WESLEYAN UNIVERSITY-PHILIPPINES

Cushman Campus
Mabini Extension, Cabanatuan City
Philippines, 3100

Subject Code: GEC 8

Subject Title: The Contemporary World

MODULE 5: Market Integration

Learning Outcomes
At the end of this lesson, students should be able 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 twentieth century; and
3. Identify the attributes of global corporation.

Learning Activities:
Asynchronous Discussion: On the canvas tab “Assignment”, Module 5: Market Integration, answer the
given questions to further understand the concepts discussed in this module.
Reference: A Course Module for The Contemporary World (Nephtaly Joel B. Botor, Eric Paul D. Peralta,
Raphael M. Ferrer, Jennifer Marie S. Amparo, Teri-Marie P. Laude)

Introduction
Take a tour in your local grocery stores. The products sold that you are familiar with, see the “manufactured in”
or “made in” labeled in each of them. “Manufactured by” or “distributed by”. Their source of materials; most of
them are either sourced from one country, or imported and manufactured in another, and distributed worldwide.

Check out the proliferation of call centers and business processing outsourcing (BPO) companies in the
Philippines. Most of them cater to international consumers based in US, Australia, New Zealand, and Europe.
According to Philippine Statistics Authority (2018), the Philippines has 851 BPO companies, more than half of
which are call centers (429). The Philippines is the call center capital of the world, accounting to 18 percent of the
global market share. US$24.4B and 7.5 percent revenue increase in the first quarter of 2018 (Sea Limited, n.d.).

These developments are due to increasing market integration, which has two kinds – horizontal and and vertical
integration (Grossman & Hart, 1986). Horizontal integration happens when a firm gains control of other firms
performing similar marketing functions at the same level in the marketing sequence. For instance, Disney bought
Pixar, which is also in the entertainment media, for $7.4B (La Monica, 2006). In the Philippines, an example of a
local integration is when Landbank of the Philippines acquired the Philippine Postal Savings Bank, for the latter
to focus on overseas Filipino worker clients (ABS-CBN News, 2017). Vertical integration happens when one
company owns the operations and products from one stage to the other along the supply chain. For example, an
iron mining company operates the steel manufacturing firm. Another instance is when McDonald’s owns the land
where its supplies are located to avoid cost of lease. In this lesson, we will discuss the role of different institutions
like international financial institutions and global corporations in market integration.

“The people who are crazy enough to think they can change the world are the ones who do.”
- Steve Jobs

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 Definition of Terms:
 Market Integration – a process by which economies are becoming more interdependent and interconnected in
terms of commodity flows including externalities and spillover of impacts (Genschel and Jacktenfuchs, 2017)
 International Financial Institutions (IFIs) – institutions that provide support through loans or grants and
technical advices to promote a country’s economic and social development (Bhargava, 2006:393).
 Corporations – private institutions that produce or manufacture goods, products, and services for a more
expanded market usually at the reach of regions or the world. Transnational corporations (TNCs) have a more
complex setting where each foreign subsidiary is given some freedom to develop its own product lines and
marketing compared to multinational corporations (MNCs), which have more of a home or country base taking
care of the R&D and marketing, and focus more on exporting their products and services (Iwan, 2007).

Body:
The International Financial Institutions and their Role in the Global Economy
Global and regional IFIs include International Monetary Fund (IMF) and multilateral development banks
(MDBs)like the World Bank Group, the African Development Bank (ADB), the Inter-American Development
Bank, and the European Bank for Reconstruction and Development (Bhargava, 2006).

IFIs have a significant role in global economic development. Compared to private financing institutions, IFIs
provide financial and technical services and products not for profit but for overall economic and social
development (Buiter & Lankes, 2014).

They provide loans, technical assistance, and policy-based lending macroeconomic stability and providing the
necessary infrastructure and systems, sectoral reforms, and creation of safety nets through policy-based lending
(Bhargava, 2006). IFIs also work with the private sector for investment and policy reforms to promote private
sector expansion (International Finance Corporation, 2011).

IFIs undeniably have been a critical actor in the contemporary world. Their contributions to social and economic
development and progress in the modern times are recognized. However, there are four key issues with IFIs,
which include legitimacy, effectiveness, support conditionality and financial capacity, and sustainability
(Bhargava, 2006: 404).

First, Bhargava argues that some critics question IFIs’ legitimacy given that majority of its shareholders and
policy making powers lie with powerful, rich nations. Leaders of these IFIs also by default, have come from
developed countries. Such heads of the IMF have always been a European, American for World Bank, and a
European for EDRD, thus a clamor for IFIs to select leaders based on merits and not on national origin (Bhargava,
2006: 404). Leadership roles in these powerful IFIs are critical in steering the institution’s policy and programs,
including its reforms.

Second, different sectors have questioned the effectiveness of the IFIs’ development assistance programs and
policy advices. Some of the IFIs’ investment have been controversial such as support to large-scale land use
conversion (dam construction), which has displaced numerous indigenous peoples in some areas like in the
Philippines’ case (Rivers Watch East and Southeast Asia (RWESA), 2003). Thus, social safeguards to ensure
human rights, community, and environment well-being need to be instituted (Bhargava, 2006).

Third, the major products of IFIs are loans to provide capital for development initiatives of countries. However, it
does not come for free and comes with certain conditions that the borrowing country has to meet. This
conditionality was set in place as a form of safeguard to ensure that loans are spent efficiently for its intended use.
Nevertheless, some conditions on privatization, trade liberalization, elimination of subsidy, and limits to public
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investments are mostly contested and argued against by some sectors (Dreher, 2009). Critics have argued that
these conditionalities impose Western free-market policies on developing countries which could be ill-timed,
inappropriate, or undesired by receiving countries (Bhargava, 2006:405).

Lastly, the financial capacity and sustainability of IFIs is another concern. The IFIs’ income base has reduced
compared to what it was before, although the demand from IFIs are increasing particularly in contributing toward
regional and global development initiatives. Some middle income countries also limit their loans with IFIs due to
a higher transactional cost as well as the conditionality commonly attached to these financial services. In addition,
some concessional financing has been transformed into grants from loans which may be more attractive to the
recipient country but could take a toll to the financial sustainability of IFIs. In 2002, developed countries pledged
to provide further financial support to IFIs during the Monterrey Conference on Financing for Development
(World Economic Forum, 2006).

A Summarized History of the Global Economy

The modern capitalist world economy flourished between the 16 th to 18th centuries (Frieden, 2012). The start of
the modern global trade leading to 1914 was considered the first period of globalization (Bhargava, 2006). It is
when trade, capital, and immigration flows grew tremendously and in large volume, but the global institutional
architecture to manage these were quite limited (ibid.). International convention and treaties also served as drivers
for these large-scale global movements such as the International Telegraph Union in 1865, Universal Postal
Union in 1874, International Association of Railway Congresses (1884), and International Sanitary Convention in
1892 (Frieden, 2012). Wallerstein (2006:2) argues that this was driven by the paradigm of capital accumulation
that resulted to technological advances and expansion of places, knowledge, and discoveries.

From the Second World War to the late 1990s, the modern international economic enabling architecture was
established (Frieden, 2012). In addition, we see the expansion of MNCs across the globe, supported by enabling
policies and improved communications and transport (Bhargava, 2006). Political changes like the fall of the
Berlin Wall, establishment of regional networks, and trade agreements resulted to trade liberalization and free
flow of capital in the world (Neubauer, 2014).

However, the euphoria on globalization and global free trade was put into question with the 1994/95 Mexico
crisis, when Mexico’s multibillion loan from IMF created a negative spillover effect on US, Europe, Portugal, and
Spain (Neudauer, 2014). This was offset by the exponential rise of the Asian economy and the advancement in
digitalization and technology that ushered in a new wave of globalization (Beubauer, 2014).

From the late 1990s until very recently, Bhargava contends and characterizes the third wave of market integration.
We see the advent of the modern internet, the WTO establishment, and formal entry of China into the trading
system through its accession to international financial institutions (Frieden, 2012). Despite the world economy
boom – where the world enjoyed increased growth – the global debt crisis, political and civil unrests even in
developed countries resulted to market crash and started the war on terror that affected global diplomacy and
economy (Buiter, 2011).

As the world enters what the World Economic Forum argues as the “Fourth Industrial Revolution”, Mueller
(2010) predicted that there will be slower economic growth, political destabilization, and diffusion of power.
Some of his recommendations to remedy these include reforms in work, economic spending, improving solidarity,
openness, and cooperation among countries.

The Global Corporations

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Aside from IFIs and governments, one of the major players in globalization and the modern capitalist market is
the global corporations. The number of global corporations from emerging market economies listed in the Fortune
Global 500 rose from 47 firms in 2005 to 95 in 2010 (Neubauer, 2014).

The modern global corporations are commonly referred to as multinational corporations and transnational
corporation. More often, they are used interchangeably. Iwan (2007) offers categorizations to distinguish an MNC
from a TNC. He argues that both types of corporations are importers and exporters, and have investments in many
countries. Nevertheless, her further contends that MNCs still provide central decisions compared to TNCs that
provide individual foreign market investment to have their own operations and systems (Iwan, 2007),

With the growth of global corporations from emerging economies, the capital flows have now started to change
from the dominant North-North/North-South to South-South and South-North capital flows, most of the South-
North coming from China and India (Rajan, 2010). For instance, China’s Lenovo Corporation bought IBM’s PC
business (NBC News, 2005).

SUMMARY:
In this lesson, we defined the IFIs. IFIs are institutions that provide support through loans or grants and technical
advices to promote a country’s economic and social development (Bhargava, 2006:393). These support services
and financial instruments are critical for the global economy, particularly in supporting capital flows and
economic development. Nevertheless, IFIs are expected to do more (Buiter and Lankes, 2014).

We quickly traced the history of global market integration through globalization of capitals and trades flows from
the sixteenth century to the present. Bhargava and Neubauer identified at least three general phases of
globalization that promoted global market integration. These phases were fueled by developments in transport,
communications, technology supported by enabling policy, and financial support from IFIs and governments.

Aside from IFIs, the global corporations – MNCs and TNCs are also expanding and growing in numbers and
influence. These global corporations have contributed to both national and global economies and have
significantly affected commodity and services flows (Neubauer, 2014). However, similar to IFIs, these global
corporations are also met with criticism in terms of their corporate social and environmental responsibilities.
Their growing economic operations have resulted in displacement of some workers, pollution, and political
unrest. Thus, calls by communities and civil society groups for these corporations to improve safeguards and
corporate social responsibility have strengthened.

We have seen reform efforts by IFIs and global corporations to improve their operations, encouraging greater
transparency and communicating their social and environmental impacts. These initiatives are welcomed in a
world of uncertainty and greater complexity.

ASSESSMENT:
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It is important to reflect on the benefits, limits, and challenges of market integration and its major institutions or
actors like the IFIs and global corporations.
1. What and who benefits from market integration? How could emerging economies and developing
countries like the Philippines benefit from market integration, including increasing our participation in
this global phenomenon?
_____________________________________________________________________________________
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2. What social and environmental safeguards should be developed and implemented in order to ensure that
benefits of global market integration are distributed with greater equity and respect for local culture and
environment?
_____________________________________________________________________________________
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_____________________________________________________________________________________
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BIBLIOGRAPHY:
 Big Corporate Mergers and acquisitions in PH in past year. Retrieved from
https://news.abs-cbn.com/business/05/02/17/5-big-corporate-mergers-and-acquisitions-in-ph-in-past-year:
ABS-CBN (2017, May 02)
 The role of the international financial institutions in addressing global issues. In Global Issues for Global
Citizens: An Introduction to Key Development Challenges. Pp 393-409. Bhargava, Vinay (2006)
 International financial institutions: adapting to a world of private capital. Retrieved from Research Gate:
https://www.researchgate.net/publication/30528181_international_financial_institutions_adapting_to_a_
world_of_private_capital_flows Buiter, W.H., & Lankes, H. (2014, February)
 IIMF Conditionality: theory and evidence. Public choice, 141(1-2). 233-267. Dreher, A (2009)
 The modern capitalist world economy: A historical overview. In The Oxford Handbook of Capitalism
(pp.17-38). Oxford: Oxford University Press. Frieden, J.A. (2012)
 From the market integration to core state powers: the Eurozone crisis, the refugee crisis and integration
theory. JCMS: Journal to Common Market Studies, 56(1), 178-196. Genschel, P., & Jachtenfuchs, M.
(2018)
 A theory of vertical and lateral integration. Mergers and Acquisitions: Motivation. 2(4). 126. Grossman,
S.J., & Hart, O.D. (2002)
 International Finance Institutions and Development through Private Sector. Washington, D.C.
20433:2121 Pennsylvania Avenue, N.W. International Finance Corporation. (2011)
 Difference between a global, transnational, international and multinational company. Retrieved from Lee
Iwan Accumulated Experience (leeiwan.wordpress.com):
https://leeiwan.wordpress.com/2007/06/18/difference-between-a-global-transnational-international-and-
multinational-company/ Iwan, L. (2007, June 18)
 Disneybuys Pixar. Retrieved from
https://money.cnn.com/2006/01/24/news/companies/disney_pixar_deal/ La Monica, P.R. (2006, January
25)
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  China’s Lenovo acquires IBM division. Retrieved from https://nbcnews.com/id/7695811/ns/business-
world_business/t/chinas-lenovo-acquires-ibm-division/ NBC News (2005, May 1)
 The Rise of Global Corporation. Retrieved from Academia.edu:
https://www.academia.edu/20862943/The_Rise_of_the_Global_Corporation Neubauer, D. (2014)
 The Paris Declaration on Aid Effectiveness. Retrieved from
http://www.oecd.org/dac/effectiveness/parisdeclarationandaccraagendaforaction.html OECD (2005)
 LabStat Updates 2015/2016 Industry Profile: Business Process Outsourcing. Philippine Statistics
Authority (July, 2018)
 Rebalancing the global economy. New Perspectives Quarterly 27, no. 4 (2010): 7-9. Rajan, R.G. (2010)
 Development Disasters: Japanese-funded Dam Projects in Asia. Rivers Watch East and Southeast Asia
(RWESA) (2003)
 Representing 58,960,000 Class A Ordinary Shares. Retrieved from
https://www.sec.gov/Archives/edgar/data/170339/000119312517315485/d363501d424b4.htm Sea
Limited (n.d.)
 Building on the Monterrey Consensus: The Untapped Potential of Development Finance Institutions to
Catalyse Private Investment. Retrieved from https://www.oecd.org/site/pecdgfd/40139457.pdf World
Economic Forum (2006)
 Globalization 4.0 Shaping a New Global Architecture in the Age of the Fourth Industrial Revolution: A
Call for Engagement. Geneva: Switzerland. World Economic Forum (2019)

Prepared by: Checked by:

Arnold C. Eugenio Ferman Lazatin

CAS Faculty Program Head
Department of Humanities
and Social Sciences

Noted by:

Dr. Marietta B. Agustin

Dean
College of Arts and Sciences

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