In GE 5 The Contemporary World: Objectives 2 Discussions 2 4 References 5

Module 3
in
GE 5 The Contemporary World
Table of Contents
Introduction 2
Objectives 2
Discussions 2
Summary 4
References 5
Mr. Rainville R. Balase

College of Arts and Communication
University of Eastern Philippines
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Unit II
The Structures of Globalization
Market Integration
Introduction
The international spread of capitalism, especially in recent decades, across
national boundaries and with minimal restrictions by governments the global
economy has become hotly controversial. Critics allege that its props, free markets
and free trade, take jobs away from well-paid workers in the wealthy nations while
creating sweatshops in the poor ones. Its supporters insist that the free movement of
capital stimulates investment in poor countries and creates jobs in them. The price is
also called globalization.
Objectives
At the end of the learning sessions, the students will be able to:
a. explain the role of international financial institutions in the creation of a
global economy;
b. narrate a short history of global market integration in the twentieth century;
and
c. identify the attributes of global corporations.
Role of International Financial Institutions

in the Creation of Global Economy
An International Financial Institutions (IFIs) is chartered by more than one
country and therefore are subjects to international law. Its owners or shareholders
are generally national governments, although other international institutions and
other organizations occasionally figure as shareholders.
The IFIs are:
1. International Monetary Fund (IMF)
2. Multilateral Development Banks (MDBs) which include
2.1 World Bank Group
2.2 African Development Bank
2.3 Asian Development Bank
2.4 Inter-American Development Bank
2.5 European Bank for Reconstruction and Development
The last four (4) of these MDBs, each focus on a single world region and thus
are often called Regional Development Banks.
Global in scope are International Monetary Fund and the World Bank. They
are also specialized agencies in the United Nations system but are governed
independently of it.
Main Objectives
IMF provides temporary financial assistance to member countries to help
ease balance of payments adjustments.
MDBs provide financing for development to developing countries through,
long term loans (with maturities of up to 20 years) at an interest rates way below
market rates. Funding comes from international capital markets and relend to
borrowing government in developing countries, very long-term loans (sometimes
called credits with maturities of 30-40 years) at interest rates below market rates.
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Funding for loans come from direct contributions by government in the donor
countries, and grant financing by some MDBs for technical assistance advisory
service or project preparation.
Market Integration
When prices among different location or related goods follow the same
patterns over a long period of time, market integration exist. Similarly, when 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.
Types of Market Integration

The main types of market integration are:
1. Backward vertical integration. This involves acquiring business operating
earlier in the supply-chain – e.g., a retailer buys a wholesales, a brewer buys a hop
farm.
2. Conglomerate integration. This involves the combination of firms that are
involved in unrelated business activities.
3. Forward vertical integration. This involves acquiring a business further up in
the supply chain – e.g., a vehicle manufacturer buys a car parts distributor.
4. Horizontal integration. Here, businesses in the same industry and which
operate at the same stage of the production process are combined.
History of Global Market Integration

in the Twentieth Century
Labor market integration occurred between 1882 and 1936 in an area of Asia
stretching from South India to Southeastern China and encompassing the three
Southeast Asian countries of Burma (Myanmar), Malaya (Malaysia), and Thailand.
By the late nineteenth century, globalization, of which a principal feature was
the mass migration of Indians and Chinese to Southeast Asia, gave rise to both an
integrated Asian labor market and a period of real wage convergence. Integration
did not, however, extend beyond Asia to include core industrial countries. Asian and
core areas, in contrast to globally integrated commodity markets, showed divergent
trends in unskilled real wages.
By the 1880s steamships had largely replaced sailing vessels for transport
within Asia as well as to Western markets, and shipping fares had begun to fall
sharply.
Also, already underway was the mass migration of Indian and Chinese
workers, principally from the labor-abundant areas of Madras in India and the
Provinces of Kwangtung (Guangdong) and Fukien (Fujan) in Southeastern China, to
land-abundant but labor-scarce parts of Asia. Chief among the immigrant-receiving
countries were Burma, Malaya and Thailand in Southeast Asia. Indian and Chinese
labor inflows to these countries constituted the bulk of two of three main late
nineteenth and early twentieth-century global migration movements, the other being
European immigration to the New World. Immigration to Southeast Asia was almost
entirely in response to its growing demand for workers which, in turn, derived from
rapidly expanding demand in core industrial countries for Southeast Asian exports.
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Global Corporation
While many use “global” in the same way as international when it comes
describing a business, some analysts make distinctions between how each operates.
On a basic level, a global corporation is one that operates in more than one country.
Business analysts and academics, such as the groundbreaking Michael
Porter at Harvard University, defined global businesses more narrowly and
distinguish them from other operations overseas. He defined a global business as
one that maintains a strong headquarters in one country, but has investments in
multiple foreign locations. Such investments may involve direct investments in
foreign assets, such as manufacturing facilities or sales offices. The headquarters
generally is its home country, through some moves to more favourable regulatory or
taxation locations over time. Global corporations strive to create economies of scale
by selling the same products in multiple locations and limiting local customization.
In the world of finance and investment, a global corporation is one that has
significant investments and facilities in multiple countries but lacks a dominant
headquarters. Global corporations are governed by laws of the country where they
are incorporated. A global business connects its talents, resources and opportunities
across political boundaries. Because a global corporation is more invested in its
overseas locations, it can be more sensitive to local opportunities – and also more
vulnerable to threats. A company or global corporation that does business in China,
for instance, might find itself dealing with the implication from the local COVID19
outbreak as well as its commercial operations.
A global company is generally referred to as a multinational corporation
(MNC). An MNC is a company that operates in two or more countries, leveraging the
global environment to approach varying markets in attaining revenue generation.
These international operations are pursued as a result of the strategic potential
provided by technological developments, making new markets a more convenient
and profitable pursuit both in sourcing and pursuing growth.
International operations are therefore a direct result of either achieving higher
levels of revenue or a lower cost structure within operations or value-chain. MNC
operations often attain economies of scale, through mass producing in external
markets at substantially cheaper costs, or economies of scope, through horizontal
expansion into new geographic markets. If successful, these both result in positive
effects on the income statement (either large revenue or stronger margin), but
contain the innate risk in developing these new opportunities. A gross domestic
product (GDP) growth migrates from mature economies to developing economies it
becomes highly relevant to capture growth in higher growth markets.
Summary
Recognizing that world economic interdependence is complex and its effects
uneven, the economic community has made efforts toward international cooperation.
Conferences devoted to global economic issues have explored the avenues through
which cooperation could be fostered between industrial and developing nations.
Activity
Explain the following:
1. Do you agree that the center of gravity of the global economy is shifting to
Asia? Why? Why not?
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2. What are the pros and cons of global corporations? Give an example of
Global Corporation/Company as your reference.
3. What is the importance of international financial institutions to countries of
the world?
References
Aldama, Prince Kennex R.(2018). The Contemporary World. Quezon City:

Rex Bookstore, Inc.
Ang, Jaime G. et al (2018). The Contemporary World. Manila: Mindshapers

Co., Inc.
Ariola, Mariano M. (2018). The Contemporary World. Manila: Unlimited Books

Library Services & Publishing Inc.
____________________. The Contemporary World: An Outcome-Based

Education Approach. http://www.scribd.com
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Module 3

Mr. Rainville R. Balase

The Structures of Globalization

Role of International Financial Institutions

Types of Market Integration

History of Global Market Integration

Aldama, Prince Kennex R.(2018). The Contemporary World. Quezon City:

Ang, Jaime G. et al (2018). The Contemporary World. Manila: Mindshapers

Ariola, Mariano M. (2018). The Contemporary World. Manila: Unlimited Books

____________________. The Contemporary World: An Outcome-Based

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