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GE-CW Lesson 3.3 - Market Integration.pptx
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- 3. Objectives At the endof the discussion, students should be able to: • understand market integration and regional economic integration; • identify the types of market integration and the major regional economic areas of cooperation; and • reflect the effects of market integration to economic globalization.
- 4. Market Integration • processof connecting national markets to create a larger and more linked market • when prices among different location or related goods follow the same patterns over a long period of time • Interconnectivity of prices among different locations or related goods
- 5. Pros & Cons ofMarket Integration Advantages Disadvantages • Access to Larger Markets • Greater Variety of Goods and Services • Increased Competition • Improved Efficiency • Unequal Distribution of Benefits • Increased Vulnerability • Loss of Sovereignty • Regulatory Challenges
- 6. 3 Types ofMarket Integration 1. Horizontal integration This 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 but different location. It leads to reduced cost of marketing. In this, reduced competition possible. Example: Facebook (Meta) acquisition of Instagram 2. Vertical integration This occurs when a firm performs more than one activity in the sequence of the marketing process. It is linking together of two or more functions in the marketing process within a single firm or under a single ownership. Example: Apple 3. Conglomeration A combination of agencies or activities not directly related to each other may, when it operates under a unified management. Example: Ayala Corporation
- 7. Regional market integration - agreementbetween groups of countries in a geographic region, to reduce and ultimately remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other. It can be achieved by a variety of arrangements.
- 8. Variety of arrangements include: 1. Preferentialtrade agreement • Give preferential access to certain products from the member countries into each other's markets through lowering tariffs for such products only. Example: The North American Free Trade Agreement (NAFTA) which includes the United States, Canada, and Mexico. NAFTA was established to enhance economic activity among these nations by lowering trade barriers) 2. Free Trade Agreement • Eliminate or decrease duties, tariffs, and quotas between member countries on a wide array of goods and services. Example: North American Free Trade Agreement (NAFTA). Created to eliminate barriers to trade and investment between the United States of America, Canada, and Mexico.
- 9. Variety of arrangements include: 3. CustomUnion • The member countries have common external tariffs and joint position in trade negotiations with countries outside the union Example: The European Union (EU). Goods move between EU member countries without tariffs (duty- free). In addition, all EU members charge non-member countries the same tariffs for imported goods. 4. Common Markets • allows for free movement of labor and capital within the member countries. Example: East African Common Market (EACM). Was established to provide the “four freedoms,” with the aim of boosting the region’s economy and increasing productivity. The four freedoms are: the free movement of goods, free movement of labor, free movement of services, and free movement of capital.
- 10. Variety of arrangements include: 5. EconomicUnion • union member countries have common currency and harmonized monetary and fiscal policies. Example: European Union - operates as one unit in the global economy with majority of member states adopting the Euro as their single currency
- 11. Pros & Cons ofRegional Market Integration Advantages Disadvantages • Trade creation • Employment opportunities • Consensus and cooperation • Trade diversion • Employment shifts and reductions • Loss of national sovereignty
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- 13. 1. NAFTA (NorthAmerican Free Trade Agreement) was replaced in 2020 by the USMCA (United States-Mexico-Canada Agreement), -a new free trade agreement between the United States, Mexico, and Canada. -Goals: create a more equitable and reciprocal economic environment by addressing concerns connected to intellectual property, digital trade, labor, and the environment. Also, reducing tariffs and trade barriers -Potential: boost economic growth, generate jobs, and offer up new business opportunities for the three countries. 2. Gulf Cooperation Council (GCC) is also known as the Cooperation Council for the Arab States of the Gulf (CCASG). - six member states of the union are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates - Goal: to promote cooperation and integration - Potential: encourage economic growth and diversification - Challenge: need for better political integration and cooperation
- 14. 3.The Common Marketof the South, or MERCOSUR -established in 1991 - Argentina, Brazil, Paraguay, Uruguay, and Bolivia - Group’s remarkable achievement: Surging trade, rising investment, and expanding output, having an agreed-upon external tariff, and progress in creating a single market for goods, services and capital. -Potential: promote regional integration and economic progress -Challenge: need for more political coordination and unity 4. RCEP (Regional Comprehensive Economic Partnership) -Fifteen nations: China, South Korea, Cambodia, Indonesia, Laos, Myanmar, Philippines, Thailand, Australia, Japan, New Zealand, Brunei, Malaysia, Singapore, Vietnam -a free trade agreement, signed in 2020 -Goals: to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement among the ASEAN Member States and ASEAN’s FTA partners. -Potential: boost economic growth and create jobs -Challenge: how it would impact labor regulations and environmental protections
- 15. 5. EU (EuropeanUnion) -founded in 1993 and consists of 27 member countries in Europe. -Goals: establish a single, common currency, set up monetary and fiscal targets for member countries. and a political union -Achievement: single market among its members by removing trade restrictions, harmonizing legal systems, and creating a single currency (the euro) in 19 of its member states, adopted social and environmental rules. These results to significant increase in trade, foreign investment, and job creation. -Challenges: high unemployment and low employment responsiveness to economic growth
- 16. 6. South AsianAssociation for Regional Cooperation (SAARC) -Established in 1985 -Has eight member countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri-Lanka -Goals: to promote the welfare and to improve quality of life of the peoples of South Asia; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potentials. Also aims to strengthen cooperation with other developing countries and to cooperate with international and regional organizations with similar aims and purposes -Challenge: members' political and economic issues
- 17. 7. EAEU (EurasianEconomic Union) -comprising Kazakhstan, Kyrgyzstan, Armenia, Belarus, and Russia -Came together in 2015 -Actions: Eliminate trade barriers, simplify laws, and create a shared market for goods and services in addition to creating a customs union -Goals: fostering closer economic cooperation among member states -Challenge: enormous internal disagreements and uneven markets. And failed to establish itself as a profitable economic alliance or attract new member states 8. AfCFTA (African Continental Free Trade Area) - 54 AU member states have signed the AfCFTA agreement as of January 2024 - Goals: provide broader and deeper economic integration across the continent as well as attract investment, boost trade, provide better jobs, reduce poverty and increase shared prosperity in Africa - Challenges: geographic and political fragmentation and thick borders (a complex of both tariff and nontariff restrictions that slow trade) — all of which increase the per unit cost of moving goods across borders
Editor's Notes
- #5 Advantages: •Access to Larger Markets: Businesses can sell their products and services to a broader customer base, which can lead to increased revenues. •Greater Variety of Goods and Services: Consumers have access to a wider array of goods and services, which can improve their standard of living. •Increased Competition: Firms must compete with international companies, a development that can drive innovation, improve product quality, and lower prices. •Improved Efficiency: Market integration can lead to increased production and efficiency as companies seek to compete in larger markets. Disadvantages: •Unequal Distribution of Benefits: While integration can lead to economic growth, the benefits derived might not be evenly distributed. Developed economies with strong, competitive industries might gain more than developing countries with underdeveloped industries. •Increased Vulnerability: Highly integrated markets can spread economic shocks from one country to others. For instance, the 2008 financial crisis, which began in the United States, rapidly spread to other countries due to the high degree of market integration. •Loss of Sovereignty: In some cases, market integration could pose a threat to national sovereignty as countries might have to align their policies with international standards and regulations. •Regulatory Challenges: Market integration could lead to regulatory challenges as countries need to harmonize their laws and regulations to facilitate seamless cross-border transactions.
- #6 1. The rationale behind Facebook’s billion-dollar acquisition of photo-sharing social media platform Instagram is a tale as old as business: Instagram was becoming a competitive threat. The company paid a high price to neutralize the competition, but the strategy has reaped rewards. In 2022, Instagram was responsible for 41.5% of Facebook’s revenues, as its ad revenues outpaced those of Facebook, which were in decline. 2. This type of integration makes it possible to exercise control over both quality and quantity of the product. Vertical integration reduces the number of middlemen in the marketing channel. (After example Line) Having used to outsource producing some parts before, the company now manufactures basically everything: from chipsets to cases. This allows Apple to offer unique products, hard to counterfeit, keep client loyalty worldwide, and guarantee their products' high quality. 3. Its diverse business portfolio includes real estate development, banking and financial services, water utilities, telecommunications, and power generation
- #8 1. (Example situation: Imagine Country A decides to impose tariffs on wheat being imported from Country B. With a PTA in place between Countries A and B, these tariffs could be reduced, making products from Country B less expensive in Country A's market. This would incentivize consumers in Country A to buy more wheat from Country B, thereby increasing trade. Note: PTA vs FTA In an FTA, the trade barriers are reduced or eliminated on virtually all goods and services between the member nations. This wide-ranging openness to trade is what distinguishes FTAs from PTAs, where the preferential access applies only to selected goods.
- #9 (It means that workers are entitled to look for work in another country, without requiring any visa. Free movement of capital means that individuals and businesses can move money and investments across borders without strict controls or limitations imposed by governments.)
- #11 Advantages: •Trade creation. These agreements create more opportunities for countries to trade with one another by removing the barriers to trade and investment. Due to a reduction or removal of tariffs, cooperation results in cheaper prices for consumers in the bloc countries •Employment opportunities. By removing restrictions on labor movement, economic integration can help expand job opportunities. •Consensus and cooperation. Member nations may find it easier to agree with smaller numbers of countries. Regional understanding and similarities may also facilitate closer political cooperation. Disadvantages: •Trade diversion. Member countries may trade more with each other than with nonmember nations. •Employment shifts and reductions. Countries may move production to cheaper labor markets in member countries. Similarly, workers may move to gain access to better jobs and wages. •Loss of national sovereignty. With each new round of discussions and agreements within a regional bloc, nations may find that they have to give up more of their political and economic rights.
- #13 1. Note: NAFTA’s rules ensure that a foreign exporter won’t just ship to the NAFTA country with the lowest tariff for nonmember countries. NAFTA rules require that at least 50 percent of the net cost of most products must come from or be incurred in the NAFTA region.
- #14 4. Although RCEP has the potential to boost economic growth and create jobs, concerns have been raised about how it would impact labor regulations and environmental protections.
- #15 After second line: which would include the development of a common foreign and defense policy and common citizenship. - (Challenge line) Despite the perceived benefits, economic policymakers in the EU admit that the Union’s labor markets are suffering from rigidity, regulation, and tax structures that have contributed to) Challenges: high unemployment and low employment responsiveness to economic growth (This is the case, particularly, for relatively low-skilled labor.)
- #16 - Challenge Line Note: that results to slow development)
- #17 7. - After challenge 1 line note: Members of the union have very different goals, and there are recurrent clashes between members over the application of non-tariff regulations and accusations of protectionism) - After challenge 2 line note: even if it is already eight years since its creation and although Russian President Vladimir Putin has repeatedly predicted the opposite)