What do you feel are the best justifications for Prada to issue the IPO in Hong Kong? Are there any downsides to their decision to list in Hong Kong?
Prada is well justified to issuing an IPO in Hong Kong. Trading in Hong Kong market can sufficiently raise capital for Prada to a significant degree because it is the most significant IPO market across the globe. Hudders (2015) mentioned that t he company is in great need of capital for its expansions and to maintain a clique in the market.
Delegate your assignment to our experts and they will do the rest.
The major downside to their decision to list in Hong Kong is that Hong Kong is immensely far from Italy which is Prada’s home base. The company might, therefore, lack the home advantage of doing business.
Given the downturn in the economy in Hong Kong and China, what do you think Prada's future is in the region?
The downtown in the economy in China can pose a possible threat to the future of Prada in the region. An increase in the interest rate and fall in the economy affects the amount of disposable income available for spending. When retail investors do not come to the stock exchange market, it becomes impossible for Prada to sell the shares that are allotted to such investors. Prada deals with high-quality products of high costs, and thus, downtown in the economy will adversely affect retailers who visit their shops to purchase the goods.
Why did Prada need to raise additional funds?
The Italian company, Prada is renowned as a manufacturer of luxury products. The products are tailored for buyers of high status who are looking for high-quality products. That said, the company’s need to raise more revenue in the form of equity is entirely complicated (Yan, 2017). Prada is a family based company, and expansion would be a significant departure from the first corporation’s central ideals. Trading in the world’s largest IPO market would also be a substantial boost in raising its capital.
Also, Prada is in great need of a large quantity of capital with a view if paying off their present debts that continue expanding. Additionally, it is looking for an avenue to expand its operations in markets that are coming up, for instance, Asia, and thus needs capital to pursue such an opportunity quickly (Phau & Teah, 2016).
What types of foreign-exchange risks do Prada face and what advice would you give them to hedge against their risk?
Prada is faced with a number of foreign exchange risks. Prada is presently faced with high debt ratio. It has to deal with up to four separate currencies; USD, Japanese yen, British pounds and Chinese renminbi. That is equally coupled up with inflation rates, economic growth/recession, interest rate, technical factors, demand and supply among other factors. Prada is faced with high-interest rates that make people borrow less and also, spend less.
Another significant risk factor is a possible loss of quality. Quality items are a key reason why it attracts high-class individuals. A decline in quality items implies a potential loss of the market share (Narizwana & Darma, 2016). Currently, it faces stiff competition from other companies. It has to work efficiently to maintain its own share of the market.
Hedging of the risks is a significant option. There is need to do a strategic audit of their finances to ensure growth and in quality maintenance. Currency conversion from Hong Kong dollar to Euro can cause issues and therefore should be evaded.
References
Hudders, L. (2015). Why the devil wears Prada: Consumers’ purchase motives for luxuries. Journal of Brand Management , 19 (7), 609-622.
Narizwana, A. H., & Darma, D. B. (2016). Defense Mechanism of Miranda Priestly in Lauren Weisberger’s The Devil Wears Prada. Litera~ Kultura , 4 (1).
Phau, I., & Teah, M. (2016). Devil wears (counterfeit) Prada: a study of antecedents and outcomes of attitudes towards counterfeits of luxury brands. Journal of consumer marketing , 26 (1), 15-27.
Yan, L. (2017). An Analysis on The Devil Wears Prada from the Perspective of New Feminism.
