International Business College Matias, Patrick T.

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Pamplona Tres, Las Pinas City The Contemporary
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I. What is Market Integration?

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. Thus market integration is an indicator that
explains how much different markets are related to each other. A marketer plays a role of integrator in the
sense that he collects feedback or vital inputs from other channel members and consumers and provides
product solutions to customers by coordinating multiple functions of organization.

II. 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.
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.
3) Conglomeration - combination of agencies or activities not directly related to each other may,
when it operates under a unified management, be termed a conglomeration.

III. Advantage and Disadvantage of Each Market Integration

 Horizontal Integration
o Advantage 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.

o Disadvantage of Horizontal Integration

1) Destroyed value.
2) Legal repercussions.
3) Reduced flexibility.
 Vertical Integration
o Advantage 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.

o 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

 Conglomeration
o Advantage of Conglomerates
1) Diversification results in a reduction of investment risk. A downturn suffered by one
subsidiary, for instance, can be counterbalanced by stability, or even expansion, in
another division. For example, if Berkshire Hathaway's construction materials
business has a good year, the profit might be offset by a bad year in its insurance
business. This advantage is enhanced by the fact that the business cycle affects
industries in different ways. Financial Conglomerates have very different
compliance requirements from insurance or reinsurance solo entities or groups.
There are very important opportunities that can be exploited, to increase
shareholder value.
2) A conglomerate creates an internal capital market if the external one is not
developed enough. Through the internal market, different parts of conglomerate
allocate capital more effectively.
3) A conglomerate can show earnings growth, by acquiring companies whose shares
are more discounted than its own. In fact, Teledyne, GE, and Berkshire Hathaway
have delivered high earnings growth for a time.

o Disadvantage of Conglomerates
1) The extra layers of management increase costs.
2) Accounting disclosure is less useful information, many numbers are disclosed
grouped, rather than separately for each business. The complexity of a
conglomerate's accounts make them harder for managers, investors and
regulators to analyse, and makes it easier for management to hide issues.
3) Conglomerates can trade at a discount to the overall individual value of their
businesses because investors can achieve diversification on their own simply by
purchasing multiple stocks. The whole is often worth less than the sum of its parts.
4) Culture clashes can destroy value.
5) Inertia prevents development of innovation.
 6) Lack of focus, and inability to manage unrelated businesses equally well.
7) Brand dilution where the brand loses its brand associations with a market
segment, product area, or quality, price or cachet.
8) Conglomerates more easily run the risk of being too big to fail.

IV. Cite 1 Example each

1) Horizontal Integration
Example: Facebook and Instagram
One of the most definitive examples of horizontal integration was Facebook's acquisition of
Instagram in 2012 for a reported $1 billion. Both Facebook and Instagram operated in the same
industry (social media) and shared similar production stages in their photo-sharing services.
Facebook sought to strengthen its position in the social sharing space and saw the acquisition of
Instagram as an opportunity to grow its market share, reduce competition, and gain access to new
audiences. Facebook realized all of these through its acquisition. Instagram is now owned by
Facebook but still operates independently as its own social media platform.

2) Vertical Integration
Example: Live Nation and Ticketmaster
The merger of Live Nation and Ticketmaster in 2010, created a vertically integrated entertainment
company that manages and represents artists, produces shows, and sells event tickets. The
combined entity manages and owns concert venues while also selling tickets to the events at those
venues. The integration was a forward integration from the perspective of Ticketmaster and a
backward integration from the perspective of Live Nation.

3) Conglomeration
Example: The Walt Disney Company
One of the world's best known brands, the Walt Disney Company operates a wide variety of
businesses that focus on keeping consumers well-entertained. This conglomerate company is
active in movies, music, television production, live theater productions, toys and clothing, among
their many operations. Disney theme parks such as Disney World in Orlando entertain millions of
visitors from across the globe. With a presence in more than 40 countries around the world, it is no
Mickey Mouse operation, but is a true multinational conglomerate corporation.

Sources:
https://en.wikipedia.org/wiki/Market_integration
https://www.slideshare.net/jpsivam/market-integration
https://en.wikipedia.org/wiki/Conglomerate_(company)#Advantages
https://www.investopedia.com/terms/h/horizontalintegration.asp
https://smallbusiness.chron.com/example-company-conglomerate-14699.html