada's Foreign IPO
Most multinational companies (MNCs) secure equity funding in their home countries; however, some may choose a global IPO in which "they can simultaneously access equity from multiple countries" (Madura, 2015, p. 523). In placing the stock, these MNCs focus on a few countries where they have large subsidiaries that require financing. The MNC's stock is listed on a foreign exchange in the foreign country and is denominated in its local currency allowing investors to trade their stocks there. The local investors will only purchase stocks in a global IPO if the MNC offers a large number of stocks locally as this ensures a more liquid and active local secondary market for the stock, makes trading them easier for the local investors (Madura, 2015).
Based on the required readings and research, discuss:
• Why did Prada need additional capital?
• Why did Prada choose to issue its IPO in Hong Kong? What were the advantages and disadvantages of doing so?
• What circumstances might make a foreign IPO ineffective for a company like Prada?
• What other financing options were available to Prada?
• What currency exposure risks did Prada face? How could the company have hedged against them?
• For a family-owned private company such as Prada, how did the dilution effect of the IPO impact their control of the company?
Sources used in the development of the Prada Mini Case Study (not required reading!):
• Daniel, J.D., Radebaugh, L.H., & Sullivan, D. P. (2015). International business (15th ed.). Upper Saddle River, NJ: Pearson Education
• Madura, J. (2015). International financial management (12th ed.). Stamford, CT: Cengage Learning
Topic 2. Foreign Exchange, Accounting Issues Mini Case Study: Parmalat Scandal
2B. Parmalat Scandal: Individuals whose surnames begin with the letters N-Z respond
Madura, J. (2015). International financial management (12th ed.). Stamford, CT: Cengage Learning
Topic 2B. Parmalat Scandal Mini Case Study
In 2003, Parmalat Group, Italy's eighth largest company, and which is ranked among the top ten international food products companies, collapsed and entered bankruptcy protection after disclosing that nine billion dollars were was missing from its accounts. Its management and controlling shareholder were then indicted for fraud. Parmalat's global investors around, especially in Italy and the United States suffered severe losses as a result of that fraud (Segato, 2006).
Melis (2005) stated that "the ownership and control structure of Italian listed companies is characterised by a high level of concentration, and by the presence of a limited number of shareholders, linked by either family ties or agreements of a contractual nature (i.e. shareholders' agreements), who are willing and able to wield power over the corporation. Parmalat was a complex group of companies controlled by a strong blockholder (the Tanzi family) through a pyramidal device;" and "despite ownership disclosure rules, the structure of the group is not easy to trace, especially at an international level. This is not unusual among large Italian groups" (p. 479).
Based on the required readings and research, discuss:
• What is the role that Parmalat's management and its accounting department played in this case?
• Compare and contrast the U.S. GAAP and the IFRS; which is a better system, and why? Should the United States move to IFRS?
• Some of the Anglophone business media have branded the Parmalat case as a particularly Italian scandal, where they suggested that Parmalat's case is countryspecific that is more likely to happen in Italy than in any other country. Do you agree/disagree with this statement? Explain your rationale.
• The Parmalat case has exposed how deficient the Italian rules of corporate governance are. Explain the importance of corporate governance when doing business internationally.
Sources used in the development of the Parmalat Mini Case Study (not required reading!):
• Melis, A. (2005). Corporate governance failures: To what extent is Parmalat a particularly Italian case? Corporate governance, 13(4); 478-488.
• Segato, L. (2006). A Comparative Analysis of Shareholder Protections in Italy and the United States: Parmalat as a Case Study. Northwestern Journal of International Law & Business, 26(2), 373-446.
Topic 3. Lessons Learned
Based on your discussion of the Prada, Ecuador, and Parmalat mini cases and the course readings, discuss the broader lessons for international business and the managerial implications. What advice would you give to the company your team selected to study for Team Report #2?
Topic 4: In the News!
Post one news source in Session 7 - In the News! and explain briefly how the news story bears on this Session's course topics.
Required Readings
Chevis, G. (2014). The language of accounting: Practice differences in the U.S. and around the globe. Baylor Business Review, 32(2), 18-21.
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Edmondson, G., & Cohn, L. (2004). How Parmalat went sour. Businessweek, (3865), 46-48.
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Melis, A. (2005). Corporate Governance Failures: to what extent is Parmalat a particularly Italian Case?.Corporate Governance: An International Review, 13(4), 478-488. doi:10.1111/j.1467-8683.2004.00443.x
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Gibbons, R. (2011). Strategies to protect against global uncertainty. Financial Executive, 27(7), 52-55.
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Protect Against Loss When Managing Multiple Currencies. (2013). Controller's Report, 2013(10), 12-13.
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Berríos, R. (2006). Cost and benefit of Ecuador's dollarization experience. Perspectives on Global Development & Technology, 5(1/2), 55-68. doi :10.1163/156915006777354491
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Vasconcellos, R., & Nicklaus, G. (2011). Economic Stability and Uncertainty Combined: The Impact of Dollarization on the Ecuadorian Economy and United States Trade, 20042010. Proceedings Of The Northeast Business & Economics Association, 509-513.
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Bybee, R. (2016). Inversion Acceleration. Dollars & Sense, (324), 14.
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Surowiecki, J. (2016). Why firms are fleeing. New Yorker, 91(43), 21.
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Zargani, L., Kaisar, A., & Jones, N. (2011, January 27). Bertelli's bold move: Prada's longawaited IPO planned for Hong Kong. WWD, 201(19),
1.
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Chu, K., & USA, T. (n.d). Companies see cachet in Hong Kong.USA Today.
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