SocSci222 (The Contemporary World) 11

Chapter 3: Market Integration

Introduction
The market integration is always related to Chapter Objectives:
efficiency of markets. To understand the market 1. Explain the role of international
integration, it is necessary to understand the financial institutions in the
concept of "market" and "integration" separately and creation of a global economy
the way in which these are interconnected. This 2. Narrate a short history of global
chapter will provide fundamental knowledge on market integration in the
market integration to learners of this contemporary twentieth century
world. 3. Identify the attributes of global
corporations

Market versus Integration

Market derived from the Latin word "Mercatus" which means trading or place of
transactions.

There are 6 concepts of market:

1. Place Concept - "A market can be defined as a place where buyers and sellers meet
and function goods and services offered for sale and transfer of ownership pf title
occur." (W. J Stanton)
2. Commodity Concept - "The term market refers not only to the place but to a
commodity or commodities and buyers and sellers and they should be in direct
competition with one another." (Champman)
3. Exchange Concept - "It means to not any particular market place in which things are
bought and sold, but a whole of any region in which buyers and sellers are in such
free intercourse with one another that the prices of some goods tend to quality easily
and quickly." (Cournot)
4. Area Concept - "Market is an area of potential exchanges that is a group of buyers
and sellers interested in negotiating the terms of purchase and sale of goods and
services." (Philip Kotler)
5. Demand Concept -“Market may be defined as aggregate demand of potential
buyers of a production services." (Prof. W.J. Staton)
6. Space or Digital Concept - This is the new technology of market, the digital
communication media made the direct contact between the customer and the seller.

Integration according to Ulrich Koester is a state of affairs as a process involving attempts

to combine separate national economic into larger economic region.

There are 2 types of integration:

1. Negative Integration-reduces nom-tariffs and tariff barriers to trade as a main tool for
integrating markets.
2. Positive Integration-adjust domestic policies and institutions through the creation of
supranational arrangement.
^Tariff is a tax imposed by one country in the goods and services imparted from
another country.

^Supranational arrangement is a type of multinational political union where

negotiated power is delegated to an authority by government of member state.
 SocSci222 (The Contemporary World) 12

Definitions of Market Integration

Wikipedia Market integration occurs when prices among different
locations or related goods follow similar patterns over a long
period of time.
Sakthivel R. Market integration is a process which refers to the expansion of
firms by consolidating additional marketing functions and
activities under a single management.
Dercon 1995 Market integration can assess the transmission speed of price
changes in the main market to the peripheral markets.
Behura and Pradhan, Market integration as a situation in which arbitrage causes
1998 prices in different markets to move together.

To make a simple definition out of the said definitions, 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.

Evolution of Market Integration

Before people only produced for their family but today economy demands the different
sectors to work together in order to produce, distribute and exchange products and services.

The Agricultural Revolution

People learned how to domesticate plants and animals. This became the new agricultural
economy that led to major developments like permanent settlements, trade networks and
population growth.

The Industrial Revolution

This is the rise of industry through new economic tools, like steam engines,
manufacturing and mass production.

The 2 economic models that compete under Industrial Revolution.

1. Capitalism – is a system in which all-natural resources and means of production are
privately owned. (e.g. When one owns a business, he needs to outperform his
competitors).
a. Monopoly is when a company has no competitors for customers, to avoid
overpricing governments set minimum wages and rules.
2. Socialism – is a system that means for production under collective ownership. The
properties are owned by the government and allocated to all the citizens.

The Information Revolution

This is when the technology reduced the role of human labor and shifted it from
manufacturing-based economy to one that is based on service work and the production of
ideas matter than goods.

1. Primary Labor Market includes job that provide many benefits to workers they are called
white-collar professions.

2. Secondary Labor Market includes jobs that provide fewer benefits and include lower-
skilled jobs, lower-level service jobs and they also tend to have less job security.

The 3 Types of Market Integration

1. Horizontal Integration – marketing agencies combine to form a union to reduce their
effective number and the extent if actual competition in the market.
 SocSci222 (The Contemporary World) 13

2. Vertical Integration – occurs when a firm performs more than one activity in the
sequence of the marketing process. It links together two or more functions in the marketing
process within a single firm or under a single ownership.

The 2 types of Vertical Integration

a) Forward V Integration takes activities close to the consumption function.
(e.g. A TV producer company operates local TV channels and shows cooking
programs).

b) Backward V Integration is the combination of sources of supply.

(e.g. The Amazon.Com integrated the role of supplier and can sell books that its own
publishing company published).

3. Conglomeration-combination of agencies or activities not directly related to each other

but may operate under a unified management.

Importance of Market Integration

1. It is one of the ways to ascertain the extent of competitiveness in market.
2. It helps in the development of a single economic market at national level.
3. It provides better signals for optimal generation and consumption decisions.
4. It improves the security of supply.
5. It unites different country's economic union.

The International Financial Institutions (IFI)

IFI is a financial institution that have been established by more than one country and
are subjects of international law. (Wikipedia)

The financial institutions and economic organizations that made our countries
closer when it comes to trade are:
1. The Bretton Woods System – is a system where all of the payments are based on the
dollar which defined all currencies in relation to the dollar itself convertible into gold.

2. The General Agreement on Tariffs and Trade (GATT) – is a legal agreement between
many countries whose overall purpose was to promote international trade by reducing or
eliminating trade barriers such as tariffs or quotas. However, GATT was converted from a
provisional agreement into a formal international organization called World Trade
Organization (WTO) in the year 1995 month of January 1.

3. The International Monetary Fund (IMF) – where its primary purpose is to ensure the
stability of the international monetary system-the system of exchange rates and international
payments that enables countries to transact with each other. (IMF.org)

4. World Bank – is an international organization dedicated to providing financing, advice and

research to developing nations to aid their economic advancements. The bank act as an
organization that attempts to fight poverty by offering developmental assistance to middle-
and low-income countries.

5. Organization for Economic Cooperation and Development (OECD) – is a unique forum

where the governments of 34 democracies of market economies work with each other, as
well as with more than 70 non-member economies to promote economies growth, prosperity
and sustainable development. (OECD.org)

6. The Organization of Petroleum Exporting Countries (OPEC) – is a group of consisting of

14 of the world's major exporting nations. It is a cartel that aims to manage the supply of oil
in an effort to set the price of oil on the world of market in order to avoid fluctuations that
might affect the economies of both producing and purchasing countries.
 SocSci222 (The Contemporary World) 14

7. European Union (EU) – is a political and economic union in 28 member states that aims
for their original objectives were the development of a common market, subsequently
becoming a single market and a custom union between its member states. (Wikipedia)

8. North American Free Trade Agreement (NAFTA) – is a trade pact between the U.S.,
Mexico and Canada started on January 1, 1994. NAFTA helps in developing and expanding
world trade by broadening international cooperation. It also aims to increase cooperation for
improving working conditions in North America by reducing barriers to trade as it expands
the markets of 3 countries.

The Global Corporation

A global corporation is also known as global company, it is coined from the basic term
"global", which means all around the world. Any company that operates in at least a country
other than the country where it originated is a global company.
(e.g. The Coca-Cola where it started in the yer 1886 where they sell beverage at the price of
5 cents each bottle but now, they sell their beverage in more than 200 countries and than
3,000 other products).

A global corporation can also be referred to as "Multinational or Transnational Corporations"

(MNCs or TNCs). They intentionally surpass national borders and take advantage of
opportunities in different countries to manufacture, distribute and sell their products.
(e.g. The Ford Motor Company the classic American car company headquarters in Michigan
that manufacture cars worldwide).

Attributes of Global Corporation

According to Hodgetts (2005), US-based MNCs have common characteristics which are
based on formalization, specialization and centralization.
 Formalization deals with define structures, communication patterns and controlling
business operations.
 Specialization is an organizational characteristic of assigning job roles to individuals
to perform a particular task such as marketing, customer service, sales, recruitment
and purchasing.
 Centralization is when the top management have control over decisions and entire
activities of the business.

Advantages of Global Corporation

1. They are often responsible for today's best practices.
2. Innovation happens because of the investments made by multinational corporations.
3. The world has more cultural awareness because of multinational corporations.
4. They focus on consistency of their consumers.
5. Local infrastructures improve with the presence of multinational corporations.
6. It also offers employment opportunities at the local level.
7. The import-export market is present because of multinational corporations.

Disadvantages of Global Corporation

1. Multinational corporations can use their structure to form monopolistic market.
2. Because of their size, they put small entrepreneurs out of business.
3. Political corruption typically rises with the influence of a multinational corporation.
4. It can cause harm to the environment.
5. Multination corporations remove raw materials from the local economy.
6. They tend to send their employees to another country which lessens the employment
opportunity of the local people.
7. It caused diffusion where it slowly changes the culture.
 SocSci222 (The Contemporary World) 15

Reflective Questions
1. What are the possible backlogs of creating market integration?
2. Why is integration important in globalization? Cite concrete scenarios.
3. Think of a world without the presence of market integration. What do you think will
happen?
4. What is the greatest role of international financial institutions in globalization?
5. As a future educator, how can you help in rising our own economy? Elaborate your
answer and cite some examples.

References

Reguyal, Prince Kennex. The Contemporary World. Rex Book Store (pp. 44-55)

The Market Integration retrieved from

https://shodhganga.inflibnet.ac.in/bitstream/10603/141940/10/10_chapter%202.pdf

The Types of Market Integration retrieved from

https://www.slideshare.net/mobile/sakthivelRamar/market-integration-80094070

The market retrieved from

https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/5821

The Advantage and Disadvantage of Global Corporation retrieved from

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(NAFTA) retrieved from

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