Rizal Technological University

704 Boni Ave. Sacrepante, Mandaluyong City

MARKET
INTEGRATION
Submitted By:

Bangit, Adrian Angelo

Baniaga, Jeandy A.

Submitted To: Dr. Jeremias F. Buraga

Date of Submission: March 30, 2020

INTRODUCTION
 CONTENT OF THE REPORTS

Learning objectives
• Explain the role of international financial institutions in the creation of a global economy.
• Narrate a short history of global market integration in the twentieth century.
• Identify the attributes of global corporations.

MARKET INTEGRATION
 a process that refers to corporate expansion by consolidating additional marketing
functions and activities within a single management framework.
 According to the Cambridge Business English Dictionary, it is a situation in which
separate markets for the same product become one single market
 Market integration occurs when prices among different locations or related goods follow
similar patterns over a long period of time.
 Market integration indicates how much different markets are related to each other.

Examples of market integration are the establishment by food retailers of wholesale facilities
and the establishment by a milk processor of another plant. In each case, in the hands of
single management, there is a concentration of decision making.

TYPES OF MARKET INTEGRATION

1. Horizontal integration
 Two or more companies regardless of whether they are at constant or one is dominant
can combine to create a new or make a dominant company bigger. This method is
used to raise market power over distributors and suppliers.
 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. It is advantageous for the members who join the group.
 Effects of Horizontal integration
o Buying out a competitor in a time bound way to reduce competition
o Gaining larger share of the market and higher profits.
o Attaining economies of scale.
o Specializing in the trade.
  Examples of Horizontal Integration
o Facebook and Instagram
One of the most definitive examples of horizontal integration was
Facebook's acquisition of Instagram in 2012 for a reported $1 billion. Both
Facebook and Instagram operated in the same industry (social media) and shared
similar production stages in their photo-sharing services. 
o Disney-Pixar
Another notable example of a horizontal integration was Walt Disney Company's
$7.4 billion acquisition of Pixar Animation Studios in 2006. Disney began as an
animation studio that targeted families and children.

 Advantages of Horizontal Integration

o Lower Costs
o Higher Efficiency
o Increase differentiation
o Increased Market Power
o Reduced Competition
o Access to new markets
o Economics of scale
o Economics of scope.
o International trade.
 Disadvantages of Horizontal Integration
o Destroyed Value
o Legal repercussions
o Reduced Flexibility

2. Vertical integration
 This method of integration is used to reduce company expenses by acquiring
advantageous suppliers, buyers and future investors.
 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.

 Examples of Vertical Integration

o The Apple Model
Apple is also one of the most significant vertical integration examples because
the company has controlled the manufacturing and distribution of its products
 from the time it was founded. Apple not only sells computers, iPhones and
iPads, but it also designs the software that powers these products.
o The Nutriva Group Model
British Columbian farmer Bill Vanderkooi is the mastermind behind the
Nutriva group, a company that is a successful example of vertical integration.
As a simple dairy farmer, Vanderkooi realized his farm would never succeed
without a distinctive brand. In 2000, he decided to link his farms to healthy
living by establishing his own organic feed business.

 Effects of Vertical Integration

o More profit taking more additional functions
o Risk reduction through improved market coordination
o Improvement in bargaining power and prospects of influencing prices
o Lowering costs through achieving operational efficiency

 Advantages of vertical integration

o It allows you to invest in assets that are highly specialized
o It gives you more control over your business
o It allows for positive differentiation
o It requires lower costs of transaction
o It offers more cost control
o It ensures a high level of certainty when it comes to quality
o It provides more competitive advantages

 Disadvantages of vertical integration

o It can have capacity-balancing problems
o It can bring about more difficulties
o It can result in decreased flexibility
o It can create some barriers to market entry
o It can cause confusion within the business
o It requires a huge amount of money
o It makes things more difficult

3. Backward integration
 It involves a company moving back or upstream along with the value chain an entering
the business of a supplier.
 is when a company expands backward on the production path into manufacturing,
meaning a retailer buys the manufacturer of their product.

 Example of Backward integration

  The Netflix Model
Netflix is one of the most significant backward vertical integration examples in
the entertainment industry. In the past, the company started as a DVD rental
company supplying film and TV content. The company's executive management
realized they could generate more revenue by shifting to original content creation.
Today, Netflix uses its distribution model to promote their original content
alongside films from major studios.
4. Forward integration
 It involves a company moving further down the value chain to enter the business
of a purchaser.
  A strategy that companies use to expand by purchasing and controlling the direct
distribution or supply of a company's products. A clothing manufacturer that
opens its own retail locations to sell its product is an example of forward
integration. 
 An example of forward integration might be Amazon.com Inc. (AMZN) which
expanded from an online retailer that sold books to becoming a book publisher.
Amazon also owns warehouses and parts of its distribution channel.

 Example of Forward Integration

o Amazon's integration into hardware by
producing Kindle Fire tablets
One of Amazon's biggest value chain moments was when they decided to
revolutionize the digital books business by exclusively publishing books aimed at
its Kindle platform. In this move, Amazon successfully removed the publishing
houses, or "middle men," from the process. By owning this piece of the value
chain, Amazon would be handling every step of a book's life cycle after it's been
written (editing, producing, marketing, selling, and even providing the device
needed to read it.), and thus redefining how customers interact with and relate to
e-books.

5. Conglomeration integration
 A combination of agencies or activities not directly related to each other may,
when it operates under a unified management, be termed a conglomeration.
  A conglomerate is one very large corporation or company, composed of several
combined companies, that is formed by either takeovers or mergers. In most
cases, a conglomerate supplies a variety of goods and services that are not
necessarily related to one another.

 Example of Conglomerate Integration

o Samsung: It's Everywhere
 It's not just US companies that have embraced the conglomerate business
model. Numerous overseas giants have done the same. You may know
Samsung, a South Korean multinational, primarily as a manufacturer of
smartphones, but their businesses are actually startlingly diverse. In
addition to phones and other electronics, Samsung builds ships, undertakes
major construction projects, and is involved in businesses that include
food processing, textile manufacture, insurance, financial products and
consumer retail. They operate a theme-park and a large advertising agency
in South Korea, as well.

 Examples
o Hindustan unilever ltd.
o Delhi cloth and general mills
o Birla group
o Tatas
o J.K group
o ITC
o NAPED

 Effects if Conglomeration Integration

o Rsik reduction through diversification
o Acquisition of financial leverage
o Empire - building urge.

Overall Advantages of each types of market integration

 Due to diversification, conglomerates can reduce their investment risk
 These structures can create a capital market within the group to allow growth of the
conglomerate
 A conglomerate can grow by acquiring companies, whose shares are more discounted,
thereby showing growth in earnings.

Potential Downfalls for the overall market integration

 Management costs increases due to size of the group
 Conglomerates have to face many accounting-related problems, for example,
consolidation and group disclosures, etc.
 Taxation of group structure reduces the taxation benefits
 There is no development of the innovation due to inertia
 Focus is lost, and it is difficult to manage unrelated and well-diversified business
effectively
 Due to multinational business, conglomerates often contact cultural difference due to
which values are destroyed

FINDINGS AND CONCLUSION

 REFERENCES
Sivam J. (2016, November 19). Market Integration. Retrieved from
https://www.slideshare.net/jpsivam/market-integration
Lobo, J. L., Ambida, M. N., Maliban, N. P., Mesinas, M. M. (2019). The Contemporary World.
Books Atbp. Publishing Corp.