Republic of the Philippines

Commission on Higher Education

OAS COMMUNITY COLLEGE
Oas, Albay

MODULE 3 and 4: The Structures of Globalization

SUBJECT CODE: GE 4

SUBJECT TITLE: The Contemporary World

MODULE TITLE: The Market Integration and Global Interstate System

MODULE DESCRIPTION:

This module discuss how the market becomes coherent through global corporations and
international financial institutions and it analyzes the dynamics of transnational cooperation and how
governments are affected by globalization.

While we often talk about it in numerical terms, the economy is composed of people. The people are the
social institution that organizes everything happening in the society; production, consumption, and
trade of goods.

There are many ways in which a product can be made, exchanged and used. Think about capitalism or
socialism. These economic systems – and the economic revolutions that created them – shape the way
people live their lives.

This course introduces the students to the contemporary world by examining the multifaceted
phenomenon of globalization. Using the various disciplines of the social sciences, it examines the economic, social,
political, technological, and other transformations that have created an increasing awareness of the
interconnectedness of peoples and places around the globe. To this end, the course provides an overview of the
various debates in global governance, development, and sustainability. Beyond exposing the students to the world
outside the Philippines, it seeks to inculcate a sense of global citizenship and global ethical responsibility.

EXPECTED OUTCOME/ OBJECTIVES: At the end of this module, you are expected to:
1. Explain the role of international financial institutions in the creation of a global economy
2. Narrate a short history of global market integration in the 21 st century; and
3. Infer the attributes of global corporations
4. Explain the effects of globalization on nation states
5. Categorize the institutions that govern international relations
6. Differentiate internationalism from globalism

1|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

PRE- TEST

Instructions: Write Agree if you think the statement is correct; otherwise, write disagree.

______________ 1. The Hong Kong Shanghai Banking Corporation is an international financial institution.
______________ 2. SM Investment Corporation is a global corporation.
______________ 3. The Asian Development Bank is headquartered in Singapore.
______________ 4. Chowking is a Filipino-based restaurant chain that expanded in Indonesia and the US in 2008.
______________ 5. The Human Rights Watch is an international advocacy organization
______________ 6. Internationalism and internationalization are two similar ideas
______________ 7. The Asia Pacific Economic Forum is an intergovernmental organization (IGO)
______________ 8. The United Nations Children Fund is an IGO that addresses worldwide health
______________ 9. The internet is responsible for paving the way for the development of new communication
networks

LESSON CONTENT

MARKET INTEGRATION

Market integration is the fusing of many markets into one.

Global Market integration means that price differences between countries are eliminated as all markets become
one.
Example - In one market a commodity has a single price such as the price of rice would be the same in
southern and northern Luzon if these areas were part of the same market. If the price in Southern Luzon
was higher, seller of rice would move from North to South and prices would equalize. The price of rice in
one place to other might be different, though, and high transport costs and other kind of expenses
might mean that it would be uneconomical for other sellers to move their stocks to other place if prices
were higher there.

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World Economies have been brought closer by globalization. It is the reflected in the phrase – “when
America sneezes, the whole world catches a cold.”

It is important to remember though that it is not only the economy of the United States but also other
economies in the world that have significant impact on the global market and finance.

2|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

The strength of a more powerful economy brings greater effect on other countries. In the same manner,
crises on weaker economies have less effect than other countries.

Although countries are heavily affected by the gains and crises in the world economy, organizations that
they consist also contribute to these events.

------------------------------

Types of Market Integration

1. Horizontal Market Integration - is a competitive strategy in which two companies of the same nature
merge or one larger company acquires a smaller company.

Example: The acquisition of Miramax and Pixar of a much larger company Disney. The acquisition of
Smart of a much smaller company Sun.

2. Vertical Market Integration - It is a competitive strategy of a firm own to own the upstream suppliers
and downstream buyers; this is an arrangement in which supply chain of a company is also owned by
that company.

Example: A car company began making their own steel for their car parts instead of investing to other
corporations. Nescafe Corporation buying their own land, and producing their own coffee grain,
employing their own coffee growers.

A. Forward Vertical Integration - This process occurs when a company decides take control of the
post-production process or is acquiring a business further up into the supply chain.

Example: A car manufacturer acquires an automotive dealership. Starbucks has the production
of its own coffee bean to the cup of coffee sold to consumers.
B. Backward Vertical Integration - This process occurs when a company decides to buy another
company that makes an input product acquiring company’s product.

Example: A car manufacturer acquires a tire manufacturer or car parts distributor.

3. Conglomerate Market Integration - This involves a combination or fusion of companies that are
involved in unrelated business activities. Two types of mergers of conglomerate:

A. Pure Mergers conglomerates involves companies that have nothing in common.

Example: Henry Sy of SM Investments Corp acquired a 34.5 24 percent stake in 2GO Group
Incorporation.

B. Mixed Mergers Conglomerates - combination of companies that are looking for product extensions
or market extensions.

------------------------------

3|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

The following are financial institutions and economic organizations that made countries even closer
together, at least, when it comes to trade:

1. THE BRETTON WOODS SYSTEM

Bretton Woods Agreement and System.

The Bretton Woods Agreement was negotiated in July 1944 to establish a new international monetary
system, the Bretton Woods System. The Agreement was developed by delegates from 44 countries at
the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire.

Under the Bretton Woods System, gold was the basis for the U.S. dollar and other currencies were
pegged to the U.S. dollar’s value. The Bretton Woods System effectively came to an end in the early
1970s when President Richard M. Nixon announced that the U.S. would no longer exchange gold for U.S.
currency.

Approximately 730 delegates representing 44 countries met in Bretton Woods in July 1944 with the
principal goals of creating an efficient foreign exchange system, preventing competitive devaluations
of currencies, and promoting international economic growth. The Bretton Woods Agreement and
System were central to these goals. The Bretton Woods Agreement also created two important
organizations—the International Monetary Fund (IMF) and the World Bank. While the Bretton Woods
System was dissolved in the 1970s, both the IMF and World Bank have remained strong pillars for the
exchange of international currencies.

Its principal goal was to create an efficient foreign exchange system, preventing competitive
devaluations of currencies, and promoting international economic growth.

It wasn't until 1958 that the Bretton Woods System became fully functional. Once implemented, its
provisions called for the U.S. dollar to be pegged to the value of gold. Moreover, all other currencies in
the system were then pegged to the U.S. dollar’s value. The exchange rate applied at the time set the
price of gold at $35 an ounce.

2. THE INTERNATIONAL MONETARY FUND AND THE WORLD BANK.

The Bretton Woods Agreement created two Bretton Woods Institutions, the IMF and the World Bank.

Formally introduced in December 1945 both institutions have withstood the test of time, globally
serving as important pillars for international capital financing and trade activities.

The purpose of the IMF was to monitor exchange rates and identify nations that needed global
monetary support. The World Bank, initially called the International Bank for Reconstruction and
Development, was established to manage funds available for providing assistance to countries that had
been physically and financially devastated by World War II. In the twenty-first century, the IMF has 189

4|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

member countries and still continues to support global monetary cooperation. In tandem, the World
Bank helps to promote these efforts through its loans and grants to governments.

[PHL debt stock reached $78.824 billion in 2018–World Bank.

https://businessmirror.com.ph/2019/10/03/phl-debt-stock-reached-78-824-billion-in-2018-world-
bank/]

What is the IMF and what are its purpose?

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world.

The IMF’s fundamental mission is to ensure the stability of the international monetary system. It does so
in three ways: keeping track of the global economy and the economies of member countries; lending to
countries with balance of payments difficulties; and giving practical help to members.

The IMF also performs several roles and functions: Economic Surveillance, Lending, and Capacity
Development.

What is the World Bank and what are its purpose?

The World Bank is an international financial institution that provides loans and grants to the
governments of poorer countries for the purpose of pursuing capital projects. It comprises two
institutions: the International Bank for Reconstruction and Development, and the International
Development Association.

 THE IBRD.
- The International Bank for Reconstruction and Development (IBRD) lends to
governments of middle-income and creditworthy low-income countries.

 THE IDA.
- The International Development Association (IDA) provides interest-free loans — called
credits — and grants to governments of the poorest countries.

The World Bank has two ‘ambitious’ goals that it hopes to perform by 2030: 1) End extreme poverty by
decreasing the percentage of people living on less than $1.90 a day to no more than 3%; 2) Promote
shared prosperity by fostering the income growth of the bottom 40% for every country.

Along with the two institutions IBRD and IDA, there are three other organizations within the World Bank
Group. Namely;

- The International Finance Corporation

5|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

The International Finance Corporation (IFC) is the largest global development institution focused
exclusively on the private sector. We help developing countries achieve sustainable growth by
financing investment, mobilizing capital in international financial markets, and providing
advisory services to businesses and governments.

- The Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign
direct investment into developing countries to support economic growth, reduce poverty, and
improve people’s lives. MIGA fulfills this mandate by offering political risk insurance
(guarantees) to investors and lenders.

- The International Centre for Settlement of Investment Disputes

The International Centre for Settlement of Investment Disputes (ICSID) provides international
facilities for conciliation and arbitration of investment disputes.

3. FREE TRADE AREAS.

What are free trade areas?

A free trade area is a region in which a group of countries has signed a free trade agreement and
maintain little or no barriers to trade in the form of tariffs or quotas between each other. Free trade
areas facilitate international trade and the associated gains from trade along with the international
division of labor and specialization. However, free trade areas have been criticized both for costs that
are associated with increasing economic integration and for artificially restraining free trade.

 NORTH AMERICAN FREE TRADE AGREEMENT.

- The North American Free Trade Agreement, which eliminated most tariffs on trade
among Mexico, Canada, and the United States, went into effect on Jan. 1, 1994.
Numerous tariffs, particularly those related to agriculture, textiles, and automobiles,
were gradually phased out between Jan. 1, 1994 and Jan. 1, 2008.
 ASSOCIATION OF SOUTHEAST ASIAN NATIONS FREE TRADE AREA.
- The Association of Southeast Asian Nations (ASEAN) is a regional organization of 10
Southeast Asian and Pacific Rim countries whose governments collaborate to promote
socio-cultural, economic, and political advancement in the region. ASEAN is an official
observer of Asia-Pacific Economic Cooperation (APEC), a 21-member economic group
that promotes free trade and sustainable development in Pacific Rim countries.
 ASIA-PACIFIC ECONOMIC COOPERATION (APEC)
- The Asia-Pacific Economic Cooperation (APEC), is an economic group of 21 members,
formed in 1989, with the primary goal of promoting free trade and sustainable
development in the Pacific Rim economies. The creation of APCE was primarily in
response to the increasing interdependence of Asia-Pacific economies. Also, the

6|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

proliferation of regional economic blocs, such as the European Union (EU) and the, now
defunct, North American Free Trade Area (NAFTA), encouraged its formation.
 EUROPEAN UNION (EU)
- The European Union (EU) is a group of 28 countries that operates as a cohesive
economic and political block. Nineteen of the countries use the euro as their official
currency.

The EU grew out of a desire to form a single European political entity to end the
centuries of warfare among European countries that culminated with World War II and
decimated much of the continent. The European Single Market was established by 12
countries in 1993 to ensure the so-called four freedoms: the movement of goods,
services, people, and money.

 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

- The Organization for Economic Co-operation and Development (OECD) is a group of 34
member countries that discuss and develop economic and social policy. OECD members
are democratic countries that support free-market economies.

The Organization for Economic Co-operation and Development (OECD) is variously

referred to as a think tank or monitoring group. Its stated goals include fostering
economic development and cooperation, fighting poverty, and ensuring the
environmental impact of growth and social development is always considered. Over the
years, it has dealt with a range of issues, including raising the standard of living in
member countries, contributing to the expansion of world trade and promoting
economic stability.

The OECD was established on Dec. 14, 1960, by 18 European nations plus the United
States and Canada. It has expanded over time to include members from South America
and the Asia-Pacific region. It includes most of the highly developed economies.

THE GLOBAL INTERSTATE SYSTEM

1. World Government is an idea where every country unites under one political authority, but this
has not happened yet. Proponents reasoned that such political organization will solve problems
on war, production of weapon for mass destruction, poverty and inequality as well as
environmental decay. The more modern objective is to design global institutions that move
humanity world federalism or cosmopolitan democracy. (Stanford Encyclopedia of Philosophy).
Opposing this move suggests that this is infeasible, undesirable and totally unnecessary.
7|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

2. However, it is no longer uncommon to hear words like World Bank, World Health Organization,
International Monetary Fund, World Food Program etc. that give us the concept of some global
polity. The World Bank is an international organization designed to help fight poverty by
providing financing and research advice to development projects of the poorer economies.

3. If global world sounds infeasible, global economy is far from different. When governments
control their own specific economies, big banks and large companies fund these governments.
In effect, these large financial institutions and corporations dominate and control global
economies (Burrows). Less than one per cent of the companies 40% of the entire business
ownership network in the global economy. This organization controls the financial flows going in
and coming out the economies.

4. However, other factors certainly affect the movements in global economies. If there is an
increase in the price of oil due to some quantity controls, essentially, the cost of production and
shipping costs increases. This eventually is translated as price hikes for goods bought in from
store shelves. The multiplier effect continues by driving off purchasing power of earning
individuals, which, if uncontrolled, leads to increasing number of families under poverty line.
The higher the prices, the more likely it is to create larger disparities in incomes.

5. Economic instabilities will generate social problems. More poor people will participate in many
underground illegal activities like drug trafficking, 1. explained how the world operates in a
highly differentiated sovereignties of countries. Lesson Outcome: At the end of this lesson, the
learners must have: 55 prostitution, and burglary. Police matters become one of the hit news in
each morning headlines and some dirty politicians may take advantage of the poor by hiring
them as internet trolls against their opponents. Another social could come out from this trolling
game. It could create social upheavals and collective disruptions making the ordinary citizen and
less informed individuals confused.

6. Thus, in order to maintain social and economic order, countries try to help one another through
trade and international organizations aiming at achieving a common goal of peace, harmony,
economic growth and technological advancements, social progress and cultural development.
The six international organizations we need to know include The United Nations, North Atlantic
Treaty Organization (NATO), the European Union (EU), World Trade Organization, the Group of
Twenty (G20) and International Criminal Court (ICC). Within our reach is the Association of
Southeast Asian Nations.

7. The UN’s mission is to promote international peace and stability, human rights and economic
development. Specialized agencies under it are UNICEF (United Nations for Children ‘s Fund),
UNESCO (United Nations Educational, Scientific and Cultural Organization), the World Bank, and

8|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

the World Health Organization (WHO). (Six Essential International Organizations You Need to
Know)

8. NATO’s mission is to safeguard its member ‘s freedom and security through both political and
military means. Members of NATO are primarily countries in North America and Europe
including Turkey. EU’s mission is to help member countries cooperate on economic, political and
security matters. WTO, on the other hand, has a mission to manage the rules of international
trade and to ensure the fair and equitable treatment of all members via negotiations and trade
disputes settlement. The G20 convenes officials from the largest economies both the wealthiest
economies and developing to jointly address global concerns and to coordinate economic
policies.

SUMMARY
• Market integration is a process that refers to corporate expansion by consolidating additional marketing
functions and activities within a single management framework.
• There are three types of market integration namely; vertical, horizontal and conglomerate systems.
• The Bretton Woods Agreement and system created a collective international currency exchange and built
International Financial Institutions like the World Bank and International Monetary Fund.
• The Bretton Woods collapsed in the 1970’s but created a lasting influence in trading and foreign currency
exchange.
 Countries organize themselves into organizations and regions to achieve a common goal of subsistence, growth,
progress in peace and harmony

REFERENCES:

 The Contemporary World 2019 by Tumoroh C. Brazalote and Ryan M. Leonardo

 The Contemporary World by Lisandro E. Claudio and Patricio N. Abinales
 https://www.studocu.com/ph/document/polytechnic-university-of-the-philippines/the-
contemporary-world/lecture-notes/the-global-economy/3175033/view

9|P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

POST TESTS:
Answer the following questions.

______________ 1. competitive strategy in which two companies of the same nature merge or one larger
company acquires a smaller company.
______________ 2. an organization of 189 countries, working to foster global monetary cooperation, secure
financial stability, facilitate international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world.
______________ 3. a region in which a group of countries has signed a free trade agreement and maintain little or
no barriers to trade in the form of tariffs or quotas between each other
______________ 4. fusing of many markets into one.
______________ 5. a group of 34 member countries that discuss and develop economic and social policy
______________ 6. involves a combination or fusion of companies that are involved in unrelated business
activities
______________ 7. an economic group of 21 members, formed in 1989, with the primary goal of promoting free
trade and sustainable development in the Pacific Rim economies
______________ 8. It provides international facilities for conciliation and arbitration of investment disputes.
______________ 9. the largest global development institution focused exclusively on the private sector
______________ 10. an international financial institution that provides loans and grants to the governments of
poorer countries for the purpose of pursuing capital projects

Answer the following questions below.

1. Identify the different types of market integration present in your locality. Give 3 examples and narrate
why you think they belong to this type.
2. How does market integration affect the lives of an ordinary man? (100 words)
3. Philippines has been one of the major borrowers of money from International Financial Institutions ever
since. What do you think is the impact of the International Financial Institutions to the Philippines as a
country? (100 words)

THIS MODULE IS GOOD FOR TWO WEEKS

KEY TO CORRECTION:

PRE-TEST

1. AGREE
2. DISAGREE
3. AGREE
4. AGREE
5. AGREE
6. DISAGREE
7. DISAGREE
8. AGREE

10 | P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

9. AGREE

POST TEST

1. Horizontal Market Integration

2. International Monetary Fund (IMF)
3. free trade areas
4. Market integration
5. Organization for Economic Co-operation and Development (OECD
6. Conglomerate Market Integration
7. Asia-Pacific Economic Cooperation (APEC)
8. International Centre for Settlement of Investment Disputes (ICSID)
9. International Finance Corporation (IFC)
10. World Bank

1. Varies on students ideas

2. Varies on students ideas
3. Varies on students ideas

Prepared by:
_______________
MARY R. GAMBOA
Instructor

Noted:
______________________

11 | P a g e
MARY R. GAMBOA
OCC Instructor
 Republic of the Philippines
Commission on Higher Education
OAS COMMUNITY COLLEGE
Oas, Albay

GEMMA G. ESPINEDA, MBA

Prog. Head, BSOA Dept.

Recommending Approval:

___________________________

RICHARD R. BERMUNDO, MAEng. Ed

Director for Administration

Approved: ______________________
EMERITA R. RELLEVE, Ph. D.
College Administrator

12 | P a g e
MARY R. GAMBOA
OCC Instructor