GEN 005: THE CONTEMPORARY WORLD (SAS 6) Effects of Horizontal Integration
It provides more competitive advantages
LESSON TITLE: Global Economy and Market Integration
Market Integration
• Market integration refers to how easily two or more markets can trade with each
other. Foreign trade helps the Integration of markets because it reduces barriers
to trade and increases fluidity between markets. For example, Facebook buys out
WhatsApp and Instagram.
Reasons for market integration:
• To remove transaction costs
• Foster competition
• Provide better signals for optimal generation and consumption decisions.
• Improve the security of supply
Market integration
• occurs when prices among different locations or related goods follow similar
patterns over a long period. Groups of goods often move proportionally to each
other. When this relation is apparent 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 the role of an
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 organization functions.
What is market integration, for example?
1. Establish wholesaling facilities by food retailers and set up another plant by a milk
processor.
2. Facebook buyout of Instagram and WhatsApp to have a bigger market for image
sharing.
Types of market integration
• Horizontal integration
• Vertical Integration: Forward, Backward and Balanced Vertical Integration
• Conglomeration
HorizontalIntegration .
• 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 to reduce their effective number and actual competition in the market.
It is advantageous for the members who join the group.
7.
• Buying out a competitor in a time-bound way to reduce competition. Effects of Vertical Integration
• Gaining a larger share of the market and higher profits.
More profits by taking up additional functions
• Attaining economies of scale. •
• Specializing in the trade. of Horizontal Integration • Risk reduction through improved market co-ordination
• Improvement in bargaining power and the prospects of influencing prices
• Lowering costs through achieving operational effi ciency
Advantages of Horizontal Integration
3. Conglomeration
1. Lower costs. (2)Higher efficiency. (3)Increased differentiation, (4)Increased market • A combination of agencies or activities not directly related to each other may be
power. (5)Reduced competition. (6)Access to new markets. (7)Economies of scale. termed a conglomeration when it operates under unified management.
(8)Economics of scope. (9)International trade. Examples: Companies using horizontal
Integration: Hp. Compaq, Facebook, WhatsApp, Google Motorola
Examples:
2. Vertical Integration . This occurs when a firm performs more than one activity in the
SM Group of Companies, Lucio Tan Group of Companies, Gokongwel Group of
sequence of the marketing process. Example: San Miguel Purefoods says "from farm
Companies, PHINMA Group of Companies, Manuel Villar Group of Companies
to platter goodies"; Apple
• It links two or more functions in the marketing process within a single firm or Effects of Conglomeration
under single ownership.
• Risk reduction through diversification
• This type of Integration makes it possible to exercise control over the product's
• Acquisition of financial leverage
quality and quantity from the beginning of the production process until the
• Empire-building urge.
product is ready for the consumer.
• It reduces the number of mediators in the marketing channel. Example Meat What are the effects of market integration?
industry buys all the functioning plants needed for running this meat industry.
• Both producers and consumers gained, but welfare gains were inversely related
3. Forward Integration. to the size of the country and positively to the level of openness to trade. We
infer that welfare gains from international market integration were equivalent to
• Suppose a firm assumes another function of marketing that is closer to the
substantial shares of economic growth in the "long 19th century.
consumption function. In that case, it is a case of forwarding Integration.
Example: wholesaler considering the role of retailing GEN 005: THE CONTEMPORARY WORLD (SAS 7)
1. BackwardIntegration.
• This involves ownership or a combination of sources of supply-for example: when LESSON TITLE: Global Interstate System; Contemporary Global Governance
a processing firm assumes the function of assembling/purchasing the product
from the villages. TRUE 1. Global Interstate System is the whole system of human interactions, but there is
2. Balanced vertical integration no one in charge.
• The third type of vertical integration combines the backward and the forward
FALSE 2. An international tribunal is not needed in judging political leaders accused of
vertical Integration.
international war crimes.
Advantages of Vertical Integration
TRUE 3. WTO’s main function is to ensure the trade flows as smoothly, predictably, and
freely as possible.
1. It allows you to invest in highly specialized assets.
TRUE 4. World Health Org.’s objective is the attainment by all peoples of the highest
2. It gives you more control over your business.
possible level of health.
3. It allows for positive differentiation. 4 # requires lower costs of the transaction.
5. It offers more cost control
6. It ensures a high level of certainty when it comes to quality.