Market

Integration
 Market
Integration • refers to the process of creating a unified
marketplace where goods, services, and
capital can flow freely between countries or
regions.
• Integration shows the relationship of the firm
in a market.
• Market integration occurs when prices among
different location or related goods following
similar patterns in a long period.
 Market Integration can take
many forms including:

• Reduction of trade barriers such as tariffs

• Adoption of a common currency
• Harmonization of regulatory standards
• Development of infrastructure to facilitate transportation and
communication
Types of Market
Integration
Types of Market Integration

Horizontal Integration
Vertical Integration
Conglomeration
 Horizontal Integration

▪ This 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.
▪ In this type of integration, 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.
 Horizontal Integration

▪ In most markets, there is a large number of

agencies which do not effectively compete with
each other.
▪ This is indicative of some element of horizontal
integration.
▪ It leads to reduced cost of marketing.
▪ In this reduced competition possible.
 Horizontal Integration

Effects of Horizontal Integration

▪ Buying out a competitor in a time boundway to reduce competition.

▪ Gaining larger share of the market and higher profits.
▪ Attaining economies of scale.
▪ Specializing in the trade.
 Horizontal Integration

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) Economics of scale.
8) Economics of scope.
9) International trade.
 Horizontal Integration

Disadvantages of Horizontal Integration

1) Destroyed value.
2) Legal repercussions.
3) Reduced flexibility.
 Vertical Integration
▪ This 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.
▪ This type of integration 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.
 Vertical Integration

Arrangement of Vertical Integration

Wholesaling of feed

PARENT Feed mill

AGRI
BUSINESS
Transport Agency
FIRM
Food grains trade
 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
 Vertical Integration

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.
 Vertical Integration

c.) Balance Vertical Integration

The third type of vertical integration is a
combination of the backward and the
forward vertical integration.
 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.
 Vertical Integration

Disadvantages of Vertical Integration

1. It can have capacity-balancing problems.
2. It can bring about more difficulties.
3. It can result in decreased flexibility.
4. It can create some barriers to market entry.
5. It can cause confusion within the business.
6. It requires a huge amount of money.
7. It makes things more difficult.
 Vertical Integration

Effects of Vertical Integration

▪ More profits by taking up additional functions
▪ Risk reduction through improved market
coordination
▪ Improvement in bargaining power and the
prospects of influencing prices
▪ Lowering costs through achieving
operational efficiency
 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.
 Conglomeration

AGRI-BUSINESS
CONGLOMERATE

Sales and Repairs

Food-grains Food Processing
Retail-chain Cloth Mill of Electronic
Trade Unit
Goods
 Conglomeration

Effects of Conglomeration

▪ Risk reduction through diversification

▪ Acquisition of financial leverage
▪ Empire – building urge.
 Degree of Integration

1. To remove transaction costs

2. Foster competition
3. Provide better signals for optimal
4. generation and consumption decisions.
5. Improve security of supply
 Degree of Integration

1. To remove transaction costs

2. Foster competition
3. Provide better signals for optimal
4. generation and consumption decisions.
5. Improve security of supply
THANK YOU!