GNED 07 MARKET INTEGRATION REVIEWER
CONTEMPORARY WORLD MARKET INTEGRATION
HISTORY OF GLOBAL MARKET INTEGRATION
Pre-modern Economy: Individuals primarily produced goods for their families.
Modern Economy: Requires collaboration between various sectors for the production, distribution, and exchange of goods and services.
AGRICULTURAL REVOLUTION
Initiated significant economic changes by transitioning from hunter-gatherer societies to agriculture.
Involved the domestication of plants and animals.
INDUSTRIAL REVOLUTION
Marked the second economic revolution.
Led to the rise of industry and introduction of new economic tools, manufacturing processes, and mass production techniques.
INFORMATION REVOLUTION
Characterized by technological advancements.
Decreased reliance on human labor in manufacturing, shifting focus towards service-oriented work and the production of ideas instead of physical goods.
TWO COMPETING ECONOMIC MODELS DURING INDUSTRIAL REVOLUTION
Capitalism: The system where natural resources and means of production are privately owned.
Socialism: System where means of production are collectively owned, primarily by the government.
MARKET INTEGRATION
Defined as the fusing of markets into one unified market.
Takes place when prices in different locations or related goods follow a similar pattern over extended periods.
Forms of market integration include:
Reduction of trade barriers (e.g., tariffs).
Development of infrastructure (e.g., transportation and communication facilities).
Example of Market Integration: A French cheese manufacturer selling products in Germany.
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NON-INTEGRATED MARKET
Challenges include:
Significant trade barriers.
Customs duties and extensive paperwork.
Leads to complicated, expensive selling processes.
INTEGRATED MARKET
With European Union market integration, the French manufacturer can sell cheese in Germany seamlessly.
Benefits include:
Access to diverse product options for consumers in both countries.
Increased competition that helps lower prices.
ROLE OF INTERNATIONAL FINANCIAL INSTITUTIONS IN CREATING A GLOBAL ECONOMY
International Financial Institutions: Founded by multiple countries, governed by international law, and assist in various capacities such as:
Advising, funding, and supporting development projects aimed at poverty reduction and improving living conditions.
Key Institutions Include:
International Monetary Fund (IMF): Promotes financial security and provides policy guidance to strengthen economies within countries.
Multi-Cultural Development Banks:
World Bank Group
African Development Bank
Asia Development Bank
Inter-American Development Bank
European Bank for Reconstruction and Development
THREE BASIC KINDS OF MARKET INTEGRATION
Horizontal Integration: Merging or acquiring firms in the same stage of production within the same industry.
Example: Facebook's acquisition of Instagram (2012, $1 billion).
Example: Kraft Foods' purchase of Cadbury (2010, $19.5 billion).
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Vertical Integration: Companies operate in multiple stages of the production process.
Forward Vertical Integration: Engaging in activities closer to the consumer.
Example: A wholesaler taking on retail functions.
Backward Vertical Integration: Taking ownership control earlier in the supply chain.
Example: A furniture manufacturer sourcing wood in-house.
Conglomerate: Combination of dissimilar agencies or activities managed under unified leadership.
Example: Unisilver owning both food companies (e.g., Select) and hygiene companies (e.g., Rexona).
Example: Procter & Gamble owning both Tide and Lacoste.
DIVISION OF LABOR
Core-Periphery Model:
Core: High-income nations dominating capitalism; examples include:
United States, Canada, Australia, New Zealand, Japan.
Semi-Periphery: Middle-income countries with characteristics of both core and periphery; examples include:
Brazil, India, Vietnam, North & South Korea, Indonesia, China, New Zealand.
Periphery: Low-income countries providing labor and resources to wealthier nations; examples include:
Myanmar, Nepal, Timor, Afghanistan.