M A R K E T

I NT E G RA T I O N
MARKET INTEGRATION
• It refers to the process of bringing together different markets or economic systems so
that they function as a single, unified market.

• This is typically achieved through the removal of barriers to trade and investment, such
as tariffs, quotas, and regulatory barriers, and the creation of a common set of rules and
standards for conducting business.

• It occurs when prices among different locations or related goods follow 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 markets it is said that the markets are integrated.
 TYPES OF MARKET
HORIZONTAL INTEGRATION
VERTICAL
INTEGRATION INTEGRATION CONGLOMERATION
This takes place when a firm does
This is when an agency controls other several activities in the order of the A conglomeration is a combination of
firms with the same marketing tasks at marketing process. It is combining two activities not directly linked to one
a similar level in the marketing pattern. roles in the marketing process in a another and functions under united
single firm or with single ownership. management.
Therefore, some marketing agencies
unite to build a union to decrease their This type of integration enables control
effective number and real competition over the quality and quantity of the
in the market. It gives main advantages product from the start of the production
for the new members. process till when the product is ready
for sale. It cuts the number of
intermediaries in the marketing
channel.
HORIZONTAL INTEGRATION
Horizontal Integration can occur when a company merges with, acquires or takes over
another company in the same production stage within the same or a similar industry:

• Merger: A merger is the process of joining two independent companies of a similar

size to create a new single joint entity.

• Acquisition: An acquisition is the process of one company purchasing another

company.

• Takeover: A takeover is the process of one company acquiring another company

that wants to remain independent.
 ADVANTAGES OF
HORIZONTAL INTEGRATION
INCREASE OF MARKET POWER
Horizontal integration can increase market power by allowing companies to expand their operations and
gain a larger market share. This can result in several benefits, including:
• Increased pricing power: A company with a larger market share may have greater pricing power
as it can potentially raise prices without losing significant market share. This can result in
increased profitability and revenue.
• Reduced competition: horizontal integration can reduce competition in the market as the merged
or acquired companies can potentially dominate the industry. This can result in increased market
power and profitability for the company.
• Access to new markets: horizontal integration can provide companies with access to new
markets and customer segments. This can allow them to diversify their revenue streams and
reduce their dependence on existing markets.
INCREASE OF MARKET POWER
• Improved bargaining power: a company with a larger market share may have improved
bargaining power with suppliers and customers. This is because a larger company has more
leverage in negotiations and can potentially negotiate better terms and conditions.
• Improved efficiency: horizontal integration can result in improved efficiency and cost savings as
the merged or acquired companies can potentially share resources and eliminate redundant
activities.
However, an increase in market power through horizontal integration can also raise concerns about anti-
competitive behavior and potential negative effects on consumers. As a result, companies must comply
with antitrust laws and regulations to prevent unfair competition and ensure that consumers are not
harmed.
IMPROVED OF ECONOMICS OF
SCALE
Horizontal integration can improve economies of scale by allowing companies to achieve cost savings as
they increase the volume of output. This can result in several benefits, including:
• Spreading fixed costs: As a company acquires or merges with another company in the same
industry, it can potentially spread fixed costs over a larger volume of output. This can lead to lower
average costs per unit and increased profitability.
• Increased purchasing power: A larger company may have increased purchasing power as it can
potentially negotiate better prices and terms with suppliers due to the larger volume of purchases.
• Improved production efficiency: Horizontal integration can result in improved production
efficiency as the merged or acquired companies can potentially share resources, eliminate
redundant activities, and streamline production processes.
IMPROVED OF ECONOMICS OF
SCALE
• Improved distribution efficiency: Horizontal integration can result in improved distribution
efficiency as the merged or acquired companies can potentially share distribution channels and
eliminate redundant activities.
• Improved innovation: A larger company may have more resources and capabilities to invest in
research and development, which can lead to improved innovation and competitive advantage.
Overall, horizontal integration can improve economies of scale by allowing companies to achieve cost
savings through increased production and purchasing power, improved production and distribution
efficiency, and increased investment in research and development. However, it is important to note that
there may be challenges and risks associated with horizontal integration, such as regulatory scrutiny,
cultural differences, and integration issues.
IMPROVED OF ECONOMIES OF
SCOPE
Economies of scope refer to the efficiencies and cost savings that arise when a company produces a
range of products or services using the same resources and capabilities. Horizontal integration can
increase economies of scope in several ways:
• Shared resources: When a company acquires or merges with another company in the same
industry, it can share resources such as production facilities, distribution channels, and
administrative functions. This can lead to cost savings and improved efficiency as the same
resources can be used to produce a wider range of products or services.
• Cross-selling: Horizontal integration can allow companies to cross-sell their products or services
to each other's customers. For example, a company that produces laptops and acquires a
company that produces printers can sell printers to its existing customers and vice versa. This can
increase revenue and profitability by expanding the range of products or services offered to
customers.
IMPROVED OF ECONOMIES OF
SCOPE
• Improved bargaining power: Horizontal integration can increase a company's bargaining power
with suppliers and customers. This is because a larger company has more leverage in negotiations
and can potentially negotiate better terms and conditions.

Overall, horizontal integration can increase economies of scope by allowing companies to share
resources, cross-sell their products or services, diversify their product or service portfolio, and improve
their bargaining power. This can result in cost savings, improved efficiency, and increased profitability.
 DISADVANTAGES OF
HORIZONTAL INTEGRATION
While horizontal integration can offer many benefits, there are also potential disadvantages that
companies should consider before pursuing this strategy. Some of the key disadvantages of horizontal
integration include:
• Increased complexity: Horizontal integration can result in increased complexity as the company
must integrate the operations, processes, and cultures of the merged or acquired companies. This
can be a challenging and time-consuming process that requires careful planning and execution.
• Regulatory scrutiny: Horizontal integration can attract regulatory scrutiny, particularly if the
merged or acquired companies dominate the market and potentially create anti-competitive
practices. This can result in regulatory barriers and potential fines or legal action.
• Cultural differences: Horizontal integration can result in cultural clashes between the merged or
acquired companies. This can lead to decreased productivity, employee turnover, and other
negative effects on the organization.
 • Integration issues: Horizontal integration can result in integration issues, such as differences
in technology, management practices, and other operational aspects of the business. This can
result in operational disruptions and decreased efficiency.
• Strategic focus: Horizontal integration can divert the company's strategic focus from its core
business and result in a loss of competitiveness in the market.
• Financial risks: Horizontal integration can be expensive, and the company may need to take
on debt or issue new shares to finance the acquisition or merger. This can result in increased
financial risks and potentially decrease the company's creditworthiness.
Overall, horizontal integration can be a risky strategy that requires careful consideration of the
potential benefits and drawbacks. Companies should conduct thorough due diligence and have a
well-planned integration strategy in place to minimize the potential negative impacts of this strategy.
VERTICAL INTEGRATION
Vertical Integration – is a business strategy in which a company expands its operations
into different stages of the same industry's value chain. This involves either acquiring or
merging with companies that are either upstream or downstream from the company's core
business.

• Upstream – refers to companies that are involved in the production or supply of raw materials.
• Downstream – refers to companies that are involved in the distribution or marketing of the
company's products or services.
TYPES OF VERTICAL
INTEGRATION
• Forward Integration: it occurs when a company expands its operations by acquiring or merging
with a downstream company, such as a distributor or retailer. This type of integration allows a
company to have greater control over the marketing and distribution of its products, and it can help
ensure that its products are available to customers when and where they want them.

For example, a company that produces shoes may acquire a chain of retail stores to sell its
products directly to consumers. This allows the shoe company to control the retail
experience and ensure that its products are presented in a way that is consistent with its
brand image.
TYPES OF VERTICAL
INTEGRATION
• Backward Integration: it occurs when a company expands its operations by acquiring or merging
with an upstream company, such as a supplier or raw material producer. This type of integration
allows a company to have greater control over its supply chain and can help reduce costs and
ensure a reliable supply of raw materials.

For example, an automobile manufacturer may acquire a steel mill to ensure a steady
supply of high-quality steel for its vehicles. This allows the manufacturer to have greater
control over the quality and cost of its raw materials, which can help improve its overall
competitiveness.
CONGLOMERATION
INTEGRATION
Conglomerate Integration – also known as diversification, is a business strategy in which
a company expands its operations into unrelated industries or markets. This involves
acquiring or merging with companies that are not in the same industry or business as the
company's core operations.
The goal of conglomerate integration is to spread risk across different industries and
markets, as well as to take advantage of opportunities in new and potentially profitable
areas.
TYPES OF CONGLOMERATE
INTEGRATION
• Concentric Diversification – it occurs when a company expands its operations into related
industries or markets. This involves acquiring or merging with companies that are related to the
company's core business in terms of products, markets, or technologies. The goal of concentric
diversification is to leverage the company's existing strengths and capabilities to enter new and
potentially profitable markets.

For example, a company that produces athletic apparel may acquire a company that
produces athletic footwear. This allows the company to leverage its existing distribution
channels and marketing expertise to expand into a related market.
TYPES OF CONGLOMERATE
INTEGRATION
• Conglomerate Diversification – it occurs when a company expands its operations into unrelated
industries or markets. This involves acquiring or merging with companies that are not related to the
company's core business in terms of products, markets, or technologies. The goal of conglomerate
diversification is to spread risk across different industries and markets, as well as to take
advantage of opportunities in new and potentially profitable areas.

For example, a company that produces athletic apparel may acquire a company that
produces consumer electronics. This allows the company to diversify its operations and
reduce its dependence on a single market or industry.
• While conglomerate integration can offer benefits such as diversification and access to
new markets, it also carries risks such as a lack of synergy between the acquired
businesses and potential difficulties in integrating and managing different businesses
with different cultures and operations.
Here are some situations that illustrates Market Integration:

• The European Union – is a prime example of market integration. The EU has removed many
barriers to trade and investment among member countries, such as tariffs and quotas. This has led
to the creation of a single market where goods, services, and capital can flow freely across
borders. The EU also has a common set of rules and regulations for conducting business, which
has helped to level the playing field for businesses across member countries.

• The ASEAN Free Trade Area – The Association of Southeast Asian Nations (ASEAN) has created
a free trade area among its member countries. This has led to the removal of many trade barriers
and the creation of a single market for goods, services, and investment. ASEAN has also worked
to harmonize regulations and standards among member countries, which has helped to improve
efficiency and reduce costs for businesses operating within the region.
• The North American Free Trade Agreement (NAFTA) – is a free trade agreement between the
United States, Canada, and Mexico. The agreement has eliminated many tariffs and trade barriers
between the three countries and has led to the creation of a single market for goods and services.
NAFTA has also helped to increase investment and trade among the three countries.

• The African Continental Free Trade Area – is a recent example of market integration. The
agreement aims to create a single market for goods and services across the African continent, with
the goal of boosting economic growth and improving the welfare of citizens. The agreement has
the potential to create a market of over 1.2 billion people and could lead to increased investment
and trade within Africa.

• The Trans-Pacific Partnership (TPP) – it was a proposed free trade agreement between several
countries in the Asia-Pacific region, including the United States, Japan, and Australia. The
agreement aimed to remove trade barriers and create a single market for goods and services.
However, the agreement was not ratified by all participating countries and has since been
abandoned.
END OF
PRESENTATI
ON.

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