Peren–Clement index

The Peren -Clement- index is a risk indicator for the assessment of country risk to direct investment dar. He is one of two established indices for country risk analysis.

The risk index is determined by the following three factors that are weighted differently:

• Business-to- end factors
• Costs and production- oriented factors and
• Sales-oriented factors.

The enterprise -wide factors include:

• Political and social stability,
• State involvement in company decisions and bureaucratic barriers,
• Economic Policy,
• Investment incentives,
• Enforceability of agreements and
• The preservation of intellectual property rights in technology and know -how transfer.

Among the cost-and production-oriented factors include:

• Legal restrictions on the production,
• Capital costs in the country of location and possibilities of capital imports,
• Availability and cost of acquisition of land and real estate,
• Availability and cost of labor,
• Availability and cost of capital goods, raw materials and supplies in the country of location,
• Barriers to trade in goods import and
• Availability and quality of infrastructure and public services.

The sales-oriented factors include:

• Size and dynamics of the market,
• Competitive situation,
• Reliability, quality of local contractors,
• Quality and opportunities for the sales and
• Trade barriers for exports from the country of location.

Depending on the type of investment or motives of the respective companies, there are other location factors or different weights to the various factors. For the cost-oriented foreign investment, the factors of cost and production- oriented factors will get a higher weight and the siting decisions according to it. In contrast to gain a higher importance for the sales-oriented investments, factors such as competition, size of the market.

Method

First, there is the selected factors in each individual weight, which may be between 1.5 and 3 depending on the importance of the individual factors. See the following example:

In a further step points for the analyzed country are assigned to each factor. The margin ranges from 0 (extremely unfavorable) to 3 ( extremely low ). These are then entered in the above table and multiplied by the respective predetermined weighting. This then results in a total score obtained for the respective country. As the total score can be interpreted as will be explained in the following section.

By multiplying the maximum number of 3 with each selected weights of each factor results in a maximum score. For the example above results in a maximum possible total score of 120 points. In a further step, a classification of the foreign risk. These may be as follows:

The total score obtained for the respective country can now be placed in the model described above. Thus, the country risk into classes to graduate and can be given a risk rating.

Of great benefit is the use of critical variables, the so-called knock-out variables. Become a predetermined key factors defined as knock-out variables and receives a country in points values ​​less than 2, so that direct investment is to be rejected. This is also true for the case that all other factors have received positive values ​​and the total score a good result demonstrates and thus can appear as positive the location.