LUKOIL: Trade Strategy at a Privitized Exporter
1) What theories of trade help to explain Russia’s position as an oil exporter? Why? Which ones don’t? Why not?
Russia has a natural and an acquired advantage: it has fifteen more reserves than Saudi Arabia. To explain its position, the Similarity Theory can be used: Trade mostly with neighboring countries, former members of Soviet Union. Another one is the Porter Diamond Theory: National competitive advantage, with favorable demand, factor conditions, related and supporting industries and strategy. Interventionist, merchantilism, PLC theories do not apply, because Russia doesn’t intend to intervene, nor to encourage export/discourage import, neither is there something like a product life cycle. .
2) How do global political and economic conditions affect world markets & prices of oil?
The assiciation of OPEC makes supply uncertain, for it can make decisions that increase/decrease the proce of oil. Further, there is the demand of China; its industrialization increases the demand to oil. Possible political unrest in the Middle East, or in certain parst of Latin Amerca makes supply from competition uncertain.
3) Discuss the following statement as it applies to Russia & LUKOil. “Regardless of the advantages a country may gain by trading, international trade will begin only if companies within that country have competitive advantages that enable them to be viable traders - and they must foresee profits in exporting and importing.”
Russia & LUKOil must maintain comparative advantage to be able to compete in world oil market. Otherwise, competitors could use Foreign Direct Investment to takeover by developing the latest technology, marketing skills and operating efficiencies.
4) In LUKoil’s situation, what is the relationship between factor mobility & exports? Oil production process are capital-intensive and require highly-specialized equipment manned by highly-skilled...
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