Global Economy

and Market Integration

Prof. Irene Abulencia
Lesson Title: Global Economy and Market Integration

Learning Targets: At the end of the lesson, students should be able to:

1. explain the types of market integration

2. differentiate concepts of global economy from market integration
Market Integration
- refers to how easily 2 or more markets can trade with each other. Foreign trade helps the integration of
markets because it reduces barriers to trade and increases fluidity between markets.
- 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.
- an indicator that explains how much different markets are related to each other. A marketer plays the
role of an integrator in the sense that he collects feedback or vital inputs from other channel members
and consumers and provides product solutions to customers by coordinating multiple functions of
organization.
- shows the relationship of the firm in a market.
The extent of integration influences the:
a) conduct of the firms and consequently their
b) marketing efficiency
Kohls and Uhl have defined market integration as a process which refers to the expansion of firms by
consolidating additional marketing functions and activities under a single management.
Examples of market integration are the establishment of wholesaling facilities by food retailers and the setting
up of another plant by a milk processor.
In each case, there is a concentration of decision making in the hands of a single management.
Market integration refers to the process of connecting different markets with each other, either within a
country or across borders, to facilitate the movement of goods, services, capital, and labor. It refers to the
process of increasing trade and economic ties between countries, with the goal of creating a more
interconnected global economy. Some examples of market integration include:

Free Trade Agreements: These agreements eliminate trade barriers such as tariffs and quotas between
participating countries, which allows for the free flow of goods and services. One example is the North
American Free Trade Agreement (NAFTA) which has facilitated trade between the United States, Canada,
and Mexico.

Common Market: This type of integration involves the free movement of goods, services, capital, and labor
between member countries. The European Union (EU) is an example of a common market where citizens of
member countries can live and work in any other member country without the need for a visa or work permit.

Economic Union: This type of integration involves deeper levels of integration such as a common currency,
coordinated economic policies, and common regulations. The European Union's Eurozone is an example of
an economic union where countries use a common currency, the Euro.

Customs Union: This type of integration involves the elimination of trade barriers between member countries
and the adoption of a common external trade policy. Members of a customs union usually negotiate trade
deals with other countries as a bloc. The Southern African Customs Union (SACU) is an example of a
customs union where members have a common external tariff for goods imported from outside the union.
Increased access to new markets: Market integration can open up new markets for exports, which can help boost economic growth and
create jobs.
Greater efficiency: By increasing competition and reducing trade barriers, market integration can help promote greater efficiency in
production and distribution, which can help lower costs and improve competitiveness.
Access to capital: Market integration can help make it easier for emerging economies and developing countries to access capital
markets, which can help finance investment and economic growth.
Improved technology transfer: Market integration can facilitate the transfer of technology and knowledge from more advanced
economies to developing countries, which can help promote innovation and productivity.
More stable exchange rates: Market integration can help promote more stable exchange rates, which can help reduce currency
fluctuations and promote trade.
Improved standards and regulations: Market integration can help promote the adoption of common standards and regulations, which can
help ensure quality and safety in products and services.
Access to new products and services: Market integration can help make it easier for consumers to access a wider range of products and
services from around the world, which can help promote innovation and consumer welfare.
Increased foreign direct investment: Market integration can help attract foreign direct investment to emerging economies and developing
countries, which can help finance economic growth and create jobs.
Better access to information: Market integration can help improve access to information and knowledge, which can help emerging
economies and developing countries learn from best practices in other countries.
Greater economic stability: Market integration can help promote greater economic stability by reducing trade barriers and promoting a
more interconnected global economy.
Increased economic diversity: Market integration can help promote economic diversity by reducing reliance on a small number of export
markets and promoting a more balanced and diversified economy.
Improved quality of life: Market integration can help promote higher living standards by increasing economic growth, creating jobs, and
promoting innovation and productivity.

Beneficial for emerging economies and developing countries like the Philippines, including increased access to markets, capital,
technology, and knowledge, which can help promote economic growth, create jobs, and improve living standards.
Types of market integration:

1. Horizontal Integration

2. Vertical Integration

- Forward,
- Backward and
- Balanced

3. Conglomeration
1. Horizontal integration
- occurs when a firm or agency gains control of other firms or agencies performing similar marketing
functions at the same level in the marketing sequence
- some marketing agencies combine to form a union with a view to reducing their effective number
and the extent of actual competition in the market.
- it is advantageous for the members who join the group.
In most markets, there is a large number of agencies which do not effectively compete with each other.
● It leads to reduced cost of marketing.
● In this reduced competition possible.
Effects of Horizontal integration
● Buying out a competitor in a time bound way to reduce competition.
● Gaining larger share of the market and higher profits.
● Attaining economies of scale.
● Specializing in the trade.
Advantages of Horizontal integration
(1) Lower costs. (2)Higher efficiency. (3)Increased differentiation. (4)Increased market power. (5)Reduced
competition. (6)Access to new markets. (7)Economies of scale. (8)Economics of scope. (9)International
trade.
2. Vertical integration

- occurs when a firm performs more than one activity in the sequence of the
marketing process.
- it is a linking together of two or more functions in the marketing process within
a single firm or under a single ownership.
- makes it possible to exercise control over both quality and quantity of the
product from the beginning of the production process until the product is
ready for the consumer.
- It reduces the number of middle men in the marketing channel.
Kinds of vertical integration:
a. Forward integration. If a firm assumes another function of marketing which is closer
to the consumption function, it is a case of forward integration. Example: wholesaler
assuming the function of retailing

b. Backward integration. This involves ownership or a combination of sources of

supply. Example: when a processing firm assumes the function of
assembling/purchasing the produce from the villages.

c. Balanced vertical integration. The third type of vertical integration is a combination

of the backward and the forward vertical integration.
Advantages of Vertical Integration

1. It allows you to invest in assets that are highly specialized.

2. It gives you more control over your business.
3. It allows for positive differentiation.
4. It requires lower costs of transaction.
5. It offers more cost control.
6. It ensures a high level of certainty when it comes to quality.
7. It provides more competitive advantages.

Effects of Vertical integration

• More profits by taking up additional functions

• Risk reduction through improved market co- ordination
• Improvement in bargaining power and the prospects of influencing prices
• Lowering costs through achieving operational efficiency
3. Conglomeration
- a combination of agencies or activities not directly related to each other may,
when it operates under a unified management, be termed a conglomeration.

Examples:

SM Group of Companies, Lucio Tan Group of Companies, Gokongwei Group of

Companies, PHINMA Group of Companies, Manuel Villar Group of Companies

Effects of Conglomeration

• Risk reduction through diversification

• Acquisition of financial leverage
• Empire – building urge.