TRADING GAME

LESSON 5: MARKET
INTEGRATION
• Explain the role of international financial institutions in the
creation of a global economy;
• Narrate a short history of global market integration in the
twentieth century; and
• Identify the attributes of global corporations
 WHAT IS MARKET INTEGRATION?
• a process which refers to the expansion of firms by
consolidating additional functions and activities under
a single management
 TYPES OF MARKET INTEGRATION
• Horizontal Integration
• Vertical Integration
• Conglomeration
 HORIZONTAL INTEGRATION
• same marketing agencies combine to form a
union to reduce their effective number and the
extent of actual competition in the market
• e.g. Facebook with Instagram (2012 for $1
billion)
 HORIZONTAL INTEGRATION
Acquiring company Acquired Company
• Kraft Foods • Cadbury
• PepsiCo • Quaker Oats
• Pfitzer • Wyeth
• Pfitzer • Pharmacia Corporation
• AT&T • T-Mobile
• Porsche • Volkswagen
• Daimier Benz • Chrysler
• Facebook • WhatsApp
• Google • Motorola
 HORIZONTAL INTEGRATION
Acquiring company Acquired Company
• Quaker Oats • Snapple
• AT&T • Bell South
• HP • Compaq
• Delta • Northwest Airlines
• United Airlines • Continental
• Microsoft • Taleo
• Microsoft • Yahoo
• Apple • AuthenTec
• BP • Amoco
 VERTICAL INTEGRATION
• a firm performs more than one activity in the
sequence of the marketing process
• Linking together two or more functions in the
marketing process within a single firm or
ownership
• e.g. wholesale as well as retailing
• MEAT Industry
• Cattle
• Slaughter House
• Refrigerate Railroad Cars
• Cooled Warehouse
• Meat Packing Plants
• Delivery Wagons
• AGRI-BUSINESS FIRM:
• Wholesaling of feed
• Feed Mills
• Transport Agency
• Food grains trade
 TYPES OF VERTICAL INTEGRATION

FORWARD INTEGRATION BACKWARD INTEGRATION

• activities close to the • Combination of sources of
consumption function supply
• Wholesale assuming the • Processing firm assumes the
function of retailing function of assembling or
purchasing
 VERTICAL INTEGRATION
• Farmer
• Processor
• Wholesaler
• Retailer
• Customer
 FORWARD VERTICAL INTEGRATION
• Rogers (Canadian Communication which
operates local television channels)
• Cooking and Talk Shows: advertise and sell digital
products using electronic version of a retail store
 BACKWARD VERTICAL INTEGRATION
• amazon.com ( a book seller and a book
publisher)
• buys books from various suppliers
• publishes and sells books with its own publishing
company
 CONGLOMERATION
• combination of activities or agencies not directly
related to each other may operate in a unified
management
• e.g. Hindustan Unilever Ltd. (processed
vegetables and soaps) ; Delhi Cloth and General
Mills (Cloth and Vanaspati)
 CONGLOMERATION
• Agri-Business Conglomerate:
• Food Grains trade
• Fruit Processing Unit
• Cloth Mill
• Sales and Repairs of Electronic Goods
REASONS FOR MARKET INTEGRATION
• To remove transaction costs
• Foster competition
• Provide better signals for optimal generation and
consumption decisions
• Improve security of supply
 DEGREE OF INTEGRATION
• OWNERSHIP INTEGRATION
• all decisions and assets of a firm are completely assumed
by another firm
• e.g. a processing firm which buys a wholesale firm
• CONTRACT INTEGRATION
• agreement between two firms on certain decisions
while each firm retains its separate identity
• e.g. tie up of mill with traders for supply of grains