Market Integration

MARKET - derived from the word “mercatus” which means trading or place of transactions.
INTEGRATION - is a state of affairs as a process involving attempts to combine separate national economic into larger
economic region.

MARKET INTEGRATION refers to the process of creating a unified marketplace where goods, services, and capital can
flow freely between countries and regions.

 EVOLUTION OF MARKET INTEGATION

THE AGRICULTURAL REVOLUTION

People learned how to domesticate plants and animals. This became the new agricultural economy that led to major
developments like permanent settlements, trade networks and population growth. People figured out how to tame plants
and animals. This created a whole new way of living called agriculture. With farms, people could settle in one place, trade
goods with others, and more people could live together in communities.

THE INDUSTRIAL REVOLUTION

This is the rise of industry through new economic tools, like steam engines, manufacturing and mass production. The
Industrial Revolution was when industry boomed thanks to new tools like steam engines and mass production. It changed
how things were made and led to big advancements in technology and economy.

THE INFORMATION REVOLUTION

This is when the technology reduced the role of human labor and shifted it from manufacturing-based economy to one that
is based on service work and the production of ideas matter than goods. The Information Revolution is when technology
makes jobs less about making stuff and more about providing services or creating ideas. It's like moving from making things
in factories to doing jobs like designing apps or offering online services. In the Philippines, the Information Revolution has
transformed various industries and sectors. For example, the rise of business process outsourcing (BPO) companies has
shifted the focus from traditional manufacturing to service-oriented work. Many Filipinos now work in call centers, IT support,
and other service-related roles, contributing significantly to the economy. Additionally, advancements in technology have led
to the growth of the digital economy, with the emergence of e-commerce platforms, online freelancing opportunities, and
digital marketing agencies. This shift highlights how the country's economy has evolved from a manufacturing-based one to
a more service-oriented and digitally-driven economy, influenced by the Information Revolution.

 TYPES OF MARKET INTEGRATION

HORIZONTAL INTEGRATION - is when a business combines forces with another company that offers similar products or
services. It is either through:

o MERGE - involves the combining force of two or more (bigger or smaller) companies to form a new entity. In this
approach to horizontal integration, two separate companies come together to create a newly combined
organization. In some cases, the individual brands remain intact while sharing common operations and resources;
in other cases, one brand is absorbed by another. Mergers often occur among companies offering similar products
or services that have relatively equal positions in the market.
 o ACQUISITION - refers to one company purchasing another company, often with the goal of gaining control and
reducing their competition. The acquiring company assumes control of the purchased company, integrating staff
and other resources as needed. Business leaders will often pursue horizontal integration by acquisition to procure
an advantage in the marketplace.

EXAMPLES OF HORIZONTAL INTEGRATION:

 Facebook Inc.’s (now Meta) acquisition of Instagram in 2012

The rationale behind Facebook’s billion-dollar acquisition of photo-sharing social media platform Instagram is a tale as old
as business: Instagram was becoming a competitive threat. The company paid a high price to neutralize the competition,
but the strategy has reaped rewards. In 2022, Instagram was responsible for 41.5% of Facebook’s revenues, as its ad
revenues outpaced those of Facebook, which were in decline.

 Disney’s acquisition of Pixar in 2006

The Walt Disney Company established itself in 1923 as an animation studio and subsequently expanded into live-action film
production, television, and theme parks. After a slew of successful ventures till the early 21st century, it began to experience
a stage of stagnation and was looking at ways to reinvent itself. Pixar started off in 1986 with a contribution from Steve Jobs
as an American computer animation studio. In 1995 it produced its first film, Toy Story, which began a successful foray into
animation movie-making. The proposed merger by Walt Disney was a prime example of horizontal integration working in the
same industry. Apart from the usual benefits of the coming together of the finest entities in the industry, it also worked to
ward off potential competition for Disney and thus continue and potentially improve its market share. In 2006, Disney
acquired Pixar in a $7.4 billion deal. Disney merged its existing expertise in 2D animation with the state-of-the-art production
value of Pixar and has since consistently delivered great works in the movie-making business. Pixar retained its core values
and did not allow Disney to change the winning culture that defined Pixar. The best of both organizations has thus come
together to become one of the biggest production houses in the world.

 PLDT in 2011 to expand its share in the telecommunications industry by acquiring Digitel

Philippine Long Distance Telephone Company (PLDT) and Digital Telecommunications Philippines Inc. (Digitel), which owns
the Sun Cellular brand. This merger allowed PLDT to expand its market share and strengthen its position in the
telecommunications industry by integrating Sun Cellular's operations with its own.

 Conceptually, if Cebu Pacific agreed to merge with Philippine Airlines

Companies may pursue horizontal integration to grow their existing business or prevent a competitor from gaining market
share. Potential benefits of horizontal integration include a stronger competitive position, increased revenues, greater
economies of scale, access to new markets and customers, and diversification of products and services.

VERTICAL INTEGRATION - is when the company expands either forward or backward by acquiring or merging with firms in
an earlier or later phase of the value chain.

 BACKWARD VERTICAL INTEGRATION is the ownership control of the products to a point earlier in the supply
chain or the production process. It is a process in which a company acquires or merges with other businesses that
supply raw materials needed in the production of its finished product. Businesses pursue backward integration with
the expectation that the process will result in cost savings, increased revenues, and improved efficiency in the
production process. Companies also use backward integration as a way of gaining competitive advantage and
creating barriers to entry new industry entrants.

EXAMPLES OF BACKWARD VERTICAL INTEGRATION

 A car manufacturer purchases a tire production company to ensure a stable supply of tires for its vehicles
  Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic
devices and computer systems manufactured and assembled by Apple using hardware and components also
manufactured by the company. Apple's use of backward vertical integration has been a great success and allowed
the company to advance its new products and technology at a more rapid pace.
 Petron, the largest oil refining and marketing company in the Philippines, has engaged in backward integration by
investing in oil exploration and production activities. Through its subsidiaries and joint ventures, Petron has
acquired stakes in oil fields both locally and internationally, ensuring a stable supply of crude oil for its refining
operations.
 If Coca-Cola Company acquires a bottling company that will supply them bottles
 Jollibee Foods Corp. has purchased businesses involved in poultry processing to secure a reliable source of
chicken for their chicken dishes
 Netflix produces their own Netflix original films and shows

 FORWARD VERTICAL INTEGRATION is the ownership control of the products to a point later in the supply chain
or the production process. Companies can achieve vertical integration by acquiring or establishing their own
suppliers, manufacturers, distributors, or retail locations rather than outsourcing them.

EXAMPLES OF FORWARD VERTICAL INTEGRATION:

 A pharmaceutical company acquires a chain of pharmacies to ensure a direct distribution channel for its
medications
 Walt Disney’s theme parks and Disney+ streaming service
 Apple’s affairs with Apple retail stores or resellers like PowerMac
 Globe Telecommunications’ kiosks in malls
 ABS-CBN produces television shows, movies, and digital content distributed through its own television networks,
streaming platforms, and cinemas, enabling the company to directly reach and engage with consumers
 Nike’s official stores

CONGLOMERATE INTEGRATION - is the combination of industries or businesses not directly related to each other but
may operate under a unified management

EXAMPLES OF CONGLOMERATE INTEGRATION:

 Under San Miguel Corporation are their San Miguel Pure Foods (food), San Miguel Brewery (beverages),
infrastructure (San Miguel Holdings), and energy (San Miguel Power)
 Ayala Corporation manages Ayala Land (real estate), healthcare (Ayala Healthcare Holdings), and has investments
in Globe Telecommunications (telecommunications) and Bank of the Philippine Islands (BPI)
 SM Supermalls (retail), BDO (banking), and SM Prime Holdings Inc. (property development) perform under SM
Investments Corp
 A multinational corporation acquires companies in various unrelated industries such as food, media, and energy

 IMPORTANCE OF MARKET INTEGRATION

1. It is one of the ways to ascertain the extent of competitiveness in market.

Market integration helps assess the level of competition within the market. It provides insight into how strong the competition
is among companies, pushing them to offer better products and services. Market integration helps us understand how
competitive businesses are in the Philippines. For example, if multiple companies are offering similar products like
smartphones, market integration helps us see which ones are more successful based on factors like price, quality, and
customer satisfaction.

2. It helps in the development of a single economic market at national level.

Integrating markets contributes to the development of a unified economic market within a country. It strengthens
connections and coordination among different sectors of the economy, aiming to improve overall development. In the
Philippines, it means that businesses from different regions can easily trade with each other. For instance, a farmer in
Mindanao can sell their crops to a food processing company in Luzon without facing significant barriers, helping to create a
more unified national economy.

3. It provides better signals for optimal generation and consumption decisions.

Through integration, more reliable information is available to consumers and producers to make smarter decisions in
production and consumption. This improves decision-making in production and consumption, resulting in more efficient
resource utilization. For example, Filipino consumers can make more informed decisions about what to buy and when. For
example, if there's an oversupply of fish in Visayas, consumers in Luzon may see lower prices for fish in their local markets,
signaling them to buy more fish instead of other protein sources.

4. It improves the security of supply.

Market integration enhances supply security by diversifying sources of products and services. It reduces the risk of supply
shortages and strengthens the economy's resilience against crises. For instance, if there's a typhoon affecting rice
production in Luzon, rice from other regions like Mindanao can be easily transported to Luzon to meet demand and prevent
shortages.

5. It unites different country's economic union.

Markets unite various economic unions of different countries. It strengthens relationships and cooperation among nations,
aiming to enhance their overall economic capacity. For example, the Philippines can export its electronics products to other
ASEAN countries while importing raw materials or agricultural products, strengthening economic ties within the region.