International trade theories
International trade is trade between residents of two countries. Both parties to the transaction, who happen to reside in two different countries, believe they benefit from the voluntary exchange. 11 And the world now is becoming borderless due to the free flow of information12, as one of the biggest energy company in the global; BP has a big effect by international trade theories and its force. As an important of this assignment, we are going to consider two basic international trade theories.
According to the theory of “comparative advantage”13 of David Ricardo, BP has invested to some countries that they really concentrate on the good and service in which it was relatively more productive than other countries. For instances, coal was the fastest- growing fuel in 2002 on the back of a huge 28% reported rise in Chinese consumption14 so that BP has intensified to produce more coal and fuel in China. BP is also a major investor of LNG in Trinidad and Indonesia. In Europe, BP is very keen on the idea of investing in Russia.
They are one of the largest investors in Russia, with a total volume of incoming investment resources of around USD 1 billion. Russia tries to intend to increase petroleum extraction and to widen the area of its development and BP Company has extensive experience in this area. As a big investor in Russia, on February 2003, BP and the Alfa Group and Access-Renova (AAR) have agreed in principle to combine their interests in Russia to create the country’s third biggest oil and gas business, in which they will each have a 50% stake.
The new joint venture is as the transaction as a major strategic step into a country with massive oil and gas reserves and immense potential for future growth. A relative factor endowment is another theory that was developed by Eli Heckscher and Bertil Ohlin. It stated that a country would have a comparative advantage in producing products that intensively use resources it has in abundance. 15 BP Company has used this theory completely in a lot of countries that they invested on it.
For example, Vietnam has a comparative advantage in gas industry and BP has been exploring for gas in Vietnam since 1989. They are also leaders in a project to use offshore supplies of gas to generate affordable electricity as a major contribution to national economic development. Also in China, BP Company has placed big head offices and firms there to make the best of using human power of the country with the biggest population on the world. * PESTEL: 1. Political: An important part of any business decision is assessing the political environment in which a firm operates.
BP is an international company that must be experienced international business engage in political risk assessments. They work within the law in every one of the 100 countries in which the company operate. Like we know, BP is a player major in the US oil and gas industry so that after September 11th 2001 some problems has came to the company like: disrupted production, the security and managerial costs increased rapidly, whilst productivity was lower… Besides that, many company businesses are located where conflict is still active or the locality is suffering the aftermath of war.
Armed conflict, despite the provisions of the international humanitarian law, can often involve lawlessness and threaten the security of the company staff and the communities close to their business location. For instance, BP operations take a place in Casanare that is a difficult environment to work. Illegal armed groups, guerrilla and paramilitary, are present in the region, and in the past these groups have targeted multinational oil companies as military objectives. Angola has only recently emerged from years of civil wars.
With those effects, destruction of property, lost sales, disruption of production, increased security costs, lower productivity would be appeared. 2. Economic: As BP is one of the world’s largest companies, its activities have major economic impacts. They can contain the impact by introducing fiscal and financial management and effective investment of the revenues. For example, in Azerbaijan, the government has established a state oil fund to manage the macro-economic impacts of oil revenues.
In combination with other market reforms, this creates the prospect of its oil and gas revenues being used for the benefit of long-term social and economic development. For a lot of countries, the impact of large oil and gas revenues on their economy can be disruptive. Additionally, they may be unable to sustain sound economic policy to maximize the benefits over the long term. There business and their buying decisions affect not only the companies they deal with but also local economies, and BP is increasingly aware of how important this economic impact can be in developing countries.
Social: In one sense, sociological influence on an organization can come from any internal or external source involving people. BP’s product touches people’s lives in many ways in all over the global. Everyday they contribute to energy demand by providing millions of customers with advanced products intrinsic to the quality of their lives. As well as products, their business activity brings other benefits to society. In 2002, BP joined the Global Business Coalition on HIV/AIDS, an alliance of international companies committed to improving the effectiveness of business’s response to the epidemic.
In South Africa, this approach prohibits discrimination against people living with HIV/AIDS. In Pakistan, over the past year, BP has delivered a step change in driving behaviour that has resulted in 50% fewer vehicle related incidents in Pakistan. Also in some developing countries, BP Company has improved the Environment Educators Initiative and it aims to raise awareness of environmental issues by creating a new curriculum subject in the formal primary and secondary school system. 4. Technological: Technology and business performance are inextricably linked in BP.
Within the technology strategy are a number of core technologies where BP currently holds leadership positions, and others, which are fast up-and-coming. One of the important design in technological is the technical choice. This is BP Petrochemicals’ e-technical service solution that provides product, application and stewardship information on-line. It aims to place high value; web enabled technical support within the company customer offer and commercial processes. Technical choice is also a powerful tool that allows the customer to search for information by product information categories as well as by markets.
Moreover, with technology it is easier to explore or product crude oil and natural gas, refining, supply and transportation. BP also has their own technology and innovation’s magazine. 5. Environmental: Energy plays a critical role in this area. Coal, oil, gas – and the electricity they can generate – are central to the development of poorer countries as well as driving economic growth in the developed world. But they also create emissions, which affect air quality and may create long-term risks to the environment.
BP believes that the scientific evidence for the environmental impact of “greenhouse gases” produced by hydrocarbons cannot be ignored. But this is not the only issue- but also the conservation of fresh water, pollution of land water and air and minimization of waste are others that also need to be addressed. Moreover, health and safety environment are core corporate values in BP Company. Continuous focus on safety across all our operations has delivered a remarkable improvement in performance over the last 15 years.
Eliminating accidents like 53 members of the public were killed incidents involving BP is a priority for the company staff and benefits their business. 6. Legal: BP is an international company so that they face a more complex task that they must obey the laws not only of its home country but also the laws of all the host countries in which they operates. The Government of the host countries would have the power to amend national legal frameworks, thereby controlling some of the key factors that determine business success.
For some of developing countries, the impact of large oil and gas revenues on their economy can potentially be disruptive. They may not have the legal frameworks in place to cope with the impact, additionally they may not be able to sustain sound economic policy to maximise the benefits over the long term. For instance, for many Colombians, access to justice is limited – the formal legal process can be lengthy and cumbersome. BP is supporting efforts to strengthen the rule of law in Casanare through the ‘House of Justice and Peace’ programme, aimed at increasing community access to justice
International Trade Blocks: Besides those factors above, International Trade Blocks also has a big effect on the far environment. One of the largest energy privatization developments in terms of investment capital involves petroleum companies located in the OECD16 countries: British Petroleum, Elf Aquitaine (France), TOTAL (France), ENI (Italy), Petro Canada, Repsol (Spain), and Statoil (Norway). These companies have been among the most active of the world’s petroleum companies in responding to investment opportunities occasioned by privatizations beyond their home base political borders.
Most of these petroleum companies are vertically integrated and most have substantial foreign operations. Among these companies are some of the world’s largest publicly- traded companies and, in several cases, the largest industrial companies in their respective home nations then they try to success somewhere else. These companies are in many ways the most direct competitors of the major U. S. petroleum companies, in part due to the close interconnection of the European and North American petroleum industries. And BP is the largest producer of crude oil in the United States.