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CHAPTER 3 Market Integration

This document discusses different types of market integration that companies engage in, including horizontal, vertical, and conglomerate integration. Horizontal integration refers to mergers between competitors, while vertical integration involves integrating suppliers or distributors. Backward vertical integration means acquiring suppliers, forward vertical integration means acquiring distributors, and conglomerate integration combines unrelated businesses. The document provides examples and discusses the advantages and disadvantages of each type of integration.

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169 views26 pages

CHAPTER 3 Market Integration

This document discusses different types of market integration that companies engage in, including horizontal, vertical, and conglomerate integration. Horizontal integration refers to mergers between competitors, while vertical integration involves integrating suppliers or distributors. Backward vertical integration means acquiring suppliers, forward vertical integration means acquiring distributors, and conglomerate integration combines unrelated businesses. The document provides examples and discusses the advantages and disadvantages of each type of integration.

Uploaded by

shiryl gabriel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 3:

Market Integration
Learning Objectives
At the end of the course the students
should be able to:
Explain the role of international financial
institutions in the creation of Global
Economy
Narrate a short history of global market
integration in the twentieth century
Identify the attributes of global
corporations
What is Market Integration?

Integration shows the company’s


market relationship. The extent of
integration affect’s the company’s
behaviour and thus their marketing
efficiency.
Kohls and Uhl have defined
market integration as a process
that refers to corporate expansion
by consolidating additional
marketing functions and activities
within a single management
framework
Types of Market
Integration:
Horizontal Integration
Vertical Integration
Backward-Vertical Integration
Forward-Vertical Integration
Conglomerate
1. Horizontal Integration
Horizontal Integration refers to pursuing a
concentration by acquiring or merging with a rival.
Advantages:
It is a competitive strategy that can create
economies of scale.
It increases market power over distributors and
suppliers.
It increases product or service differentiation.
It helps business expand their market or enter to
new market.
Two Types of Horizontal Integration
Merge/r- when two similarly sized firms
are integrated into a single entity.

Examples of Merging in Philippine


Setting
◦ Century Pacific Foods Corporation (Century)
and Universal Robina Corporation (Hunts)
◦ SM Investment Corporation and the 34.5% of
2GO Group Incorporation
Porter's Five Forces
1. Competition in the industry
2. Potential of new entrants into the
industry
3. Power if suppliers
4. Power of consumers
5. Threat of substitute products
Acquisition- larger firms purchases and
absorbs a smaller firm.

Example in the Philippine Setting


◦ Jollibee Food Corporation (JFC) acquiring
Red Ribbon Bakeshop, Mang Inasal and
Greenwich
Downfall of Horizontal
Integration
 One study found that 60% of mergers
and acquisitions erode shareholder's
wealth.
Companies culture are unable to mesh.
Other acquisitions fail because the
purchaser pays more for a target company
that its worth. And the purchaser never
earns the premium.
Vertical Integration
It is where businesses have too
much power to acquire either the
supplier or the retailer.
It is where businesses have too
much power to acquire either the
supplier or the retailer.
Backward Vertical
Integration
Backward Vertical Integration is when a
company moving back of upstream along
the value chain. Backward Integration is
process in which a company acquires or
merges with other businesses that supply
raw materials needed in the production of
the finished product.
 
Example of Backward Integration

An example is a wine manufacturer that seeks


to acquire a wine glass manufacturing company
that owns the rights and technologies of
manufacturing glass. By acquiring the wine
glass manufacturing company, the wine
manufacturer will be in a position to control
the quality of the manufactured glass, cost of
production, as well as the quality of raw
materials used in the manufacturing process.
Advantages

BetterControl
Cost Control
Competitive advantage
Disadvantages

Lack of expertise
Substantial Investment
Forward Vertical
Integration
Forward vertical integration involved a
company moving further down the value
chain. It is a business strategy whereby
business activities are expanded to include
control of the direct distribution or supply
of a company's products.
referred to as "eliminating the
middleman"
A good example of forward integration would
be a farmer who directly sells his crops at a
local grocery store rather than to a
distribution center that controls the
placement of foodstuffs to various
supermarkets. Or, a clothing label that
opens up its own boutiques, selling its
designs directly to customers instead of
or in addition to selling them through
department stores.
For example, the company Intel
supplies
Dell with intermediate goods—its
processors—that are placed within
Dell's hardware. If Intel wanted to move
forward in the supply chain, it could
conduct a merger or acquisition of Dell
in order to own the manufacturing
portion of the industry.
Conglomerate Integration
A conglomerate merger is a merger between
firms that are involved in totally unrelated
business activities. These mergers typically
occur between firms within different
industries or firms located in different
geographical locations. There are two types of
conglomerate mergers: pure and mixed. Pure
conglomerate mergers involve firms with nothing in
common, while mixed conglomerate mergers
involve firms that are looking for product
extensions or market extensions.
There are many reasons for conglomerate
mergers, including increased market share,
synergy, and cross-selling opportunities.
Firms also merge to reduce the risk of loss
through diversification. However, if a
conglomerate becomes too large from
acquisitions, the firm's performance can
suffer.
End of Presentation.

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