MARKET INTEGRATION

Economy is composed of people. The people is the social institution that organizes everything
happening in the society; production, consumption, and trade of goods.

 There are many ways in which products can be made, exchanged, and used
 Think about capitalism and socialism.
 These economic systems - and the economic revolutions that created them - shape the way
people live their lives.

Market Integration refers to a situation in which the prices of related goods and services sold in a
defined geographical location, also begin to move in some sort of similar pattern to one another.

When markets are integrated, the supply of food adjusts spatially to meet demands.

Learning Objectives:
1. Narrate a short history of global market integration in the 20th century
2. Identify the attributes of global corporations
3. Explain the role of international financial institutions in the creation of a global economy.

History of Global Market Integration

 19th Century
 Global market integration became a reality because of the advance development of
technology
 From the development of steam engines down to the development of railroads and ports
which paved way to faster world transport network.

 1913
 Market integration first peaked in 1913 when unfettered markets ruled the day

 Integration declined over the next 60 years as countries experienced the Great Depression and
shunned international capital markets.
 Global market integration began when large American companies began to emerge after the
second world war.
 International telegraph buy Avis Car rental, Hotel Sheraton, continental banking, and more.
 Then, Japan and Europe followed suit.

The two revolutions of history of global market integration are the agricultural revolution and the
industrial revolution.

The Agricultural Revolution - it is the name given to a number of cultural transformations that initially
allowed humans to change from a hunting and gathering subsistence to one of agriculture and animal
domestications.

The Industrial Revolution transformed economies that had been based on agriculture and handicrafts
into economies based on large scale industry, mechanized manufacturing, and the factory system.
- New machines, new power sources, and new ways of organizing work made existing industries more
productive and efficient.

Global Market Integration

- Market Integration in the Global Economy refers to the degree to which distinct markets different
regions or nations operate as a single market.
- This operation is often indicated by similar prices and a high volume of cross-border transactions.

Market integration is a crucial aspect of globalization, as it refers to the process of removing trade
barriers and allowing for the free flow of goods, services, and capital across international borders.
All goods imported into the Philippines are subject to duty and tax upon importation, including goods
previously exported from the Philippines, except as otherwise provided for in the CMTA (Customs
Modernization and Tariff Act - RA 10863) or in other laws.

The Philippines applied duty rates for certain products to protect local producers.

DEGREE OF INTEGRATION
 Ownership Integration
- This occurs when all the decisions and assets of a firm are completely assumed by another firm.
Example: a processing firm which buys a wholesale firm

 Contract Integration
- This involves an agreement between two firms on certain decisions.
Example: tie up of a company with traders to supple grains.

3 BASIC TYPES OF MARKET INTEGRATION

 Horizontal Integration
- This occurs when a firm or agency gains control of others firms or agencies performing similar
Marketing functions at the same level in the marketing sequence.
- it helps companies grow in size and revenue, expand into new markets, diversify product
Offerings, and reduce competition.
- Some well-known recent examples of horizontal integration include Walt Disney Company’s
Acquisition of 21st Century Fox and Facebook (Meta) acquisition of Instagram. Same with PDLT
and Globe, as well as SM Investments Corporations and 2GO group inc.
- Disney, Facebook, and Coca-Cola are good examples of horizontal integration: they mergedwith
their competitors and smaller companies from the same niche to gain a bigger market share.
- If a company owns every bit of a production process, then it is known as horizontal monopoly.
- Horizontal Integratuion was made famous by John D. Rockfeller’s Standard Oil Company
 Three primary forms of Horizontal Integration
 Mergers - the joining of two similar sizes, independent companies to make on joint
entity. Example : Bank of the Philippine Islands and Far East Bank and Trust Co. Merger
in 2000.
 Acquisitions - the purchase on another company. Example: Jollibee Food Corporation
acquiring Mang Inasal for P3 billion with 30% being retained by the original owner.
 Internal Exapansions - is a strategy business use to grow organically, focusing on
enhancing existing operations, products, and markets. It’s about leveraging core
strengths to innovate and increase market share without merging with or acquiring
other companies
 Among the benefits of the Horizontal Integration are an increase in market share, reduced
competition, and increases in other synergies.
 There are also disadvantages, such as antitrust issues and legalities, a reduction flexibilty,
and destroying value rather than creating it.

 Vertical Integration
- It is a business arrangement in which company controls different stages along the supply
chain
- Instead of relying on external suppliers, the company strives to bring processes in-house to
Have better control over the production process.
- The most famous vertical integration examples are Apple, McDonald’s, and Amazon.
- A good example of vertical integration is Apple, which keeps controlling the whole
Manufacturing process. Having used to outsource producing some parts before, the
Company now manufactures basically everything; from chipsets to cases
- In the Philippines, fast food giant Jollibee, is the epitome of efficient vertical integration as
The brand controls the manufacture of its primary products, logistics and sale of the
Products through retail outlets.
- Vertical integration can be difficult to capitalize on - it’s costly, complex and not easily
 Undone.
- However, when well executed, it can confer a number of advantages, including greater
control, reduced costs, increased profitability, better product or service quality, increased
customer and market insights and more.

 Conglomeration
- a conglomerate is a type of multi-industry company that consists of several different and
unrelated business entities that operate in various industries under one corporate group.
-For some firms, the formation of a conglomeration enables them to stay afloats the increase
profitability by being able to lean on the combined efforts and resources of multiple
companies.
- Example: Amazon, Meta (formerly Facebook), Johnson and Johnson, and Warner media. All
of these companies own many subsidiaries.
- In the Philippines, Ayala Corporation is another prominent conglomerate in the Philippines.
Its diverse business portfolio includes real estate development, banking and financial
services, water utilities, telecommunications, and power generation.
- San Miguel Corporation, SM investments, BDO, PLDT, Aboitiz, Jollibee, and many more.
- Conglomeration allows a company to diversify its revenue stream, reduce its market risk,
and the possibility of a takeover.
- If not managed well, conglomerates can lead to vulnerabilities in the parent company by
being spread too thin from managing too many companies
- Despite its rarity, conglomerate mergers have several advantages; diversification, an
expanded customer base, and increased efficiency
- Through diversification, the risk of loss lessens. If one bussiness sector performs poorly, the
other better-performing business units can compensate for the losses.

THE IMPACT OF MARKET INTEGRATION TO GLOBAL ECONOMY

 Increased economic efficiency:
- Market integration allows for the efficient allocation of resource, enabling countries to
specialize in the production of goods and services in which they have a comparative
advantage.
- Market integration has a profound impact on global trade and economy
- It leads to greater synchronization in price movements, a wider range of suppliers and
commodities, and improved market efficiency

SUMMARY
 Market Integration is the interconnectivity of prices among different locations or related goods
 Reduced transportation cost, the minimization of trade barriers, and advancements in
communication technology have all contributes to increased market integration.
 Market Integration is important because it Increased economic efficiency.
 Market integration allows for the efficient allocation of resources, enabling countries to
specialize in the production of goods and services in which they have a comparative advantage.
 Lower prices: Market Integration often leads to increased competition among businesses, which
can result in lower prices for consumers.
 This means that an ordinary person can potentially afford more goods and services, improving
their overall standard of living.