Structures of Globalization

in terms of

MARKET
INTEGRATION
Presented by: BSED-SCI A2020
Kristine Claire Taruc
El-Jay Rodriguez
Isaac Joseph Motin
MARKET INTEGRATION
● Integration shows the relationship of the firm in a market. The extent of
integration influences the conduct of the firms and consequently their
marketing efficiency.

● The behaviour of a highly integrated market is different from that of a

disintegrated market.

● Markets differ in the extent of integration and therefore,there is a variation

in their degree of efficiency.

● Market integration exists when prices among different location or related

goods follow the same patterns over a long period of time.
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market-integration
• Kohls and uhl have defined market integration as a process which
refers to the expansion of firms by consolidating additional marketing
functions and activities under a single management.

• Examples of market integration are the establishment of wholesaling

facilities by food retailers and the setting up of another plant by a milk
processor.

• In each case, there is a concentration of decision making in the hands of a

single management.

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market-integration
TYPES OF MARKET INTEGRATION

Horizontal Vertical Conglomeration

Integration Integration
 01
HORIZONTAL
INTEGRATION
 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

• In this type of integration, some marketing agencies

combine to form a union with a view to reducing their
effective number and the extent of actual competition in
the market.

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market-integration
• It is advantageous for the members who join the group.

• In most markets, there is a large number of agencies which do not

effectively compete with each other.

• This is indicative of some element of horizontal integration.

• It leads to reduced cost of marketing.

• In this reduced competition possible.

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market-integration
Example: Independent oil refineries coming
under U.S oil company

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market-integration
 Effects of Horizontal Integration
• Buying out a competitor in a time bound way to reduce
competition.

• Gaining larger share of the market and higher profits.

• Attaining economies of scale.

• Specializing in the trade.

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market-integration
Advantages of Horizontal Integration
1. Lower costs.
6. Access to new markets.
2. Higher efficiency.
7. Economics of scale.
3. Increased differentiation.
8. Economics of scope.
4. Increased market power.
9. International trade.
5. Reduced competition.

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market-integration
Disadvantages of the Horizontal
Integration

1. Destroyed value.

2. Legal repercussions.

3. Reduced flexibility.

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market-integration
 Companies using Horizontal Integration
Companies using horizontal integration
Oracle PeopleSoft
Acquiring company Acquired company

Amazon.com Whole Foods Delta Northwest Airlines

Porsche Volkswagen
United Airlines Continental
Daimler Benz Chrysler

Kraft Foods Cadbury JPMorgan Chase Bank One

Quaker Oats Snapple
Microsoft Taleo
PepsiCo Quaker Oats

Source: Strategic Management

Pfizer Wyeth Microsoft Yahoo!
Pfizer Pharmacia Corporation
Apple AuthenTec
Glaxo Wellcome SmithKline Beecham

AT&T T-Mobile BP Amoco

AT&T Bell South

Mittal Steel Arcelor Facebook WhatsApp!

HP Compaq

Insight
Google Motorola
 02
VERTICAL
INTEGRATION
 VERTICAL INTEGRATION
• This occurs when a firm performs more than one
activity in the sequence of the marketing process.

• It is a linking together of two or more functions in the

marketing process within a single firm or under a
single ownership.

• This type of integration makes it possible to exercise

control over both quality and quantity of the product
from the beginning of the production process until the
product is ready for the consumer.

• It reduces the number of middle men in the

marketing channel.
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market-integration
 Example: Meat industry
buys all the functioning
plants needed for running
this meat industry.

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market-integration
TYPES OF VERTICAL INTEGRATION

FORWARD
INTEGRATION BALANCED
VERTICAL
INTEGRATION

BACKWARD
INTEGRATION
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.

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market-integration
BACKWARD INTEGRATION
• This involves ownership or a combination of sources
of supply.

Example: When a processing firm assumes the function of

assembling/purchasing the produce from the villages.

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market-integration
BALANCED VERTICAL
INTEGRATION

• The third type of vertical integration is a combination of

the backward and the forward vertical integration.

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market-integration
Advantages of Vertical Integration
1. It allows you to invest in assets that are highly specialized.
2. It gives you more control over your business.
3. It allows for positive differentiation.
4. It requires lower costs of transaction.
5. It offers more cost control.
6. It ensures a high level of certainty when it comes to quality.
7. It provides more competitive advantages.

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market-integration
Disadvantages of Vertical Integration

1. It can have capacity-balancing problems.

2. It can bring about more difficulties.
3. It can result in decreased flexibility.
4. It can create some barriers to market entry.
5. It can cause confusion within the business.
6. It requires a huge amount of money.
7. It makes things more difficult.
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market-integration
Effects of Vertical Integration
● 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.
 03

CONGLOMERATION
CONGLOMERATION
● A combination of agencies or activities not
directly related to each other may, when it

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operates under a unified management, be
termed a conglomeration.

Examples:
• Tatas.
• Hindustan unilever ltd.

market-integration
• J.K.group.
• Delhi cloth and general mills.
• ITC.
• Birla group.
• NAFED.
Effects of Conglomeration

● Risk reduction through diversification.

● Acquisition of financial leverage.
● Empire – building urge.

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market-integration
Reasons for Market Integration
● To remove transaction costs.
● Foster competition.
● Provide better signals for optimal generation and
consumption decisions.
● Improve security of supply

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market-integration
 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.
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market-integration
Measurement of Market Integration
● The measurement or assessment of the extent of market integration is
helpful in the formation of appropriate policies for increasing the efficiency
of marketing process.

● The measurement or assessment of market integration may be attempted at

two levels.

1. Integration among firms of a market.

2. Integration among spatially separated markets.

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market-integration
Integration among Firms of a Market

● The extent of vertical integration in a market may be assessed by

counting the number of functions performed by each firm in the
market.

● The extent of horizontal integration may be measured by studying

the number of firms performing the same marketing function but
operating under one common management.

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market-integration
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market-integration
 Integration among Spatially
Separated Markets
• The extent to which prices in spatially separated markets move

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together or are related to transport costs reflects the degree of
integration.

• A two-way analysis of prices in spatially separated markets may be

vam/market-integration
used to assess the degree of integration.

1. Price correlations.
2. Spatial price differential and Transportation costs.
 Price Correlation
• The degree of correlation between two prices is taken as an index of the
extent to which the two markets are integrated.

• A higher degree of correlation coefficient indicates a greater degree of

integration atleast in terms of the pricing of the product between market
centres and vice versa.

• The correlation in the price of commodity in any markets is unity under

spatial price integration.

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market-integration
Spatial Price Differential and
Transportation costs.
• Correlation method.
• Ravallion procedure.
• Co integration approach.
• Parity bound models (PBM).

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market-integration
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