Chapter 3: Market Integration

Learning Outcomes:

At the end of the lesson, the learners are expected to demonstrate the following:

1) Define Market Integration

2) Compare and contrast the types of market integration.
3) Explain the role of international financial Institutions in the creationof a global
economy
4) Narrate a short history of global market integration in the 20th century
5) Infer the attributes of global corporations

Introduction:

Integration shows the company’s market relationship. The extent of

integration affects the company’s behavior is different from disintegrated market
behavior. Market differ in the extent of integration and therefore, there is a
variation in their degree of efficiency.
After the World War II, almost all countries around the world faced the great
challenge of bringing their feet back on the ground. As a substitute to the
unsuccessful League of Nations, The United Nation was established on October
24, 1945. It was tasked to promote international cooperation to restore
international order.

What is Market Integration?

(Tatum, 2020) Market integration is a term that is used to identify a

phenomenon in which markets of goods and services that are somehow related
to one another being to experience similar patterns of increase or decrease
in terms of the prices of those products. The term can also refer to a situation in
which the prices of related goods and services sold in a defined
geographical location also begin to move in some sort of similar pattern to one
another. At times, the integration may be intentional, with a government
implementing certain strategies as a way to control the direction of the economy.
At other times, the integrating of the markets may be due to factor such as
shifts in supply and demand that have a spillover effect on several markets.

Integration shows the relationship of the firm in a market. The extent of

integration influences the conduct of the firms and consequently their marketing
efficiency. Market Integration is a situation in which separate markets for the
same product become one single market, for example when an import tax in one
of the market is removed. Integration is taken to denote a state of affairs or a
process involving attempts to combine separate national economies into larger
economic regions.

Effect of Integration on Market Development

1. Market integration provides opportunity to expand market coverage by

selling local products in the global market.
2. Market integration help to reduce market failure
3. Difference in the prices in integrated market should be equal if they are well
integrated.

The integration of global market started when big American corporations

began to emerge after World War II with the rise of new corporations.
International Telephone and Telegraph bought Avis Rent-a-Car, Continental
Banking, Sheraton Hotels, and Hartford Fire Insurance (American History,
2018). Later, Japan and Europe followed suit. Japanese global Automobile
Corporation like Toyota, Nissan, and Isuzu took off after the giant
American companies flourished. Renault automobiles, a French multinational
automobile manufacturer, was also used to help the military post- war

DISCLAIMER: This module does not intend to infringe on any copyright claims and is solely for academic purposes of
Adiong Memorial State college, its faculty and its students
operations. The rise of American, Japanese, and European global corporations
paved the way for further development of international trade. Iwan (2012)
identifies the difference among international, multinational, transitional, and
global companies.

 International companies are importers and exporters with no

investments outside their home countries.
 Multinational companies (MNCs) have investments in other countries,
but do not have a coordinated product offering in country. They are more
focused on adapting their products and services to each individual local
market.
 Global companies have investments and are present in many
countries. They typically market their products and services to each
individual local market.
 Transitional companies (TNCs) are more complex organizations
that have investments in foreign operations, have a central
corporate facility but give decision making, research and development,
and marketing powers to each individual foreign market.

TYPES OF MARKET INTEGRATION

1) 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.
 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. This is indicative of some element of
horizontal integration.
 It leads to reduced cost of marketing. In this reduced competition
possible in companies using horizontal integration

2) 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

Example: Meat industry buys all the functioning plants needed for running a
meat industry

Types 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.
b) Backward integration - This involves ownership or a combination of
sources of supply.
c) Balanced vertical integration - The third type of vertical
integration is a combination of the backward and the forward vertical
integration.

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.

DISCLAIMER: This module does not intend to infringe on any copyright claims and is solely for academic purposes of
Adiong Memorial State college, its faculty and its students
 Reasons for Market Integration

 To remove transaction costs

 Foster competition
 Provide better signals for optimal generation and consumption decisions.
 Improve security of supply

Role of International financial institutions in the creation of global economy

After the Second World War, almost all countries around the world faced
the great challlenge of bringing their feet back on the ground. As a substitute to
the unsuccessful League of Nations, the United Nations (UN) was established on
October 24, 1945. Primarily, it was tasked to promote International Cooperation
and restore international order. Earlier in 1944 at the Monetary and Financial
Conference in Bretton Woods, New Hamphire (US), the first government-
sponsored International Financial institutions were established-the World Bank
(WB) and the International Monetary Fund (IMF). There are two types of
International financial institutions:intergovernmental and private. The WB is an
intergovermental institutions. Its aim is to end extreme poverty and promote
shared prosperity in a sustainable way (worldbank.org). There are five
organizations that belong to the WB Group, namely the International Financial
Corporation, Multilateral Investment Guarantee Agency, and International
Association, Multilateral Investment Guarantee Agency, and International Center
for settlement and Investment Disputes. These organizations facilitate the
granting of loans and financial assistance to developing countries. The IMF, also
an intergovernmental institutions, works to foster global monetary cooperation,
secure financial stability, facilitate international trade and more
(imf.org/en.About). Like the WB, it also grants financial assistance and loans to
developing countries.
In the 1960’s, regional development banks were established: the Asian
development Bank (ADB) in 1960 and the African Development Bank (AfDB) in
1964. These two are Intergovermental financial institutions that were created to
spur social progress and economic growth in order to address and reduce
poverty. As financial institutions, ADB and AfDB are anchoredon the goal of
fostering sustainable development in their respective member countries.
There are also private International financial institutions such as Citigroup
and Merrill lynch. Citigroup is an American multinational investment banking and
financial corporation. It is the fourth largest bank in the US(citigroup.com). On the
other hand, Merril Lynch is the wealth management division of the bank in the US
institutions provide investments, stocks, or financial loans.
Both intergovermental and private financial institutions help facilitate the
functionality of a global economy by lending money to their member states and
global corporations. For example , the world Bank helps in project lending,
establishes structural reforms, provides support and technical assistance, and
helps design modern and durable social safety nets for the benefit of both
developed and developing nations (Stiglitz, 1998). It also provides international
capital like foreign direct investments, short term capital and long term
investments. The International Monetary Fund, on the other hand, helps establish
institutional bodies to address and reduce poverty like the African Regional
Technical Centers (AFRITACs) in 2001, and assists in creating the conditions for
mobilization of private domestic and foreign capital and job generaration growth
(Kohler, 2002). Moreover, the Asian Development Bank lends money for the
building of infrastructure that leads to growth in business (Oxfam.org.au,2013).
Clearly, these global institutions are active agents in fostering social and
economic development by providing various forms of help to improve the national
and the global economies.

History of Global market integration in the 20th Century

Global Market integration did not happen overnight. It was the result of the
establishment of a global economy that involved the homogenization of trade and

DISCLAIMER: This module does not intend to infringe on any copyright claims and is solely for academic purposes of
Adiong Memorial State college, its faculty and its students
commerce. Prior to trends in globalization of the 20 th century, International trade
and exchange of goods and services were already practiced. Harvey (1990) sees
that cities and countries were able to extend their reach beyond borders and
patterns of trade and technology because of developments in shipping and
navigation. This was observable in the development of maritime transport
throughout history. Colonialism and Imperialism rose as the new way of putting
order to the economic interrelationships among countries. Equity, corporate
ownership, management subsidiaries, and central headquarters which supply
and distribute goods and services were established through colonialism. The
Spanish government in the 1600s, for instance, made use of its colonies like the
Philippines and Mexico as suppliers of its resources for trade.
The integration of the Global market started when big American corporations
began to emerge after the Second World war with the rise of new conglomerates.
International Telephone and Telegraph bought Avis Rent-a-Car, Continental
Banking, Sheraton Hotels, and Hartford Fire Insurance (American History, 2008).
Later, Japan and Europe followed suit. Japanese global automobile corporations
like Toyota, Nissan and Isuzu took off after the giant American companies
flourished. These companies prospered as the primary and global makers of
trunks for the Japanese Military (Dower, 1992). Renault automobiles, a French
multinational automobile manufacturer, was also used to help in the military post-
war operations. The rise of American, Japanese, and European global
corporations paved the way for the further development of international trade.
Iwan (2012) identifies the differences among international, multinational,
transnational, and global companies:

 International companies are importers and exporters with no investment

outside their home countries.
 Multinational companies (MNCs) have investments in other countries ,
but do not have a coordinated product offering in each country. They are
more focused on adapting their products and services to each individual
local market.
 Global companies have investments and are present in many countries.
They typically market their products and services to each individual local
market.
 Transitional companies (TNCs) are more complex organizations that
have investments in foreign operations, have a central corporate facility
but give decision-making , research and development , and marketing
powers to each individual foreign market.

American corporations operating internationally were at a great advantage

after the war for they had no competition. They had the capacity to produce,
organize, and ditribute products because America was not devastated by the
war. Literatures officially traced the start of the contemporary market integration
from the return of the Japanese and European corporations to the global market.
It was acknowledged in 1974 that the major global economic actors were MNCs.
Collectively; they were described to be a particular corporate form to dominate
global production and exchange (Neubauer, 2014). Caroll (2003) termed the
emergence of international, multinational, global and transnational companies in
the United States (US), the European Union (EU), and Japan as the triad-the
major economies of the world.

Gereffi (2001) identifies three structural periods in the existence of global

corporations after the war. They are investment-based period (1950-1970), trade-
based period (1970-1995), and digital globalization (1995-onwards). The
development of global corporations can be examined from the sources and levels
of foreign direct investments (FDIs). The United Nations Conference on Trade
and Development (UNCTAD) defines FDIs as funding made to acquire lasting
interest in enterprises operating outside the economy of the investor in which
their purpose is to gain an effective voice in the management of the enterprise
(UNCTAD, 2000). During the trade-based period, global corporations were
controlled by producer-driven commodities. As a result, firms were characterized
by large amounts of concentrated capital focused on large-scale or capital

DISCLAIMER: This module does not intend to infringe on any copyright claims and is solely for academic purposes of
Adiong Memorial State college, its faculty and its students
intensive manufacturing. More so, digital globalization affected the operation of
global corporations since technology became integrated in both productions and
consumption. Producer-driven commodities value streams have integrated their
corporate structures to reduce the effect of time and distance in production and
consumption of goods while buyer-driven value streams have changed the
behavior of corporations in retailing their goods and services via the internet
(Neaubauer, 2014). As Cammett (2006) observed, designing,ordering, factory
processing, inventory, delivery, branding, and advertising are driven by digital
operations since the 1990s.

Attributes of Global Corporations

The ascent of global corporations is a reflection of a globalized market

integration. TNCs and MNCs are no longer limited to their home countries. They
are able to expand their reach to other continents and countries.
These global corporations have common attributes. Neubauer (2014)
identifies three of them-an agent of desired economic development, an economic
prominence, and a very powerful entity that can create a crisis. These
corporations may hit their target of economic development by making their
consumer products available in many parts of the globe. An example is Nestle.
Some TNCs and MNCs were only able to reach their annual growth target by
exploiting the environment. In the Asian Financial Crisis of 1997, global
corporations brought chaos to the economy of the Aian region by controlling the
foreign direct investments that resulted in the increase of real estate values,
aggressive government infrastructure projects, and a huge corporate spending all
funded by bank borrowings.

Conclusion

On the whole, international financial institutions play an important role in the

social and economic development programs of developing and transitional
nations. They are instrumental in the functionality of the global economy which is
reliant on global corporations.

Reference:

Brazalote T., and Leomardo R. (2019). The Contemporary World. C&E

Publishing, Inc. Quezon City. P 30-33.

Lobo, J, Maliban, N, & Mesinas, M. (2019) The Contemporary World. Books

Atpb. Publishing

Corp. Claudio, L & Abinales, P. (2018) The Contemporary World. C & E

publishing, Inc.

Aldama, P. (2018). The Contemporary World. Rex Book Store Inc.

DISCLAIMER: This module does not intend to infringe on any copyright claims and is solely for academic purposes of
Adiong Memorial State college, its faculty and its students