Small Business Management
31 August, 2011
Chapter 6 Case Study 1. What theories of trade help to explain Russia’s position as an oil exporter? Which ones do not, and why?
In our opinion two theories of trade help to explain Russia’s position, namely theory of absolute advantage and competitive advantage. “A country has a natural advantage in producing a product or service because of climatic conditions, access to certain natural resources, or availability of certain labor forces” (Daniels 221). Russia has became one of the countries with the largest oil reserves in the world, which makes the country to have a natural advantage due this natural resource availability. Furthermore, the diamond of national advantage is other theory that supports Russia’s position as an oil exporter. Given that demand conditions for Russia’s oil are advantageous, “so lucrative is its business in gas and oil that petroleum export taxes have allowed the government to pay off all foreign debt incurred” (Daniels 246), factors conditions are acceptable given that organizations such as LUKOIL are working to improve its technology base (Daniels 248,249). Also, related and supporting industries and firms’ strategy, and structure and rivalry are other facet of the diamond helping Russia to achieve national advantage (Daniels 235, 236). At last, interventionist theories does not help to explain Russia’s position as an oil exporter, because Russia’s economy is based on free trade theories. Neither, product life cycle applies because Russia’s oil does not go over a life cycle. At last, the Theory of Country size does not apply either, because Russia’s economy depends highly on oil exports “If the price per barrel of oil shifts by so much as $1, Russian revenues shift by about $1.4 billion in the same direction” (Daniels