Market Integration

and International
Financial Institutions
01 Market Integration

 Market integration refers to the process of creating a unified marketplace where goods, services, and capital can flow
freely between countries or regions.

 It is a central aspect of economic globalization, which refers to the increasing interconnectedness of economies and
societies around the world.

 Market integration can take many forms, including the reduction of trade barriers such as tariffs, the adoption of a
common currency, the harmonization of regulatory standards, and the development of infrastructure to facilitate
transportation and communication.
01 Market Integration

 Markets are said to be integrated if they are connected by a process of arbitrage. A well integrated market system is
central to a well-functioning market economy. The economic proposition of integration is that an element of efficiency is
attainable in the unified operation than in independent actions.

 According to McDonald (1953). "The integrated economy a one in which various economic processes are so functionally
related to every other process that the totality of separate operation forms a single unit of production with characteristics
of its own. He gave some of the signs of integration as below.
01 Market Integration

(a) Many diverse, specialized and independent economic processes or operations, none of which is complete or self-
sufficient.

(b) A system of relations between the various processes which serves to register this Interdependence upon the conduct of
each process so that all are caused, in some manner to fall under the overall plan

(c) A concatenation of processes in unilled punuance of the aims and purposes of the larger scheme of things

(d) A mutual replenishment to spent resources to the end continuity of each and all processes shall not jeopardized.
02 Types of Market Integration

 When two businesses are brought together through a merger or takeover, it is possible to define the nature and type of
integration based on the activities of each business and where they operate in the supply chain of an industry.

 Backward Vertical Integration

- Involves a company acquiring or merging with its suppliers. In other words, backward integration is when a company buys
another company that supplies the products or services needed for production.
02 Types of Market Integration

 Conglomerate Integration:
- Conglomerate integration refers to the process of merging or acquiring companies that operate in different industries or
markets. This can involve integrating the operations, management, and culture of the newly acquired companies with those
of the parent company.

 Forward Vertical Integration

- It happens when a business improves its production cycle by taking control of all the stages in the supply chain to create its
product.

 Horizontal Integration
- Horizontal integration occurs when a company acquires or merges with another company in the same industry that is
operating at the same level in the value chain.
02 Pros and Cons of each Type of Market Integration

 HORIZONTAL INTEGRATION
ADVANTAGES DISADVANTAGES

- Larger Market Share - Increasing the size of the company also increases
- Bigger Base of Customers the size of the problems, bigger companies are
- Increased Revenue harder to handle.
- Reducing Competition - Does not always yield the synergies and added
- Increasing other synergies such as marketing. value that was expected.
- Creating economies of scale and economies of - Can even result in negative synergies which reduce
scope. the overall value of the business.
02 Pros and Cons of each Type of Market Integration
 BACKWARD VERTICAL INTEGRATION
ADVANTAGES
- Decrease transportation costs and reduce delivery
turnaround times
- Reducing supply disruptions from suppliers that
might fall info financial hardships
- Increase competitiveness by getting products to
consumers directly and quickly
- Lower costs through economies of scale. which is
lowering the per-unit cost by buying large quantities
of raw materials or streamlining the manufacturing
process.
- Improve sales and profitability by creating and
selling its own brand.
DISADVANTAGES
- Companies might get too big and mismanage the
overall process.
- Outsourcing to supplies and vendors might be
more efficient if their expertise superior.
- Costs of vertical integration such as purchasing a
supplier can be quite significant
- Increased amount of debt if borrowing is needed for
capital expenditures.
02 Pros and Cons of each Type of Market Integration

 CONGLOMERATE INTEGRATION
ADVANTAGES DISADVANTAGES

- Through diversification, the risk of loss lessens.
- An expanded customer base.
- Cross-selling of new products, leading to increased
revenues.
- The new firm benefits with increased efficiencies
with the merged company.
- Through diversification, the risk of loss lessens.
- An expanded customer base.
- Cross-selling of new products, leading to increased
revenues.
- The new firm benefits with increased efficiencies
with the merged company.
02 Pros and Cons of each Type of Market Integration
 FORWARD VERTICAL INTEGRATION
ADVANTAGES
- Allows for better control over the distribution and
retail channels, influencing how products reach
consumers.
- Companies may capture a larger portion of the
value chain, potentially increasing profit margins by
eliminating intermediaries.
- Direct interaction with consumers can strengthen
brand loyalty and help in building lasting customer
relationships.
- Tighter integration can lead to improved
coordination between production and distribution,
reducing delays and inefficiencies.
DISADVANTAGES
- Managing retail operations can expose the
company to greater market uncertainties and risks
associated with consumer preferences.
- Setting up and maintaining a distribution network
can be expensive, impacting short-term profitability.
- Running both manufacturing and retail operations
requires diverse skills, and managing these complex
operations can be challenging.
- Vertical integration may lead to conflicts of interest
and competition concerns, particularly if the
company owns competing businesses in the supply
chain.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 IFI refers to financial institutions that have been established by more than one country.
 • The most prominent IFIs are creation of multiple nations, although some bilateral financial institutions.

EXAMPLE:
•World Bank
• IMF
• Multiple development banks
• UN agencies

 WORLD BANK

• Established July 1,1944

03 INTERNATIONAL FINANCIAL INSTITUTIONS

• WB Group consist of
• International Bank of Reconstruction & Development
• International Development Agency
• International Financial Corporation
• Multilateral Investment Guarantee Agency
• International Center for Settlement of International Dispute
• 185 COUNTRY
• The five largest shareholders France, Germany,Japan, UK and US.
• Low- interest loans
• Interest- free credits
• Grants to developing countries
• Financial & Technical Assistance.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 IMF

• Since 1944

• India in 1991

• Financing to Members

• Adverser and Promotor

• 25% Gold and rest in curency

• Statistic and Research

03 INTERNATIONAL FINANCIAL INSTITUTIONS

 THE ROLE OF IMF

• Increasing international monetary cooperation.

• Promoting the growth of trade.

• Promoting exchange rate Stability.

• Establishing the system of multilateral payment member countries.

• Building reserve base.

• Funding facilities.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 A MULTILATERAL DEVELOPMENT BANK (MDB)

- is an institution, created by several countries, that provides financing and professional advising for the purpose of
development.

Example:
• Wolrd bank

• African development bank

• Asian development bank

• Iter-american development bank

03 INTERNATIONAL FINANCIAL INSTITUTIONS

 Borrowing Institutions:

 Corporación Andina de Fomento (CAF)

- CAF development bank of latin Amirican and the Caribbean, formerly the Andean development corporation, is a

development bank whose mission is to promote sustainable development and regional integration in latin American and the

Caribbean.

 Caribbean Development Bank (CDB)

- The CDB is a development bank that helps caribbean countries financial social and economic programs in its member
countries.nCDB was establishe by an Agreement signed on October 18th 1969.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 Borrowing Institutions:

 Central American Bank for Economic Integration (CABEI)

- The Central Amirican Bank for Economic Integration was founded in 1960. It is an international multilateral development
financial institution.

 East African Development Bank (EADB)

- The EADB Is a development financial institution with the objectives of promoting development in the member countries of
the east african community.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 Borrowing Institutions:

 West African Development Bank (BOAD)

- The Bangque Ouest Africaine de Development ( West African Development Bank, BOAD), is a regional financial
institution with a mandate to promote development in West Africa and foster economic integration within the subregion.

 Back Sea Trade and Development Bank (BSTDB)

- Is a regional development bank working to improve the financing and support of projects in the black sea region. BSTDB
offers both full and partial commercial and political risk guarantees to cover loans for economic development.
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 TYPES OF IFI:

- The Bretton Woods Institution- refers to a collective term encompassing two key international organizations established in
1944 during the Bretton Woods Conference in New Hampshire, USA: the International Monetary Fund (IMF) and the World
Bank. Created in the aftermath of World War II, its primary purpose was to stabilize the global economy.

- The Regional Development Bank- is a financial institution established to provide investment capital for startup businesses
and businesses in low or middle- income countries
03 INTERNATIONAL FINANCIAL INSTITUTIONS

 Bilateral Development Bank

- Is a financial institution set up by one individual country to finance development projects in a developing country and its
emerging market, hence the term bilateral, as opposed to multilateral.

- A regional financial institution -is an organization that operates within a specific geographic region and provides financial
services or support to countries within that particular area. These institutions are often created to promote economic
cooperation, development, and stability among neighboring nations. Examples include the Asian Development Bank (ADB)
or the African Development Bank (AfDB), which focus on fostering economic growth and development in their respective
regions.
THANKS