Lesson 1: The Global Economy and Market Integration

Objectives:
At the end of the lesson students should be able to:
a. Analyse the factors that facilitate economic globalization
b. Articulate a stance on global economic integration
c. Explain the role of international financial institutions in the creation of global economy
d. Narrate a short history of global market integration in the 20th century; and
e. Infer the attributes of global corporations
Before we move to our next topic, let’s have a short review about our last topic by answering the Engage
part of this module. Good luck and have fun!

ENGAGE
DIRECTION: Arrange the jumbled letters to form the word related to our topic. Use the clue provided.
1. O N O T A Z A L I B I L G

– the process of interaction and integration among people, companies, and governments worldwide
2. M N O E Y C O
– an area of the production, distribution and trade, as well as consumption of goods and services.
3. R T A M E K
– means by which the exchange of goods and services takes place.
4. P R O M I T
– to bring from a foreign external source
5. P O X R T E
– goods and services that are produced in one country and sold to buyers in another.

Do you have any ideas about Global Economy? Try answering the tables below to have some ideas about
Global Economy.

EXPLORE
Direction: Identify the following global corporation logos and tell something about each on the space
provided.
Great job! You have done the first part of the module, keep going to fully understand our new lesson.
To further understand our lesson click the link below
[Link]

EXPLAIN
What is economic globalization?
Shangquan (2000) defined economic globalization as the expanding interdependence of the world
economies. He attributes this to the growing scale of cross-border trade commodities and services, flow of
international capital, and wide and rapid spread of technology. In the Philippines, cross border trading can
be best illustrated by the countries trading partnerships with China, the United States and Australia.
Moreover, the flow of international capital can be observed in Foreign Direct Investments (FDI), a type of
investment in which a company establishes a business in other country for production of goods or services
and still takes part in the management of that business. A good example of this is the Toyota Motor
Philippines Corporation, which is subsidiary of Toyota Motor Corporation based on Toyota, Japan. This
flow of international capita can also be observed in foreign portfolio investments, trade flows, external
assistance and external commercial borrowing and private loan flows.
In 2008, the International Monetary Fund (IMF) defines economic globalization as a historical
process, the result of human innovation and technological process. T refers to the increasing integration of
economies around the world, particularly through the movement of goods, services and capital across
borders.
The most fitting definition of economic globalization is that of Szente’s in 2003: it is the process of
“making the world economy’s ‘organic system’ by extending transnational economic process and relations to
more and more countries and by deepening the economic interdependencies among them,” this implies that
the world economy is no longer controlled by nation-states, but it must be seen from a global context – the
reliance and integration of world economies. To illustrate, the price movements of imported fuels in the
Philippines are affected not only by national Tax Reform for Acceleration and Inclusion (TRAIN Law)
excise tax on fuels, but also by the peso-US dollar exchange rate. As the same time, this exchange rate is
also affected by the global market and the international economy’s interest rates like the European Union
(EU) and the United States Federal Government’s interest rates. It cannot be discounted that global
corporations directly affect the inflow of US dollars in the Philippines.
Interconnected Dimensions of Economy
Benczes (2014) identifies four interconnected dimensions of economy, namely:
1. Globalization of trade and goods services
 World Trade Organization (WTO) that eases trade among countries
  China as a major supplier and exporter of manufactured goods that has affected the
world economy. China-made products or parts are sent to the United States. To meet this
demand, China creates more jobs for its citizens.
 the increasing number of Business Process Outsourcing (BPO) companies in the
Philippines. American companies set up subsidiaries in the country because of cheap labor
cost, English proficiency and customer service skills.
2. Globalization of financial and capital markets
This dimension is evident in the liberation of financial and capital markets. This is seen in
cross-listing of shares on one or more foreign stock exchange, cross-hedging and
diversification of portfolio, and round-the-clock trading worldwide.
3. Globalization of technology and communication
This dimension emphasizes that various transactions and interactivities that transpire instantly
due to the internet and communication technology.
4. Globalization of production
This dimension is best illustrated by the existence of multinational corporations (MNCs)
and transnational corporations (TNCs). The Coca-Cola Company is an example of
an MNC. Based in Atlanta, Georgia, USA, the company only manufactures syrup
concentrates and sells them to various bottles that hold exclusive territories in
different countries including the Philippines. Toyota Motor Corporation is also an
MNC.
Different Agents on Interdependencies of Global Economies
1. Nation-states. Boyer and Drache (1996) state that the role of nation-states as manager of the
national economy is being redefined by globalization. In support, Brodie (1996) calls the
government as the midwives of globalization. It means that the nation-states are still relevant
despite assuming global perspective and act as mediators between the effects of globalization and
the national economy. Government policies and regulations either permit or deny the smooth
connection among world economies.
2. Global Corporations. Ohmae (1995) argues that the nation-state has ceased to exist as the
primary economic organization unit in the global market. Filipino customers, for instance,
3. International Monetary System (IMS). This refers to internationally agreed rules, convention
and institutions for facilitating international trade investments, ad flow of capital among nation-
states. Historically, there are three global IMS:
a. Gold Standard – it functions as a fixed exchange rate regime, with gold as the only
international reserve and participating countries determine the gold content of national
currencies (Banczes, 2014).
b. Bretton Woods System – in this system, the US dollar was the only convertible
currency. Thus, it was agreed by 44 countries to adopt the gold exchange standard. Also,
two financial institutions were established: the International Bank for Reconstruction and
Development (IBRD) and the International Monetary Fund (IMF). The former, now
known as the World Bank, is responsible for post-war reconstructions. The latter aims to
promote international financial cooperation and strengthen international trade.
c. European Monetary System (EMS) – it came about after the collapse of the Bretton
Woods System. EMS was successful in the stabilization process of exchange rates. It
them prompted the foundation of a new European Economic and Monetary Union
(EMU). National currencies were abandoned and member states delegated monetary
policy onto a supranational level administered by the European Central Bank. The
development of international tradeand trade policy is also a form of such economic
 integration. Trade patters must not be stagnant. Flow of goods must be voluntary but
restricting it might affect the relationship between and among states.
What is Global Market Integration?
Global market integration was the result of the establishment of a global economy that involved the
homogenization of trade and commerce. Prior to the trends in globalization of the 20th century, international
trade and exchange of goods and services were already practiced. Harvey (1990) sees that cities and
countries were able to extend their reach beyond borders and patterns of trade and technology because of
developments in shipping and navigation.
How did Global Market Integration begin?
Iwan (2012) identifies the differences among international, multinational, transnational and global
companies:
 International companies are importers and exporters with investments outside their home
countries.
 Multinational companies (MNCs) have investments in other countries, but do not have a
coordinated product offering in each country. They are more focused on adapting their
products and services to each individual local market.
 Global companies have investments and are present in many countries. They typically
market their products and services to each individual local market.
 Transnational companies (TNCs) are more complex organizations that have investments in
foreign operations, have a central corporate facility but give decision-making, research and
development, and marketing powers to each individual foreign market.
Structural Periods in the Existence of Global Corporations
Gereffi (2001) identifies three structural periods in the existence of global corporations after the war.
They are the following:
1. Investment-based Period (1950-1970)
The development of global corporations can be examined from the sources and the levels of foreign
direct investments (FDIs). The United Nations Conference on Trade and Development (UNCTAD) defines
FDIs as funding made to acquire lasting interest in enterprises operating outside the economy of the investor
in which their purpose is to gain an effective voice in the management of the enterprise.
2. Trade-based Period (1970-1995)
During this period, global corporations were controlled by producer driven commodities. As a result,
firms were characterized by large amounts of concentrated capital focused on large-scale or capital-intensive
manufacturing.
3. Digital Globalization (1995 onwards)
This affected the operation of global corporations since technology became integrated in both
production and consumption. Producer driven value streams have integrated their corporate structures to
reduce the effects of time and distance in the production and consumption of goods while buyer-driven
values streams have changed the behavior of corporations in retailing their goods and services via the
internet (Neubauer, 2014). As Cammett (2006) observed, designing, ordering, factory processing, inventory,
delivery, branding and advertising are driven by digital operations since the 1990s.

ELABORATE
 Market integration provides a number of social benefits, including broadening the range of financial
services and investment opportunities available to consumers and increasing competition in the provision of
those services.
Financial journals report that stock markets are increasingly integrated and that there is a strong link
between economic globalization and integration of financial markets. In theory, international financial
integration implies that the risk-adjusted return is identical for all markets.
Market integration is a scenario in which different markets for the same product become one single
market. Market integration indicates how different markets are related to each other.
Economic integration involves agreements between countries where trade barriers are typically
removed. This increases the number of goods and services that can be imported.

Now that you have learned our lesson let us now answer the following activities below. Don’t hesitate to
send a message if you have queries.
Good luck!

EVALUATE
ACTIVITY 1.
Direction: Answer the questions briefly and comprehensively. Write your answers in a clean sheet of paper
1. In what fast food chain restaurant do you usually have your meals? Why do you prefer to go to
this restaurant?
2. Do you wear branded clothes? If yes, what are the brands of your clothes? Why do you prefer to
have these brands? If no, what brand of clothes do you wish to have? Why do you want to have
them?
3. What are the appliances do you have at home? What are the manufacturing companies of these
appliances? From where are these manufacturing companies?
ACTIVITY 2.
Direction: Choose one Filipino global corporation. In an essay, discuss its history, worldwide reach and
attributes as a global corporation.
Rubrics for Evaluation
Indicators 5 4 3 2 1
The essay is complete and
comprehensive
The essay has an evident control of
grammar, mechanics, spelling,
usage, and sentence formation
The essay shows high relevance to
the given topic/ theme
TOTAL
ACTIVITY 3.
Direction: Situate yourselves as a young entrepreneur. If you will be going to put up your own corporation
what would it be? Create a logo for your corporation. You may use canva and other apps for logo making
using your phones. Tell also about your corporation – its name, purpose and reasons why you want to put it
up. It must be printed.
Rubrics for Evaluation
Indicators 5 4 3 2 1
The output is complete and comprehensive

The output (logo) presents the information

The output (write up) explains completely the

TOTAL

REFERENCES
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https//[Link]/-ZS4Dfs3z8w4/AUy3pLkwEYl/AAAAAAAAC8w/
YgJDukCpVLSeljy_VSHCK_019aP06Xz3QCLcBGAs/s1600/[Link]