MARKET INTEGRATION

Structures of Globalization
LESSON OUTLINE
0. Introduction
1. History of Market Integration
1.1. The Agricultural Revolution and
the Industrial Revolution
1.2. Capitalism and Socialism
1.3. The Information Revolution
2. Global Corporations
3. Market Integration
Economy is a social institution that has
one of the biggest impacts on society.
You might think of it in terms of
numbers – unemployment numbers,
GDPs, or whatever the stock market is
doing today. While we often think and
talk about it in numerical terms, it is
actually made of people.
Economy is a social institution that
organizes all production, consumption,
and trade of goods in a society.

A. Production: primary, secondary,

tertiary
B. Trading: capitalism or socialism
C. Consumption: persons (natural or
juridical)
Production
1. primary sector – extracts raw
materials from natural environments
2. secondary sector – takes raw
materials and transforms them into
manufactured goods.
3. tertiary sector – the part of the
economy that involves services rather
than goods; doing things, rather than
making things.
Example
Someone in the primary sector
(workers like farmers or miners) may
extract oil from the earth, but
someone in the secondary sector
refines the petroleum into gasoline.
This gasoline now will be sold in the
market (tertiary sector).
This kind of system is actually
complicated. Or at least, more
sophisticated than the way things used
to be for much of human history. So,
how did we get from a world where
people worked to produce just what
they needed for their families, to one
with all these sectors that have to
work together?
 1. History of Global Market Integration

1. The Agricultural Revolution and the

Industrial Revolution
2. Capitalism and Socialism
3. The Information Revolution
 1.1. a. The Agricultural Revolution
The first big economic change. This is when
people first learned how to domesticate plants
and animals, it ushered in a new agricultural
economy that was much more productive than
hunter-gatherer societies were. Farming
helped societies build surpluses, which meant
not everyone had to spend their time
producing food. This, in turn, led to major
developments like permanent settlements,
trade networks, and population growth.
1.1.b. The Industrial Revolution
This has introduced new economic tools, like
steam engines, manufacturing, and mass
production. Factories popped up, changing how
work functioned. Now, instead of working at
home, where people worked for their family by
making things from start to finish, they began
working as wage laborers and becoming more
specialized in their skills. Overall productivity
went up, standards of living rose, and people
had access to a wider variety of goods due to
mass production – all good things.
1.2.a. Capitalism
• a system in which all natural
resources and means of production
are privately owned.
• emphasizes profit-seeking and
competition as the main drivers of
efficiency.
Capitalism is more focus on profit seeking by
enhancing the aid of efficiency. In this model it
seeks to have massive production at a
minimum costs, hence, producing more profit.
Leaving the system of capitalism alone,
consumers will regulate things themselves, by
selecting goods and services that provide the
best value. But, in practice, an economy
doesn’t work very well if it’s left completely on
auto-pilot. This result to “market failure”. (AG
2020)
Market failure is an unregulated market
ends up allocating goods and services
inefficiently.

Ex: Monopoly is a system where one

producer controls the consumers by enticing
them of their product with a minimum costs
but of good quality. Resulting to inequalities
between the competitor of the market (AG
2020)
On the contrary, monopoly may also be
manifested by controlling the consumers
charging with higher price not worrying on
loosing them since they are the sole
producer of a certain product.

These kind of situation calls for a regulator

or someone to settle the said disputes or
conflicts. The help of an “invisible hand”.
Invisible Hand (Adam Smith)
The invisible hand of the market is the
government. A government might step in
and force the company to break up into
smaller companies to increase competition.
Governments also set minimum wages,
create workplace safety laws, and provide
social support programs like
unemployment benefits and food stamps.
Government plays an even larger role,
however, in socialism.
1.2.b. Socialism
• the means of production are under
collective ownership.
• property is owned by the government and
allocated to all citizens, not just those with
the money to afford it
• emphasizes collective goals, expecting
everyone to work for the common good,
and placing a higher value on meeting
everyone’s basic needs than on individual
profit.
1.3 Information Revolution
The age when technology is ruling the
world. Technology has reduced the role
of human labor, and shifted it from a
manufacturing-based economy to one
based on service work and the
production of ideas rather than goods.
Computers and other technologies are
beginning to replace many jobs
because of automation or outsourcing
jobs offshore. With tis kind of system,
the economy is centered on the
tertiary sector or the service industry
sector; doing things rather than
making them. This includes jobs such
as administrative assistants, nurses,
teachers and lawyers.
The tertiary sector is defined mainly by
what it produces rather than what kind
of jobs in includes. Sociologist has
distinguished these type of jobs based
more on the social status and
compensation; the primary and
secondary labor market.
Primary Labor Market
The primary labor market includes jobs
that provide lots of benefits to workers,
like high incomes, job security, health
insurance and retirement packages.
These are white collar professions, like
doctors or accountants or engineers.
Secondary Labor Market
Secondary labor market jobs provide
fewer benefits and include lower-
skilled jobs and lower-level service
sector jobs. They tend to pay less,
have more unpredictable schedules,
and typically don’t offer benefits like
health insurance. They also tend to
have less job security.
So what’s next for capitalism, or
socialism?
No one knows what the next economic
revolution is going to look like. But we can
infer that nowadays a key part of both our
economic and political landscape is
corporations. More and more these days,
corporations are operating across national
boundaries, which mean that the future of
the economy – and most countries’
economies – will play out on a global scale.
2. GLOBAL CORPORATIONS
Corporations are defined as
organizations that exist as legal
entities and have liabilities that are
separate from its members. These
corporations that extend beyond the
borders of one country are called
multinational or transnational
corporations (MNCs or TNCs) which we
often refer to as the global
corporations.
Two of the global corporations that are
present in the Philippines are Mcdonald’s
and Coca-cola. These may have been
based from the Philippines for quite some
time but they still market themselves as
American companies. Another example is
Ford Motor Company, the classic American
car company, headquartered in Michigan
that manufactures cars worldwide.
Global corporations often locate their factories
in countries which can provide the cheapest
labor in order to save up for expenses in
making a certain product. As a result,
developing nations will provide incentives like
tax-free trade zones or cheap labor. The
companies will set up shop in their country in
hopes of bringing jobs and industry that may
costs agricultural areas – utilize them for
production or occupy it with factories or
headquarters.
This promotes more rapid advances in
the developing nation because of the
ideas and innovations brought over
from industrialized nations. It also
makes nations around the world more
interdependent which minimizes the
potential conflict.
On the contrary, one country may set
up a factory within its country for
production enticing, exploiting or
outsourcing people. Outsourcing has
been enabled by technological
advances, allowing immediate
communications across the world and
the ease of people transporting
people, goods and information.
When companies find people in other
countries willing to work for a lower
wage, they will often employ them which
is good for the company because they
save money and it is good for the people
in other countries because they now
have a job. But it also means that the
people in the core country are losing jobs
and having difficulty finding new ones.
There seems to be a lot of negative effects of
globalization from transnational corporations.
Trade does promote the self-interested agendas
of corporations and give them autonomy. The
global corporations also influence politics and
allow workers to be exploited. However, there
are also positive effects. These include better
allocation of resources, lower prices for
products, more employment worldwide and
higher product output.
International trade and global corporations,
along with the internet and more global
processes, contribute to globalization
because people and corporations bring
their own beliefs, traditions and their
money to interact with other countries.
These ideas and capital can then be
incorporated in other countries, thus,
change the cultures and economies of
these foreign nations.
3. MARKET INTEGRATION
• a process which refers to the
expansion of firms by consolidating
additional marketing functions and
activities under a single management.
• shows the relationship of firms in a
market. The extent of integration
influences the market conduct of the
firms and consequently their
marketing efficiencies.
Reasons for market integration
1. To remove transaction costs
2. Foster competition
3. Provide better signals for optimal
generation and consumption
decisions.
4. Improve security of supply
Types of market integration
Types of market integration
1. HORIZONTAL INTEGRATION – 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.
Ex. Facebook’s acquisition of Instagram in 2012
2. VERTICAL INTEGRATION – occurs when a firm
performs more than one activity in the sequence
of the marketing process; linking together of two
or more functions in the marketing process within
a single firm or under a single ownership.
Vertical Integration
2.1. FORWARD VERTICAL INTEGRATION –
a firm assumes another function of marketing
which is closer to the consumption function.
Ex. Wholesaler assuming the function of
retailing
2.2. BACKWARD VERTICAL INTEGRATION
– involves ownership or a combination of
sources of supply.
Ex. Processing firm assumes the function of
assembling
Types of market integration
3. CONGLOMERATION – combination
of agencies or activities not directly
related to each other may operate
under a unified management.
Ex. Walt Disney Company, San
Miguel Corp., and Ayala Corp.