LEARNING OBJECTIVES

- 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

- Identify the attributes of global corporations

 WHAT DOES MARKET INTEGRATION
MEANS?
MARKET INTEGRATION
• MARKET INTEGRATION is a process which refers to the expansion of
firms by consolidating additional marketing functions and activities
under a single management. (Kohls and uhl)

• MARKET INTEGRATION is the fusing of many markets into

one. In one market a commodity has a single price such as the
price of carrots would be the same in east Paris and west Paris
if these areas were part of the same market. If the price of
carrots in west Paris was higher, sellers of carrots would move
from the east to the west and prices would equalize. The price
of carrots in Paris and in Lisbon might be different, though,
and high transport costs and other kinds of expenses might
mean that it would be uneconomical for Portuguese sellers to
move their stocks to France if prices were higher there. In
distinct markets the price of the same good can be different for
long periods of time.
Market, a means by which the exchange of
goods and services takes place as a result of
buyers and sellers being in contact with one
another, either directly or through mediating
agents or institutions.
INTEGRATION

1: the act or process or an instance of integrating: such as

a: incorporation as equals into society or an organization

of individuals of different groups (such as races)

b: coordination of mental processes into a normal effective

personality or with the environment
•Market integration occurs when prices among different locations or related goods follow
similar patterns over a long period of time. Groups of good often move proportionally to
each other and when this relation is very clear among different markets it is said that
the markets are integrated.

•Market integration is a term used to identify a phenomenon in which markets of goods

and services that are 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 circumstances 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.

•Market integration occurs when prices among different locations or related goods
follow similar patterns over a long period of time.

•Examples of market integration are the establishment of wholesaling facilities by

food retailers and the setting up of another plant by a milk processor.
TYPES OF MARKET INTEGRATION

Horizontal Integration
Vertical Integration
Conglomeration
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.
 Example for horizontal integration
One of the clearest examples of horizontal integration is
Facebook’s acquisition of Instagram in 2012 for a reported $1
billion.
Both Facebook and Instagram operated in the same industry
and were in similar production stages in regard to their photo-
sharing services.
Facebook looking to strengthen its position in the social media
and social sharing space, saw the acquisition of Instagram as an
opportunity to grow its market share, increase its product line,
reduce competition and access potential new markets.
All of these things came to pass , resulting in a high level of
synergy
Example: independent oil refineries coming under U.S oil company.
 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)Economics of scale.
(8)Economics of scope.
(9)International trade.
Disadvantages of the Horizontal
integration

(1)Destroyed value.

(2)Legal repercussions.

(3)Reduced flexibility.
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 this 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.
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.
 EXAMPLE FOR FORWARD VERTICAL
INTEGRATION COMPANY
Canadian communications giant Rogers is an
example of forward integration.
The company established Rogers TV, a
subsidiary company that operates local
television channels.
The Rogers TV channels show programs
such as cooking and talk shows, which are
produced by Rogers-managed television
studios.
These provide Rogers with an opportunity to
advertise and sell its digital products using an
electronic version of a retail store.
 EXAMPLE FOR BACKWARD
VERTICAL INTEGRATION
COMPANY
Amazon.com backward vertically
integrated when it became not only a
bookseller but a book publisher.
As a bookseller, Amazon.com buys
books from various suppliers, such as
publishing companies.
By becoming a publisher itself, it has
integrated into its business the role of
supplier and can sell books that its own
publishing company publishes.
 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.
 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.
 A combination of agencies or activities not directly related
to each other may, when it operates under a unified management,
be termed a conglomeration
 EXAMPLE:
Hindustan Unilever Ltd. (processed vegetables and soaps)

• Hindustan Unilever Limited (HUL) is the Indian wing of the

Multinational consumer goods company Lever International.
• HUL was established in 1933 as Lever Brothers and, in 1956,
became known as Hindustan Lever Limited, as a result of a
merger among Lever Brothers, Hindustan Vanaspati Mfg. Co.
Ltd. and United Traders Ltd.
• It is headquartered in Mumbai, India and employs over
16,000 workers,whilst also indirectly helping to facilitate the
employment of over 65,000 people.
• The company was renamed in June 2007 as "Hindustan
Unilever Limited".
 EFFECTS OF CONGLOMERATION
● Risk reduction through diversification
● Acquisition of financial leverage
● Empire – building urge.
 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
This occurs when all the decisions and assets of a firm
are completely assumed by another firm.
Example: a processing firm which buys a wholesale firm.

● Contract Integration
This involves an agreement between two firms on
certain decisions, while each firm retains its separate identity.
Example: tie up of a dhal mill with pulse traders for supply of
pulse grains.
MEASUREMENT OF MARKET INTEGRATION
The measurement or assessment of the extent of
market integration is helpful in the formation of appropriate
policies for increasing the efficiency of marketing process.

The measurement or assessment of market

integration may be attempted at two levels.

1) Integration among firms of a market.

2) Integration among spatially separated markets.
 Integration among firms of a market

● The extent of vertical integration in a market may be assessed by

counting the number of functions performed by each firm in the
market.

● The extent of horizontal integration may be measured by

studying the number of firms performing the same marketing
function but operating under one common management.

● The result of a study on the existence of vertical and horizontal

integration in the marketing of wheat in eight main wheat
producing districts of Rajasthan revealed that about half of the
marketing firms (50.5%) were integrated vertically because they
performed two or three functions.
 Integration among spatially separated markets

● The extent to which prices in spatially seperated markets move

together or are related to transport costs reflects the degree of
integration.

● A two-way analysis of prices in spatially seperated markets may be

used to assess the degree of integration.

1) Price correlations.
2) Spatial price differential and Transportation costs.
 PRICE CORRELATION

● The degree of correlation between two prices is taken as an index of the

extent to which the two markets are integrated.

● A higher degree of correlation coefficient indicates a greater degree of

integration at least in terms of the pricing of the product between market
centres and vice versa.

● The correlation in the price of commodity in any markets is unity under

spatial price integration.
 SPATIAL PRICE DIFFERENTIAL AND
TRANSPORTATION COSTS

● Correlation method
● Ravallion procedure
● Co integration approach
● Parity bound models (PBM)