International Trade theory in Japans Oil and Gas Industry

Development of the economy requires resources to support various manufacturing sectors in the country. One of most important resource in the manufacturing sector is the oil and gas sector since it provides the energy required in the running and development of an economy. To achieve such precious resources, the Japanese government decided to engage in international trade agreements by signing various agreements with international organizations (Duffield & Woodall, 2011). The paper will provide a critique of international trade theory, and describe how Japan utilized various factors and strategies to ensure the success of oil and gas industries in the country. It will also describe how the sector has successively applied Porter’s diamond theory to ensure the success of the sector and to gain international competitive advantages over other countries in the world.

Following the crisis and high demand for oil and gas products, the government supported the industries which led to increase in the number of oil companies in the country. The country used the oil companies and other trading companies in gaining a competitive advantage over other companies in other countries. The companies purchased the products in the world market as well as engaging in agreements with oil-rich countries to extract their oil (Duffield & Woodall, 2011). Such approach led to the growth and development of various industries leading to the growth of Japan economy. Entry of different oil companies in Japan also increased the country’s competitive advantage in the global market since it led to rivalry within the companies and competition which led to generation and provision of quality products in the market.

The development of many oil companies in Japan can be attributed to government policies which supported the industry (Duffield & Woodall, 2011). Such a fact discredits free trade concept of market mechanism which asserts that the government policies does not play a significant role in determining the imports and exports of a country. It is only through the policies that the companies in a country can be prevented from exports that may disadvantage the country and ensure the security of important products which drives the growth of an economy. Contrary to mechanism model of free trade theory, it is the government which supports or hinders exports in a country depending on the demand and circumstances in the country. To improve oil and gas reserves in the country, the government decided to offer financial support to other countries which had a rich supply of oil and gas products.

The industries require skilled personnel and raw materials to grow and develop. The country engaged in promoting refining and material producing industries such as petrochemical, oil, steel, and aluminum sectors. The country also needed to develop advanced technological industries such as ships, cars, and electronics. The industries were highlighted as the most significant industries in the growth of Japan economy (Spencer, Murtha & Lenway, 2012). Oil, coal, and gas industries are very important resources in providing energy to other industries in the society. The firms needed certainty in the energy sector to ensure the smooth running of their services which made them initiate strategies aimed at helping the growth of energy firms. The support from the firms and the government help in discrediting Krugman’s theory.

The government initiated diplomatic talks with oil-rich countries and initiated various agreements aimed at benefitting the growth of the oil and gas industry (Smit, 2010). The aggressiveness and government policies helped Japan in a force to reckon with in the oil and gas industry. The country was able to compete favorably with other western nations such as the U. The main disadvantage of the deal was the possible hike in oil prices for the Japan government as the producer countries were not required to sell at the world market prices. However, the risk was worth due to increase in demand for the products in Japan. The country also gained a competitive advantage over western countries as the trading companies preferred to sell their products to Japan since the products could fetch higher prices.