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.
 Market Integration
The term is further used in identifying related
phenomenon of market of goods and services experiencing
similar patterns of increase or decrease in prices of
products. It may also refer to the movement of prices of
related goods and services sold in a defined geographical
location in similar patterns. When government implement
certain strategy to control the direction of economy then
integration is intentional while shifting in supply and
demand that has a spillover effect on several markets is
another factor of market integration.
 Market Integration
One way of helping integration of market by
reducing barriers to trade and increasing fluidity
between markets is through foreign trade. Market
integration exists when there are exerted effects
that prompt similar changes or shifts in other
markets that focus on related goods on events
occurring within two or more markets.
 Example
China produces toys at a cheaper price than the US. If foreign
trade increased between the two countries, toys could be sold to
the US more easily, making them more available, thus reducing
price. If the demand for baby dolls within a given geographical
market were to suddenly be reduced by 50%, there is a good
chance that the demand for baby doll clothing would also
decrease in proportion within that same geographical market.
Should the baby market increase, this would usually mean that
the market for doll clothing would also increase. Both markets
would have the chance to adjust pricing in order to deal with the
new circumstances surrounding the demand, as well as adjust
other factors, such as production
Types of Related Markets
where Market Integration
Occurs
 Stock Market Integration
This is a condition in which stock markets in different countries
trend together and depict same expected risk adjusted returns. Two
markets are perfectly integrated if investors can pass from one market
to another without paying any extra costs and if there are possibilities
of arbitration which ensures the equivalence of stock prices on both
markets

Financial Market Integration

It is an open market economy between countries facilitated by a
common currency and the elimination of technical, regulatory and tax
differences to encourage free flow of capital and investment across
borders. It occurs when lending rates in several different markets begin
to move in tandem with one another. Emergence of similar patterns
within the capital, stock, and financial markets with those trends
coming together to exert a profound influence on the economy of that
nation is involved in the integration within a nation.
 Global Corporation
A global corporation is a business that operates in two or more countries. It also
goes by the name "multinational company". Several advantages are offered by global
expansion of business over running a strictly domestic company. Success in different
types of economies is achieved by means of multiple countries operation while it
causes also logistic and cultural challenges. Expanding revenue opportunities and
diversifying business risk are the purposes of becoming global corporation. Access to
more customers and capital is obtained through a model that works domestically well
and translates foreign markets well.

Example
One can find more customers in a country whose economy is vibrant and expanding
in lieu of stagnant local and domestic economy or market share that has hit a plateau.
Historical Periods of
Global Corporation
 HISTORICAL PERIODS OF GLOBAL CORPORATION

An approach to the study of globalization that locates the

phenomenon itself in early patterns of trade and exchange
is known as historical globalization. In early historical
periods as both cities and countries extended their reach
beyond their own borders, a form of globalization was
initiated which then followed complex patterns of
interactive engagements organized through trade and
industry directly influenced by the emergent and
subsequently dominant technologies especially in shipping
and navigation.
 HISTORICAL PERIODS OF GLOBAL CORPORATION

The entities operating within this environment

were functionally and organizationally not
different from contemporary organizations
being possessed with head offices, foreign
branch plants, corporate hierarchies,
extraterritorial business law, and even bit of
foreign direct investment and value-added
activity.
 Combination of invention and social organization
resulting to increase in worldwide capital and wealth of
nation is allowed by modern nation state system that
emerged in the period prior to the end of World War.

II. American Corporations led the economic recovery and

expansion after the World War II destruction.

This period up to the reentry of Japanese and European

corporation to the global scene is viewed as multinational
corporations (MNCs).From the end of World War II to
the present is considered the period of transformation of
global corporation.
The finance Function in
Global Corporation
 As corporations go global, capital markets open up within
them, giving companies a powerful mechanism for arbitrage
across national financial markets. Chief financial officers
(CFOs) must balance the opportunities with the challenges of
operating in multiple environments in managing their internal
markets in building an advantage. These three functions can
be created by CFOs through exploiting their internal capital
markets.
 1. Financing
A group’s tax bill can be reduced by the CFO like borrowing in countries with high
tax rates and lending to operations in countries with lower rates.

2. Risk Management

Global firms can offset natural currency exposures through worldwide operations
instead of managing currency exposures through financial markets.

3. Capital Budgeting

Getting smarter on valuing investment opportunities CFOs can add value.

 Foreign Direct Investment
Foreign Direct Investment (FDI) was of corporate origin. It is a major
driver of extended global corporate development. It is an investment
made by a company or individual in one country in business interests in
another country, in the form of either establishing business operations or
acquiring business assets in the other country, such as ownership or
controlling interest in a foreign company and the key feature of foreign
direct investment is that it is an investment made that establishes either
effective control of, or at least substantial influence over, the decision
making of a foreign business.
 Foreign Direct
Investment
Foreign direct investment is made open to economies; frequently
involves more than just a capital investment and includes provision
of management or technology as well. There are many methods to
establish FDIs such as opening a subsidiary or associate company
in a foreign country; acquiring a controlling interest in an existing
foreign company, or by means of a merger or joint venture with a
foreign company.
 BRICS Economies

Brazil, Russia, India, China and South

Africa (BRICS) is an acronym for the
combined economies of Brazil, Russia,
India, China and South Africa. BRIC,
without South Africa, was originally
coined in 2003 by Goldman Sachs, which
speculates that by2050 these four
economies will be the most dominant.
 BRICS Economies
South Africa was added to the list on April 13, 2011 creating
"BRICS. These five countries were among the fastest growing
emerging markets as of 2011 Further, Brazil, Russia, India and
China (BRIC) refer to the idea that China and India will, by 2050,
become the world's dominant suppliers of manufactured goods and
services, respectively, while Brazil and Russia will become similarly
dominant as suppliers of raw materials. Due to lower labor and
production costs in these countries now including a fifth nation,
South Africa, many companies have also cited BRICS as a source
of foreign expansion opportunity i.e. promising economies in which
to invest.
General Agreement on Trade in Services
(GATS)

The General Agreement on Trade in Services

(GATS) is the first multilateral agreement covering
trade in services which was negotiated during the last
round of multilateral trade negotiations, called the
Uruguay Round, and came into forcein1995. The
GATS provides a framework of rules governing
services trade, establishes a mechanism for countries
to make commitments to liberalize trade in services
and provides a mechanism for resolving disputes
between countries
 General Agreement on Trade in Services
(GATS)

GATS has similar principle with the

General Agreement on Tariffs and
Trade(GATT) that deals with trade in
goods. The two primary objectives of
GATTS are to ensure that all signatories
are treated equitably when accessing
foreign markets; and second, to promote
progressive liberalization of trade and
services.
Thank You