Prada's IPO

• Ms. Prada knew changing the ownership structure was the right move for Prada
• The stock market's discipline would ensure Prada's future and help with succession

IPO Details

• Prada hoped to raise 20 billion HK$ (US$2.6 billion) in the IPO offering
• Planned to sell about 423 million shares at HK$36.50 to HK$48.00
• Option to sell an additional 63 million shares if demand was strong
• Goal was to list on the stock exchange on June 24, 2011
• Started with institutional investors, then the wider investing public

Price Adjustment

• Prices began to fall due to uncertainty in global markets (European debt crisis, U.S. debt crisis, China inflation)
• Target price adjusted to HK$39.50 to HK$42.25 per share (US$5.07 to US$5.42)
• Value was estimated at 22.8 to 24.4 times 2011 expected earnings, higher than LVMH's 20.1 times earnings
• Pricing considered better in Hong Kong than elsewhere

Post-IPO Performance

• Retail investors did not participate as much as anticipated
• Prada unable to sell all shares allotted to investors
• Prices didn't initially jump significantly
• Within two weeks, prices rose 13 percent over the HK$39.50 IPO price, reaching HK$44.64

Challenges in 2016

• Prada suffered due to persistent weakness in Hong Kong, hurting sales
• Tighter visa restrictions reduced Chinese shoppers in Hong Kong
• Terrorist attacks in Paris reduced Chinese tourists to Europe
• Economic slowdown in China and a rising Hong Kong dollar hurt Prada and other luxury brands

Chapter 11: Ethics and Social Responsibility Objectives

• Describe trade-offs among stakeholders in MNE activities
• Evaluate economic effects of MNEs on home and host countries
• Explain foundations of ethical behavior
• Identify cultural foundations of ethical behavior
• Illustrate how ethical behavior is affected by legal attitudes
• Show how corruption and bribery affect cultural, legal, and political forces
• Summarize roles of governments and companies in resolving environmental issues
• Demonstrate how global labor issues need to be addressed by MNEs
• Restate how codes of conduct can help MNEs respond to stakeholder concerns over responsible corporate behavior

The Greening of GE

• GE launched its Ecomagination Initiative in 2005
• The initiative aimed to combine imagination with advanced technology to improve the world.
• GE made five commitments:.
  • Reduce greenhouse gas emissions and improve energy efficiency
  • Double investment in clean technologies R&D
  • Increase revenues from clean technologies
  • Reduce global water use by 20 percent
  • Keep the public informed
• GE evaluated business unit managers' success in reducing carbon emissions, in addition to profitability and ROI
• GE aimed for a 1 percent reduction from 2004 GHG emission levels by 2012
• The company reduced the intensity of GHG emissions by 30 percent by 2008
• Improved energy efficiency by 30 percent by 2012

Internal Changes

• GE assembled a cross-business, cross-functional team to oversee planning and monitor progress
• By 2014, GHG emissions reduced by 31 percent from the 2004 baseline exceeding 25 percent forecast
• Improved energy intensity by 32 percent from 2004 levels

Global Political Environment

• Jeffrey Immelt (CEO) enlisted the Belgian and Japanese governments in the global ecological discussion
• GE allied with other green-minded corporations to lobby American lawmakers on mandatory GHG reductions
• GE joined the U.S. Climate Action Partnership to shape the international political debate over global warming

Technological Tactics and Eco-Friendly Products

• GE geared up to double R&D investment in clean technologies like Renewable energy, water purification, and fuel-efficient products
• GE spent $10 billion on R&D investment between 2010 and 2014.
• GE announced that it would reduce water usage by 25% from the 2006 baseline and it achieved a 42% reduction by 2014
• GE marketed 17 Ecomagination products initially, 90 by 2009 generating $105 billion, 140 in 2011
• By 2014, revenues over the 2010-2014 period had increased to $200 billion

Energy Sector

• There was $30 Billion generated in revenues with 30,000 wind turbines in operation
• GE acquired Alstom's energy business that gave GE access to Alstom's giant offshore wind turbine technology

Strategic Position

• GE regarded its Ecomagination strategy as a necessary response to customer demand
• GE spent 18 months working with industrial customers in two-day "dreaming sessions" to imagine life in 2015 and the products they would need for such
• Results were a the indelible impression that customers and the social and political environments would demand more environmentally "clean" products

Challenges Facing GE

• Major challenges GE faces are Adopting a green strategy while keeping all stakeholders happy
• Balancing environmental impact: Reduce carbon footprint or develop products that fit their Ecomagination strategy

Internal Changes

• Asian and European competitors had already begun investing in cleaner technologies
• GE is also focusing on emerging markets due to growth spurring infrastructure needs and curbing pollution

Mixed Reactions

• GE reached ninth on Fortune's "Most Admired Companies" list for 2015
• Earned a place on the Dow Jones Sustainability Index
• Generated skepticism regarding markets materializing and developing nation participation
• Faces implementing changes due to historic incremental product strategies accustomed to time-tested strategies

Introduction

• Globalization affects society and managers' judgments as they interact with different laws and cultures to be socially responsible
• Doing business abroad is not easy because the greater the “distance” from one's home country from Culture, Administrative/political, geographic, and economic considerations

Stake Holder Trade-offs

• Company must satisfy stakeholders including shareholders, employees, customers, suppliers, and soceity
• Idea of shared value is difficult but many MNEs feel it is worth effort
• Shareholders generally want additional sales and increased productivity resulting in higher profits and returns
• Employees generally want safer workplaces and higher compensation
• Customers want higher-quality products at lower prices while society would like to see more jobs, increased corporate taxes and more trustworthy behavior from corporate executives
• Actions elicit universal agreement but other situations are less clear.

Long versus Short Term

• In the long term, all aims of the corporation must be adequately met to prevent power from any stakeholder groups
• Pressure groups reflect interest of any stakeholder group and lobby governments to regulate MNE activities

Factors of MNE Impact

• Companies can do business abroad that may be strongly affected by it's operations
• Some of the ways that MNE activities can affect the operating environment is through corruption and bribery, environmental impact like air and water pollution and labor policies
• Measure MNE impact depending on stakeholder ability to understand cause-and-effect relationships and individual versus aggregate effects

Individual FDI vs. Aggregate Effects

• Some countries evaluate MNEs and their activities on an individual case-by-case basis
• Some other countries prefer all MNEs applying the same policies and controls for all MNEs which may risk missing good opportunities

Balance-of-Payments Effects

• This refers to trade and capital flows that result from FDI
• Host Country generally wants capital inflow to import goods and services and to pay off debt.

FDI Scenarios

• Scenario 1- Mexican MNE purchases Haitian company when the MNE makes no change resulting in profitability drain
• Scenario 2- Mexican MNE purchases resources in Haiti for production that increases foreign exchange reserves as consumers reinvest

Analyzing the Effect of FDI

• There is a basic equation for analyzing the effect of FDI on a host country’s balance of payments. Where
• B = balance-of-payments effect
• m = import displacement
• m₁ = import stimulus
• x = export stimulus
• x1 = export reduction
• c = capital inflow for other than import and export payment
• C₁ = capital outflow for other than import and export payment

Import Side

• Note the amount that Toyota provides what Brazil would import due to increases in national income caused by capital inflow from Japan leading to R$50 million
• Consult the Marginal Propensity to Import of which is portion due
• Evaluate both net import effect and net export effect assuming Toyota sales substitute

Net Capital Flow

• It has greatest degree because it's controlled by Central banks due to time lag, depending on if more funds are taken than originally sent.
• After some time however usually returns due to the ability of dividend paybacks back to companies in excess

Growth and Employment Effects

• In contrast to balance-of-payments, MNE effects on growth and employment don’t necessarily have zero-sum outcome
• MNE will operate with domestic operation that is limited say by high transportation cost when deciding to go to a production facility
• Setting up in a foreign country is preferable as it might create additional domestic hiring leading to export sales and royalty
• MNEs often make investments where domestic companies could be out

The Foundations of Ethical Behavior

• Ethical behavior tends to focus on Individuals that decide behavior, even though management determine company espouses.
• Levels of Moral Development include Level 1. Where right and wrong is unclear.
• Level 2. we learn society's laws.
• Level 3. Individuals internalize to their own accord but not because they are afraid

Individual Reasoning through ethics

• One process that is teleological approach which comes from the consequences of the action
• Utilitarianism means to produce the greatest good for the greatest amount of people
• A second process is the deontological approach which reasons independent of consequences with people having a responsibility not to do wrong

How to Apply Company Ethics

• Some factors include the two point objective of how we develop a competitive advantage and to avoid seeming irresponsible.
• Some suggest to encourage strategic and financial successes that can foster trust -NGO's are becoming more public in corporate practices
• Governments want to ensure individual and cooperate consistent of broader community

Foundation of Ethical Behavior

• Ethical Behavior varies by country, if there are uniform values that everyone should share
• Relativism means a point to accept significant differences and adopt customs
• Normativism contrast is to accept regardless of influence and adapt to local conditions