Market Integration - The Contemporary World Report

Economy
The economy is made up of people.
People are the ones who organize how things work in society, like making products, buying and
using them, and trading with others.
Everything in the economy-factories, stores, and markets-exists because people create, manage,
and participate in them.

What is Market Integration?

Imagine you have a toy store in your town, and your friend has a toy store in another town. Before,
both of you only sold toys to people in your own towns. But one day, a big road is built between your
towns, making it easy to travel and trade. Now, you can sell toys to your friend's town, and your
friend can sell toys to yours.

Another example is if a country builds better highways, ports, and railways, businesses can
transport their products faster and at lower costs. This makes it easier for goods from one region to
reach another, increasing competition and economic growth.

This is like market integration-it means when different markets become more connected, allowing
goods, services, and even money to move more easily between them. This can happen through
better transportation systems, advanced communication technology, and trade agreements.

On other words, market integration means that when markets are connected, the prices of similar
products in those markets start to change in the same way.

History of Global Market Integration

● 19th Century
– Global market integration in the 19th century happened because technology improved,
making it easier for countries to trade with each other.
– During this time, new transportation systems like railways and steamships allowed
goods to be moved faster and cheaper across long distances. Telegraphs also made
communication quicker, so businesses could make deals and share information almost
instantly. These advancements helped connect different markets around the world,
allowing products, money, and ideas to flow more freely between countries.
– Just like how roads and bridges connect local markets today, these new technologies
in the 19th century played a big role in linking economies on a global scale. Engineers
contributed to this by building railroads, ports, and other infrastructure that made
 international trade possible.

● 1913
– In 1913, market integration reached its highest point at that time because countries
were trading freely with fewer restrictions. Transportation, like railways and
steamships, had improved, making it easier to move goods between different parts of
the world. Communication, like the telegraph, also helped businesses connect quickly.
– This relates to what I explained earlier because better infrastructure-like roads,
bridges, and ports-helps markets become more connected. In 1913, these connections
were strong because technology and trade policies made it easy for businesses to sell
products across borders. However, after 1913, events like World War I disrupted trade
and slowed down market integration for many years.

● Market integration declined over the next 60 years because countries faced economic
problems, like the Great Depression, and decided to focus on their own economies instead of
trading with others. Many governments made it harder for goods, services, and money to
move across borders. This is the opposite of what happens when markets integrate. Instead
of improving roads, ports, and communication to make trade easier, countries put up barriers
like high taxes on imports, strict trade rules, and limits on international investments. This
slowed down global trade and made economies less connected, causing businesses and
people to struggle more.
– The Great Depression was a time when the economy in many countries became very
weak, and a lot of people lost their jobs and money. It started in 1929 when the stock
market crashed, meaning businesses lost a lot of value very quickly. Because of this,
many companies closed, banks failed, and people struggled to afford basic needs like
food and housing.

Revolutions in the History of the Global Market Integration

● Agricultural Revolution
– The Agricultural Revolution refers to the time when people improved farming methods,
leading to more food production.

● Industrial Revolution
– During the Industrial Revolution, farming improved even more with machines like the
seed drill and better irrigation systems.
– Fewer people were needed on farms, so many moved to cities to work in factories. This
shift created a larger workforce and increased the production of goods, which were
then traded around the world.

Degrees of Integration
In market integration, degrees of integration describe how connected different businesses or
markets are.

Degrees of Integration are divided into two:

Degrees of Integration are divided into two:
● Ownership Integration
– One key type is ownership integration, which happens when a company takes control
of multiple stages of production or trade. This allows businesses to have more control
over costs, quality, and profits.

● Contract Integration
– Contract integration happens when different businesses work together through legal
agreements instead of direct ownership. This allows companies to collaborate without
merging or acquiring each other, making trade and production more organized.
– Instead of a single company controlling an entire supply chain (like in ownership
integration) or merging with similar businesses (horizontal integration), companies sign
contracts to manage specific aspects of production, distribution, or sales. These
agreements help businesses work efficiently while maintaining independence.

○ Examples of Contract Integration

1. Franchising - A fast-food chain (like McDonald's) contracts with local owners
to run individual restaurants while following the company's rules and brand
standards.
2. Construction projects - A government signs contracts with private
construction firms to build roads, bridges, or airports instead of owning the
firms.
3. Agricultural agreements - Farmers sign contracts with food companies to
supply a specific amount of crops at a set price, ensuring stable trade.

Ownership Integration are divided into three types:

● Vertical Integration
– A company owns multiple steps in the supply chain.
– Example: A car company that owns the factories making car parts, the assembly plants,
and even its own dealerships. This reduces costs and ensures quality control.

● Horizontal Integration
– A company buys or merges with other companies at the same level of production.
– Example: A large supermarket buying smaller grocery stores to expand its market reach
and reduce competition.

Horizontal Integration has three primary forms, which are:

○ Mergers
◆ What it is: Two companies of similar size join together to form a single company.
◆ Example: Two construction firms merge to create a larger company that can
handle bigger infrastructure projects.
◆ Effect on Market Integration: Reduces competition and allows companies to
expand into new markets more easily.
 ○ Acquirsitions
◆ What it is: A larger company buys a smaller company, but both may continue to
operate under their original names.
◆ Example: A major cement manufacturer buys a smaller competitor to increase
production capacity.
◆ Effect on Market Integration: Helps companies gain new customers and
resources, making trade and production more efficient.

○ Internal Expansions/ Strategic Alliances

◆ What it is: Two companies agree to work together without merging or being
owned by one another.
◆ Example: A construction company partners with a materials supplier to get
better prices and ensure a steady supply.
◆ Effect on Market Integration: Improves cooperation between businesses,
helping goods and services move more smoothly across markets.

● Conglomeration
– Conglomeration happens when a company expands by owning or acquiring businesses
in completely different industries. Unlike vertical or horizontal integration, where
companies focus on related industries, conglomerates spread their investments across
multiple markets.
– Instead of controlling different stages of production (vertical integration) or merging
with similar businesses (horizontal integration), a conglomerate owns companies that
have no direct connection to each other.
Summary
How Market Integration Affects the Global Economy
1. Better Use of Resources - Market integration helps countries focus on what they do best,
making trade more efficient.
2. Stronger Global Trade - It connects economies, making it easier to buy and sell goods
worldwide.
3. Stable Prices - Prices of goods move more consistently across different regions, reducing
sudden changes.
4. Lower Costs - With fewer trade barriers and better technology, businesses spend less on
transportation and trade.
5. More Competition, Lower Prices -
Companies compete more, leading to better prices for consumers.
6. Improved Living Standards - Since goods become more affordable, people can buy more,
improving their quality of life.