Market Integration and The Global Interstate System

MARKET INTEGRATION AND THE GLOBAL
INTERSTATE SYSTEM
GROUP 2
MAISOG, KEIN ROY
MOCOY, JEANNY LOUISE
MUÑEZ, MEL PAOLO
OROPEL, MAXINE DOMINIQUE
REDULLA, NICK VINCENT
RIMAS, DIANNE MARIE
SODUESTE, WENLOUIE
OBJECTIVES
• To know the impact of market integration in the economy
• To understand the importance of market integration in the
economy of a country
• To understand the role of global interstate system in the global
economy
INTRODUCTION
ECONOMY
•The social institution that has one of the biggest impacts
on the society is the economy.
•The economy is composed of people. It is the social
institution that organises all production, consumption,
and trade of goods in the society.
ECONOMIC SYSTEMS VARY FROM ONE SOCIETY TO ANOTHER. BUT IN
ANY GIVEN ECONOMY, PRODUCTION TYPICALLY SPLITS INTO THREE
SECTORS:
Primary Secondary Tertiary

Sector Sector Sector
WHAT IS MARKET
INTEGRATION?
MARKET INTEGRATION
• Market integration refers to how easily two or more markets can trade
with each other.
• It occurs when prices among different locations or
related goods follow similar patterns over a long period of time.
• Groups of prices often move proportionally to each other; and when
this relation is very clear among different markets, it is said that the
markets are integrated.
• In case of high integration, it means that there are low barriers
on trade, and prices are similar in the two markets.
• In case of low integration, high barriers to trade as well as
prices fluctuate between these markets.
• Foreign trade helps in the integration of markets because it
reduces barriers to trade and increases fluidity between
markets.
•Market integration allows price signals to be transmitted
from one market to another.
•When markets are well-integrated, prices become more
stable, and household food security is likely to be
improved and can obtain food at more affordable prices.
TYPES OF MARKET INTEGRATION
• Horizontal integration
• Vertical integration
• Forward integration
• Backward integration
• Balanced integration
• Conglomeration
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.
TERMINOLOGY IN HORIZONTAL INTEGRATION
• Merger is the joining of two similar sizes, independent
companies to make one joint entity.
• Acquisition is the purchase of another company.
• Hostile takeover is the acquisition of the company, which does
not want to be acquired. This process is always accompanied
by a lot of cases, lawsuits, and scandals. An extraordinary
amount of money is offered in a hostile takeover.
ADVANTAGES OF HORIZONTAL INTEGRATION
• The overall costs of operation will be considerably cheaper.

• Horizontal integration can bring about increased
differentiation.
• The company can achieve a higher power in the market.
• It considerably reduces competition for the parent company.
• Horizontal integration allows access to new markets.
DISADVANTAGES OF HORIZONTAL INTEGRATION
•Destroyed value of companies.

•Legal repercussions.
•Reduced flexibility.
•Mergers often lead to a lack of competition since
there is a reduced number of companies in the
industry.
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.
TYPES OF VERTICAL INTEGRATION
• Forward integration occurs if a firm assumes another function of
marketing which is closer to the consumption function.
• Backward integration involves ownership or a combination of sources
of supply.
• Balanced vertical integration is a combination of the backward and
the forward vertical integration.
ADVANTAGES OF VERTICAL INTEGRATION
• Positive differentiation can be created.
• Asset investments can focus on specialization.
• It can increase a brand’s local market share.
• Transaction costs are lower throughout the supply chain.
• Quality assurance can be built into the system.
• It opens new markets.
• Stability is created.
DISADVANTAGES OF VERTICAL INTEGRATION
• It forces a business to operate within an economy of scale.

• It reduces flexibility.
• There may be unforeseen barriers when entering a new
market.
• Confusion is created easily and often.
• It is not a cheap investment.
• It is not simple.
CONGLOMERATION
•Conglomeration is a combination of agencies or
activities not directly related to each other, where it
operates under a unified management.
ADVANTAGES OF CONGLOMERATION
• 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.
DISADVANTAGES OF CONGLOMERATION
• 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.
DEGREES OF INTEGRATION
•Ownership integration occurs when all the

decisions and the assets of a firm are completely
assumed by another firm.
•Contract integration involves an agreement
between two firms on certain decisions, while each
firms retains it separate identity.
MEASUREMENT FOR MARKET INTEGRATION
The measurement or assessment of the extend

of market integration is helpful in the formation
of appropriate policies for increasing the
efficiency of market process.
LEVELS OF MEASUREMENT FOR MARKET INTEGRATION
•Integration among firms of a market

•Integration among spatially separated markets
INTEGRATION AMONG FIRMS OF 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.
INTEGRATION AMONG SPATIALLY SEPARATED
MARKETS
• The extent to which prices in spatially separated markets move
together or are related to transport costs reflects the degree of
integration.
• A two-analysis of prices in spatially separated markets may be used to
assess the degree of integration:
1. Price correlations
2. Spatial price differential and transportation costs
GLOBAL INTERSTATE SYSTEM
WORLD REVOLUTION OF 1968
It became widely understood that a global power structure existed and
that the peoples of the non-core had been active participants in their
own liberation. The history of colonialism and decolonization were
seen to have importantly shaped the structures and institutions of the
whole global system.
GIS
•A system for international relations

So the modern world-system is now a global economy with a global political
system (the modern interstate system). It also includes all the cultural aspects
and interaction networks of the human population of the Earth. Culturally the
modern system is composed of: several civilizational traditions, (e.g. Islam,
Christendom, Hinduism, Confucianism, etc.), nationally-defined cultural entities
-- nations (and these are composed of class and functional subcultures, e.g.
lawyers, technocrats, bureaucrats, etc.), and the cultures of indigenous and
minority ethnic groups within states. The modern system is multicultural in the
sense that important political and economic interaction networks connect
people who have rather different languages, religions and other cultural aspects.
Most earlier world-systems have also been multicultural.
IMPORTANCE
The modern system has a single geoculture that has been emerging
since the late 18th century in the context of the multicultural situation
depicted above (Wallerstein 2011b; Meyer 2009). This geoculture is
most importantly structured by the core, but it has also evolved in the
context of a series of world revolutions in which the peoples of the
non-core have contested the global power structure, and these have
had important effects on the content of the geoculture.
The modern world-system has been, and is still, importantly structured
as a core/periphery hierarchy in which some regions contain
economically and militarily powerful states while other regions contain
polities that are much less powerful and less developed. The countries
that are called “advanced,” in the sense that they have high levels of
economic development, skilled labor forces, high levels of income and
powerful, well-financed states, are the core powers of the modern
system. The modern core includes the United States, and the countries
of Europe, Japan, Australia, New Zealand and Canada.
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MARKET INTEGRATION AND THE GLOBAL

Primary Secondary Tertiary

• The overall costs of operation will be considerably cheaper.

•Destroyed value of companies.

• It forces a business to operate within an economy of scale.

•Ownership integration occurs when all the

The measurement or assessment of the extend

•Integration among firms of a market

• The extent of vertical integration in a market may be assessed

•A system for international relations

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