The document discusses several concepts related to market integration and economic development:
1. It defines market integration as prices following similar patterns across locations over time, with related goods moving proportionately.
2. It describes three types of integration - horizontal involving similar industries, vertical involving different stages of production, and conglomeration involving unrelated industries.
3. It outlines concepts from world-systems theory, dividing the global economy into core, semi-periphery, and periphery countries based on their role in the global market.
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Market Integration 1
The document discusses several concepts related to market integration and economic development:
1. It defines market integration as prices following similar patterns across locations over time, with related goods moving proportionately.
2. It describes three types of integration - horizontal involving similar industries, vertical involving different stages of production, and conglomeration involving unrelated industries.
3. It outlines concepts from world-systems theory, dividing the global economy into core, semi-periphery, and periphery countries based on their role in the global market.
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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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.