MARKET

INTEGRATION
Market Integration

▪ Occurs when prices among different location or

related goods follows similar patterns over a
long period of time. Groups of goods often
move proportionally to each other and when
this relation is very clear among different
market it is said that the market are integrated
▪ A process which refers to the expansion of firms
by consolidating additional marketing functions
and activities under a single management
Types of Market Integration

There are three basic kinds of market

Integration:
🢭 Horizontal Integration

🢭 Vertical Integration

🢭 Conglomeration
Horizontal Integration

▪ Horizontal integration is another competitive

strategy that companies use. An academic definition
is that horizontal integration is the acquisition of
business activities that are at the same level of the
value chain in similar or different industries.
▪ In simpler terms, horizontal integration is the
acquisition of a related business: a fast-food
restaurant chain merging with a similar business in
another country to gain a foothold in foreign
markets.
When is horizontal integration
attractive for a business?
A company can think of acquisitions and mergers for
horizontal integration in the following situations:
▪ When the industry is growing
▪ When rivals lack the expertise that the company
has already achieved
▪ When economies of scale can be achieved
▪ When the company can manage the operations of
the bigger organization efficiently, after the
integration
Advantages of horizontal integration

▪ Economies of scale: The bigger, horizontally

integrated company can achieve a higher production
than the companies merged, at a lower cost.
▪ Increased differentiation: The company will be able
to offer more product features to customers.
▪ Increased market power: The new company,
because of the merger of companies, will become a
bigger customer for its old suppliers. It will
command a bigger end-product market and will
have greater power over distributors.
Advantages of horizontal integration

▪ Ability to enter new markets: If the merger is

with an organization abroad, the new
company will have an additional foreign
market.
Disadvantage of Horizontal
Integration
▪ Regulatory Scrutiny
the reason why antitrust laws are in place.
These laws prevent big corporations from
acquisitions and mergers that would narrow the
competitive market and possibly create a
monopoly. This is seen as being a predatory act,
giving one player dominance in the market
Disadvantage of Horizontal
Integration
▪ Stunting economic growth of the new enterprise.
▪ Reduced flexibility: This happens because the
company is now a larger organization. The
addition of more personnel and processes means
the need for more transparency and therefore,
more accountability and red tape.
▪ Destroying value rather than creating it: This
happens because the synergies never materialize
despite the costs of the horizontal integration.
Vertical Integration

▪ Vertical integration is a competitive strategy

by which a company takes complete control
over one or more stages in the production or
distribution of a product.
▪ A company opts for vertical integration to
ensure full control over the supply of the raw
materials to manufacture its products. It may
also employ vertical integration to take over
the reins of distribution of its products.
Vertical Integration

▪ A classic example is that of the Carnegie Steel

Company, which not only bought iron mines
to ensure the supply of the raw material but
also took over railroads to strengthen the
distribution of the final product. The strategy
helped Carnegie produce cheaper steel, and
empowered it in the marketplace.
Types of vertical integration
strategies
Types of vertical integration
strategies
▪ As we have seen, vertical integration integrates
a company with the units supplying raw
materials to it (backward integration), or with
the distribution channels that carry its products
to the end-consumers (forward integration).
▪ There is a third type of vertical integration,
called balanced integration, which is a judicious
mix of backward and forward integration
strategies.
When is vertical integration
attractive for a business?
▪ The current suppliers of the company’s raw
materials or components, or the distributors of its
end products, are unreliable
▪ The prices of raw materials are unstable or the
distributors charge high fees
▪ The suppliers or distributors earn big margins
▪ The company has the resources to manage the
new business that is currently being taken care of
by the suppliers or distributors
▪ The industry is expected to grow significantly
Advantages of vertical integration

▪ smoothen its supply chain (by ensuring ready

supply of tires and electrical components in the
exact specifications that it requires)
▪ make its distribution and after-sales service
more efficient (by opening its own showrooms)
▪ absorb for itself upstream and downstream
profits (profits that would have gone to the tire
and electrical companies and showrooms
owned by others)
Advantages of vertical integration

▪ increase entry barriers for new entrants (by

being able to reduce costs through its own
suppliers and distributors)
▪ invest in specific functions such as tire-making
and develop its core competencies
Disadvantages of vertical integration

▪ The quality of goods supplied earlier by external

sources may fall because of a lack of competition.
▪ Flexibility to increase or decrease production of
raw materials or components may be lost as the
company may need to sustain a level of
production in pursuit of economies of scale.
▪ It may be difficult for the company to sustain
core competencies as it focuses on the
integration of the new units.
Conglomeration

▪ A conglomerate is the combination of two or

more business entities engaged in entirely
different businesses that fall under one
corporate group, usually involving a parent
company and many subsidiaries. Often, a
conglomerate is a multi-industry company.
Conglomerates are often large and
multinational.
Disadvantages of Conglomeration

▪ One of the main knocks on conglomeration is

the potential vulnerability that comes with
possibly being spread too thin. When multiple
companies are all independently producing
goods and services that must then be bundled
and distributed by one parent company, one
weak link in the system can bring a
conglomerate down.
World-systems theory

▪ is a multidisciplinary, macro-scale approach to 

world history and social change which
emphasizes the world-system (and not 
nation states) as the primary (but not exclusive)
unit of social analysis.
▪ "World-system" refers to the inter-regional and
transnational division of labor, which divides the
world into core countries, 
semi-periphery countries, and the 
periphery countries.
Core countries

▪  the core countries are the industrialized 

capitalist countries on which periphery countries
 and semi-periphery countries depend. Core
countries control and benefit from the global
market. They are usually recognized as wealthy
nations with a wide variety of resources and are
in a favorable location compared to other states.
They have strong state institutions, a powerful
military and powerful global political alliances.
List of current core countries

Australia Austria Belgium Canada Denmark

Finland France Germany Ireland Italy
Japan Netherland New Zealand Norway
Portugal
Spain Sweden Switzerland
United Kingdom United States
Semi-periphery countries

▪  the semi-periphery countries are the industrializing

, mostly capitalist countries which are positioned
between the periphery and core countries. Semi-
periphery countries have organizational
characteristics of both core countries and periphery
countries and are often geographically located
between core and peripheral regions as well as
between two or more competing core regions. Semi-
periphery regions play a major role in mediating
economic, political, and social activities that link
core and peripheral areas.
Lists of semi-periphery countries

Argentina Brazil China Hong Kong India

Indonesia Iran Israel Mexico
Singapore South Korea
South Africa Taiwan
Periphery countries

▪  the periphery countries  are those that are less

developed than the semi-periphery and core countries.
These countries usually receive 
a disproportionately small share of global wealth. They
have weak state institutions and are dependent on –
according to some, exploited by – more developed
countries. These countries are usually behind because of
obstacles such as lack of technology, unstable
government, and poor education and health systems. In
some instances, the exploitation of periphery countries'
agriculture, cheap labor, and natural resources aid core
countries in remaining dominant.
List of current periphery countries

Bangladesh Benin Bolivia Burkina Faso Burundi

Central African Republic Chad Chile China Congo
Gambia Ghana Guinea-Bissau Haiti Honduras
India Indonesia Kenya Lesotho Madagascar
Malawi Mauritania Nepal Niger Nigeria
Papua New Guinea Philippines Rwanda Senega
Sierra Leone Solomon Islands Sri Lanka Sudan Togo
Zambia
 Economic Development during and
after World War II
▪ Frieden sees the development of economic
globalization after WWII in the context of this prior
epoch of economic globalization, as well as its collapse
as a result of WWI, the Depression and WWII.
▪ Particular importance in the 1930s was the movement
of many countries, notably Facist of Italy and Germany.
▪ Turning inward of a nation is an anathema to
globalization which requires the various entities,
including nation states be outward looking, rather than
inward looking , not only in the way they view the
world but also in their actual dealings with other parts
of the world.
▪ In midst of WWII, US and Great Britain began
planning for a more open international economy.
▪ A great fear was the recurrence of the Depression
after the end of WWII
▪ There was a fear of a resurrection of barriers to
trade and the free flow of the money that had
become common place prior to WWII.
▪ The focus of the planners was on reducing trade
barriers and on creating conditions necessary for
the free flow of money and investment
▪ This cause a meeting in July 1944 at the Mount
Washington Hotel in Bretton Woods, New
Hampshire, which led to the beginning of the “
Bretton Woods System “.
Bretton Woods and the Bretton Wood System
▪ A key factor in the Depression in World War is the
lack of cooperation that was associated with high
tarrifs and other import restrictions and
protectionist practices.
▪ 5 key elements of Bretton Woods system:
1. Each participating state would establish a “par
value” for its currency expressed in terms of gold or in
terms of gold value of the US dollar.
2. The official monetary authority in each country
would agree to exchange its own currency for those of
other countries at the established exchange rates,
plus/minus a one-percent margin.
 3. The IMF was created to establish,
stabilize, and oversee exchange rates.
4. The member states agreed to
eliminate, at least eventually, “all
restrictions on the use of its currency for
international trade.”
5. The entire system was based on the
US dollar. The US agreed to make the
dollar convertible into other currencies or
gold at the fixed par value.
▪ In term of global trade a key was the
idea of the “unconditional most
favored naton” which “required
government to offer the same trade
concession to all.
▪ In term of monetaty order, it was the
IMF that took center stage.
▪ In term of global investment a key
role was envisioned for the World
Bank
▪ The global openness encouraged
by Bretton Woods also contributed
to the emergence or expansion of
social welfare programs, indeed the
welfare state , in many countries.
▪ The combination of all these aspect
and dimesion of Bretton Woods
satisfied many different nations
and constituencies.
▪ General Agreement on Tarrifs and Trade (GATT)
is a system for the liberalization of trade that
grew out of Bretton Woods that started on
1947. But it was superseded by World Health
Organization in which, it took the responsibility
for the increasingly important trade in services
while the GATT focuses on trade of goods.
▪ (WTO) World Trade Organization’s focus on
trade places is at the heart of economic
globalization and has made it a magnet for
those opposed either to the broader process of
trade liberalization.
▪ (IMF) International Monetary Fund’s goal
is a macroeconomic stability for both
member nations and the global
economy.
-Could also give adjustment loans to
nations in disequilibrium so that they are
able to meet their international
obligations.
▪ World Bank (WB) it provides fund to the
government –sponsored or guaranteed program in member
states that are middle-income or creditworthy poorer nation
▪ Missions:
1. Encouraging development of productive facilities
and resources in less developed countries.
2. Funding for productive purposes when private
capital cannot be obtained on reasonable terms.
3. Encouraging international investment in order to
promote international trade and development and
equilibrium in balance of payments.
4. Helping member countries improve their
productivity, standard of living, and labor conditions.
A Critic of a Bretton Wood System
▪ Joseph Stiglitz – one of the
effective critics because its critique
is powerful because of great
practical experience.
-he argues that economic
globlization can be a positive force
and can enrich everyone in the
world including the poor.
▪ IMF was to maintain global stability by dealing
with macroeconomic issues such as
“government’s budget deficit, its monetary
policy, its inflation, its trade deficit, , its
borrowing from abroad.”
▪ Another criticism of IMF is the lack of
transparency in its decision making and in its
operations.
▪ Stiglitz lays much of the blame for the
East Asian financial crisis of the 1990s
on the IMF, especially its push to
liberate capital accounts. While this
serve to open East Asian countries to
investment, it also served to make
them vulnerable to large and irrational
movements of funds, especially out of
East Asia.
Other Important Economic Organization
▪ The Organisation for Economic Co-operation and is
an intergovernmental economic organisation with
36 member countries, founded in 1961 to stimulate
economic progress and world trade. Most OECD
members are high-income economies with a very
high Human Development Index (HDI) and are
regarded as developed countries. As of 2017, the
OECD member countries collectively comprised
62.2% of global nominal GDP (US$49.6 trillion) and
42.8% of global GDP (Int$54.2 trillion) at purchasing
power parity. The OECD is an official United Nations
observer. While the OECD has little formal power, It
is highly influential.
▪ The European Union (EU) is a
product of the post-WWII era, as
well as the Bretton Woods era, and
now encompasses 27 member
states. It is the largest domestic
market in developed world, with
over 500 million citizens.
▪ The North American Free Trade Agreement (NAFTA)
came into effect on January 1, 1994. It was based on
the idea that the US, Canada, and Mexico were to
eliminate most barriers to trade and investment over
ensuing 15 years.
▪ Mercosur, sometimes called as Southern Common
Market, was created by the Treaty of Asuncion in
1991 with the goal of a common market in South
America by 1995 (Roett 1999).
▪ The Organization of Petroleum Exporting Countries
(OPEC) was formed in 1960 and included the major oil
exporters of the day-Iran, Iraq, Kuwait, Saudi, Arabia,
and Venezuela (there are now 11 members:
Indonesia, Algeria, Libya, Nigeria, Qatar, and the
United Arab Emirates have been added).
The Multinational Corporation (MNC)
By most accounts, the other major player in economic
globalization is the multinational corporation (MNC). Also of
Importance are transnational corporation (TNCs). While TNCs
involve operations in more than one country, MNCs operate
in more than two Countries.
MNC activity is usually measured by foreign direct investment
(FDI). This Involves investment by one firm in another firm
that exist abroad in a different nation-state, with the
intention of gaining control over the latter’s operations. It can
also involve setting up a branch (subsidiary) operation in
another country. Another form of MNC activity is portfolio
management. This involves the purchase equity in companies
in other countries.
▪ 
Transnational Capitalism
▪ Leslie Sklair (2002) made distinction between two
systems of globalization. Capitalist System -
Capitalism refers to the economic system prevalent
in the country, where there is private or corporate
ownership on the trade and industry. The economic
structure in which the government has ownership
and control over the economic activities of the
country is known as Socialism. Capitalist System of
globalization is now the predominant one. It is not
yet in existence but is indicated by current anti-
globalization movements, especially those oriented
toward greater human rights throughout the world.
▪ These anti-globalization movement
came out of frustrations to the
dominant system. The capitalist
system, as being argued, causes
further inequality in the world and
heightens environmental
degradation.
▪ Economic transnational practices
are able to transcend geographical
boundaries.
▪ Predominate – is the idea that capitalism
has moved away from an being an
international system becoming a
globalizing system that is decoupled from
any specific geographic territory or state.
▪ Political
▪ Culture-Ideology – adding an interest in
consumption to the traditional concern
with production and transnational in
economic approaches in general.