Market Integration

Market integration is the interconnectedness of different markets, enabling the

seamless flow of goods, services, and capital across borders, fostering economic
collaboration and efficiency. Aiming to create a unified marketplace by reducing
trade barriers and promoting harmonization of regulations.(Market integration
means making it easy for things like products and money to move between
different places. This helps countries work together better by removing obstacles
and making rules more similar.)

Institutions
 Bretton woods
Bretton Woods Institutions (IMF, World Bank): Established in 1944, the
International Monetary Fund (IMF) and the World Bank were created during
the Bretton Woods Conference. The IMF provides financial stability and
support to countries facing balance of payments problems, facilitating
international monetary cooperation. The World Bank focuses on long-term
development projects. While not directly market integration institutions,
they contribute to global economic stability and development, indirectly
influencing market dynamics.

 IMF(International Monetary Fund) and World bank

The IMF (International Monetary Fund) and the World Bank are
organizations that help countries with their economies, but they have
different roles.The IMF is like a financial doctor(emergency financial
helper).On the other hand, the World Bank is more like a long-term friend. It
helps developing countries by providing loans and grants for projects that
improve things like education, health, and infrastructure (like roads and
bridges).
 GATT (General Agreement on Tariff and Trade)and WTO (World
Trade Organization)
GATT and WTO are like rulebooks for countries that want to trade with each
other. GATT, which started in 1947, focused on making trade fair by
reducing taxes on goods and encouraging fair practices. Later, in 1995, it
became the WTO, a permanent group overseeing global trade. The WTO
helps countries talk about trade deals, solve problems, and make sure
everyone plays fair when trading. So, they’re like teamwork agreements to
make sure trading between countries is fair and smooth.

 EU(European Union)
The European Union (EU) is a group of European countries that work
together. They share rules, trade freely with each other, and some even use
the same money called the Euro. (27 countries)

 NAFTA(North American Free Trade Agreement)

NAFTA was a trade agreement between the United States, Canada, and
Mexico, aiming to remove trade barriers and boost economic cooperation. It
was later replaced by the United States-Mexico-Canada Agreement
(USMCA).

 AEC(ASEAN Economic Community)

The AEC is like a teamwork effort among Southeast Asian countries. They
want to work together to make it easier to trade things and do business with
each other.

 Mercosur
A South American trade bloc. It aims to boost economic cooperation among
its member countries, which include Argentina, Brazil, Paraguay, Uruguay,
and Venezuela. MERCOSUR works to reduce trade barriers and promote
collaboration in the region.
Reasons for market integration
 to remove transaction costs.(Removing transaction costs means making it
easier and cheaper for businesses to buy and sell things.)
 foster competition.(Encouraging competition in market integration ensures
fair play among businesses. It prevents monopolies, sets common standards,
and allows new businesses to join the market easily. This fairness boosts
efficiency, innovation, and benefits consumers.)
 provide better signals for optional generation and consumption
decisions.(Helping people and businesses make better decisions about what
to create or buy involves giving clear information. This can be achieved by
providing details about market trends, offering rewards for certain choices,
educating everyone about the impact of their decisions, and supporting
innovation. The aim is to guide choices that benefit not only individuals but
also the broader community and the environment and improve security of
supply.)
 Theorically one can integrate two markets without interconnection.( In
theory, you can connect two markets without them being directly linked.
This could happen through shared rules, similar trade agreements, or
common economic policies. Even if there’s no direct connection, these
factors can align the two markets and make them work together.) E.g. two
countries that doesn’t have any physical bridge but shared similar rules and
policies ,creating a common ground for business( it’s like a collaboration).
 TYPES OF 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.

 Acquire a similar company in the same industry

 Expanding company’s market
 Increasing market power
 Increasing product or service differentiation
 Lowering competition
Example: Facebook.
Facebook bought Mang Inasal and Chowking. By acquiring another company
in the same industry it lessens the competition and increases the market share.

2. Vertical Integration
 This occurs when a firm performs more than one activity in the
sequence of the marketing process.

 More profits by taking up additional functions

 Risk reduction through improved market coordination
 Improvement in bargaining power and the prospects of
influencing prices
 Lowering costs through achieving operational efficiency

A. Forward Integration
 If a firm assumes another function of marketing which is closer to the
consumption function, it is a case of forward integration.
Example: wholesaler assuming the function of retailing
 B. Backward Integration
 This involves ownership or a combination of sources of suppl.
Example: when a processing firm assumes the function of
assembling/purchasing the produce from the villages.

3. Conglomeration

 This occurs when a corporate group, which is made up of two or more

business entities engaged in completely different or similar businesses,
usually with a parent company and numerous subsidiaries.

 Risk reduction through diversification

 Acquisition of financial leverage
 Empire – building urge

Example: The Ayala Corporation is the oldest and one of the largest
conglomerates in the Philippines with core interests in real estate, banking,
telecommunications, and power.

DEGREE OF INTEGRATION
 Ownership integration
This occurs when all the decisions and assets of a firm are completely
assumed by another firm. Example: a processing firm which buys a
wholesale firm.

 Contract integration
This involves an agreement between two firms on certain decisions,
while each firm retains its separate identity. Example: tie up of a dhal
mill with pulse traders for supply of pulse grains.
Effects of integration
 Vertical integration
a. More profits by taking up additional functions
b. Risk reduction through improved market co-ordination
c. Improvement in bargaining power and the prospects of Lowering costs
through achieving operational efficiency.

 Horizontal integration
a. Buying out a competitor in a time bound way to reduce competition
b. Gaining larger share of the market and higher profits
c. Attaining economies of scale d. Specializing in the trade

 Conglomeration
a. Risk reduction through diversification
b. Acquisition of financial leverage
c. Empire-building urge