LESSON 1.
2 MARKET INTEGRATION THE CONTEMPORARY WORLD
LEARNING OUTCOMES INTRODUCTION
At the end of the lesson, the students This lesson will generally focus on the relationship of mar-
are expected to: kets all over the world. The existence of one price in two markets
indicates the degree of price transmission and the speed at which
1. Comprehended the principles gov-
information travels between two markets. Well integrated markets
erning market integration;
have very similar prices the difference being just the cost of trans-
2. Differentiated the different types of portation of the commodity from one market to another. If markets
market integration; and are integrated, they ideally have the following features:
3. Articulated a stance on global eco- A. Information travels quickly.
nomic integration. B. Demand and supply in the two markets adjust very quickly due
to efficient mobility of goods.
C. Price adjustment in the two markets also takes place freely and
quickly.
ACTIVITY
DIRECTION: Illustrate a market chain commodities flow from producers to consumers. Example of which is
the process by which our rice flows, from rice fields to our dining table. Please make your illustration clear
and comprehensive. You may refer to this link: https://tinyurl.com/2v8uaemb
ANALYSIS
Market Integration
• Integration shows the relationship of firms in a market. The extent of integration influences the market
conduct of the firms and consequently their marketing efficiency.
• Markets differ in the extent of integration and, therefore, there is a variation in their degree of efficiency.
• Market integration is a process which refers to the expansion of firms by consolidating additional market-
ing functions and activities under a single management.
There will be some difference in the prices, no doubt, but changes in the price in the two markets will again
be similar and in the same direction, that determines the degree of integration. On the other hand, a segment-
ed market is one where the terms of transaction are influenced by the location of the buyer and the seller,
much more than the transportation costs of moving the goods from one market to another.
Types of market integration
There are three basic types of market integration: Horizontal integration, Vertical integration and Conglomeration
HORIZONTAL INTEGRATION VERTICAL INTEGRATION CONGLOMERATION
In this type of integration, some Vertical integration occurs when a A combination of agencies or activi-
marketing agencies combine to firm performs more than one ac- ties not directly related to each other
form a union to reduce their effec- tivity in the sequence of the mar- may operate under a unified man-
tive number and the extent of actual keting process. It is linking togeth- agement, meeting the multiple
competition in the market. er of two or more functions in the needs of their customers, most of
marketing process with in a single whom are farmers spreading the
firm or under a single ownership. risk and helps in expanding the ac-
tivities to additional markets.
Horizontal Integration
Horizontal integration is the merger of two or more
companies that occupy similar levels in the produc-
tion supply chain. However, they may be in the same
or different industries. The process is also known as
lateral integration and is the opposite of vertical inte-
gration whereby companies that are at different stag-
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es in the production supply chain merge.
Another example. Disney-Pixar
One of the clearest example of horizontal integration Another notable example of a horizontal integration
is Facebook’s acquisition of Instagram in 2012 for a was Walt Disney Company's $7.4 billion acquisition of
reported $1 billion. Both Facebook and Instagram Pixar Animation Studios in 2006. Disney began as an
operated in the same industry (social media) and animation studio that targeted families and children.
shared similar production stages in their photo- However, the entertainment giant was facing market
saturation with its current operations along with crea-
sharing services. Facebook sought to strengthen its
tive stagnation.
position in the social sharing space and saw the ac-
quisition of Instagram as an opportunity to grow its Pixar operated in the same animation space as Dis-
market share, reduce competition, and gain access ney, but its (digitally) animated movies used cutting-
to new audiences. Facebook realized all of these edge technology and an innovative vision. The deal is
through its acquisition. Instagram is now owned by now widely considered to have literally and figuratively
reanimated Disney, expanded its market share, and
Facebook but still operates independently as its own
boosted its profits.
social media platform.
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Vertical Integration
Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors or retail loca-
tions to control its value or supply chain. Vertical integration benefits companies by allowing them to control
process, reduce costs and improve efficiencies. However, vertical integration has disadvantages, including
the significant amounts of capital investment required.
Netflix is a prime example of vertical integration. The company started as a DVD rental business before mov-
ing into online streaming of films and movies licensed from major studios. Then, Netflix executives realized
they could improve their margins by producing their own original content. Today, Netflix uses its distribution
model to promote its original content alongside programming licensed from studios.
Types of Vertical Integration
There are various strategies com-
panies use to control multiple seg-
ments of the supply chain. Two of
the most common include backward
and forward integration.
• BACKWARD INTEGRATION (e.g.
Amazon)
• FORWARD INTEGRATION (e.g.
solar power company that produces
photovoltaic products & also manu-
factures the cells used to create
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Backward integration is when a company expands Forward integration is when a company expands by
backward on the production path into manufacturing, purchasing and controlling the direct distribution or
meaning a retailer buys the manufacturer of their supply of its products. A clothing manufacturer that
product. An example might be Amazon (AMZN), opens its own retail locations to sell product is an ex-
which expanded from an online retailer of books to ample of forward integration. Forward integration
become a publisher with its Kindle platform.2 Amazon helps companies cut out the middleman. By removing
also owns warehouses and parts of its distribution distributors that would typically be paid to sell a com-
channel. pany's products, overall profitability is improved.
Conglomeration or Conglomerate Integration
A conglomerate is one very large corporation or company, composed of several combined companies, that is
formed by either takeovers or mergers. In most cases, a conglomerate supplies a variety of goods and ser-
vices that are not necessarily related to one another. The newly-formed conglomerate becomes known as the
parent company, while the smaller firms that compose it are known as subsidiaries. Each acts independently
of one another but reports back to the management of the parent company.
One common example of a conglomerate is Samsung. Samsung is one of the largest multinational conglom-
erate companies that produce a wide range of products included mobile phones, televisions, computers and
more other services. “Samsung Electronics is a global leader in semiconductors, telecommunications and dig-
ital media technologies with sales of 143.1 billion U.S. dollars in 2011 and 221,730 employees spread across
72 countries. Samsung has been the world 's largest television manufacturer since 2006 and is the world 's
largest producer of LCD panels. The company also has the greatest share of the global market for memory
chips. With the introduction of the Samsung Galaxy S mobile, the company has taken the lead in global sales
figures for smartphones as of 2011.”
ABSTRACTION
When prices among different locations or related goods follow the same patterns over a long period of time,
market integration exists. Similarly, when groups of prices often move proportionally to each other, and when
this relation is very clear among different markets, it is said that the markets are integrated. Hence, it could be
concluded that market integration is an indicator that explains how much different markets are related to each
other.
The merger of two companies at similar levels in the production supply chain is known as horizontal integra-
tion . The transaction allows companies to expand their market share and cut costs with synergies. These in-
tegrations can include companies in different industries, but they are the opposite of vertical integrations,
which include companies at difference production supply stages.
Vertical integration is when a company owns or controls its suppliers, distributors or retail locations to control
its value or supply chain. Vertical integration benefits companies by allowing them to control the process, re-
duce costs and improve efficiencies. Backward integration is when a company expands backward on the pro-
duction path into manufacturing. Forward integration is when companies control the direct distribution or sup-
ply of their products.
Conglomerates come with both risks and rewards. For some firms, the formation of a conglomerate enables
them to stay afloat and increase profitability by being able to lean on the combined efforts and resources of
multiple companies. For others, too much diversity proves to be a ticket to disaster. Finding the sweet spot
that lies between a profitable addition or two and taking on too much to manage is what makes for a success-
ful conglomerate.
ASSESSMENT REFERENCES
Make a Venn Diagram Dr. Mariano M. Ariola, LL.B.; Ed.D. L.P.T. (2018). The Contemporary World. Manila: Un-
that will show the similari- limited Books Library Services & Publishing Inc.
ties and differences be- https://tinyurl.com/47tzuhka https://tinyurl.com/vfp2y4zn
tween Horizontal Integra-
https://tinyurl.com/2vxweje8 https://tinyurl.com/yvcwnrme
tion, Vertical Integration,
and Conglomerate Integra-
Prepared by: MANUEL SANTIAGO M. RULLEN
tion. Write your answer in Faculty, College of Fisheries and Marine Sciences
a short bond paper. Bohol Island State University-Candijay Campus
