The Peren–Clement index is a method of country-specific risk

analysis Analysis (: analyses) is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (38 ...

for businesses engaged in

international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (See: World economy.) In most countries, such trade represents a significan ...

and

direct investment A foreign direct investment (FDI) is an ownership stake in a company, made by a foreign investor, company, or government from another country. More specifically, it describes a controlling ownership an asset in one country by an entity based i ...

. This instrument provides a guideline when deciding which foreign markets offer the possibility of additional business engagement and investment and the extent of an existing engagement or investment can be increased or should be reduced. The Peren-Clement index can be used as an early detection system, which evaluates probabilities and risks of an

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

in a certain foreign market, which are determined by the political situation, its social, economical and judicial environment as well as its predictable or anticipated future developments of that country.

Users

These kind of analyses are conducted amongst other things by international

rating agencies A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may r ...

, export

credit insurance Credit insurance refers to several kinds of insurance relating to financial credit: *Trade credit insurance, purchased by businesses to insure payment of credit ''extended by'' the business *Payment protection insurance, purchased by consumers to ...

s and international organisations. In many cases the analysed countries are brought into a country rating.

Methods

The aim is the classification of countries in an order of precedence, for example in regard to their attractiveness for a

financial investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

. Because

country risk Country risk refers to the risk of investing or lending in a country, arising from possible changes in the business environment that may adversely affect operating profits or the value of assets in the country. For example, financial factors su ...

s are not an objectively certifiable

commodity In economics, a commodity is an economic goods, good, usually a resource, that specifically has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to w ...

and are not directly observable, stable correlations between observable risk-determining and representative quantities must be searched for. Hereby, one must differentiate between qualitative (political situation) and quantitative (economic results)

risk factor In epidemiology, a risk factor or determinant is a variable associated with an increased risk of disease or infection. Due to a lack of harmonization across disciplines, determinant, in its more widely accepted scientific meaning, is often use ...

s. The country-specific risk analysis also requires a retrospective observation, which attempts to discover the causes of risks and lay open the cause-and-effect relations. Thereafter, the factors which are to be predicted are deduced and indicators for a prognosis are determined, so that the next step leads to a cause-related and future-oriented risk evaluation. The Peren–Clement index is a risk index for the evaluation of country-specific risks concerning

. Besides the Business-Environment Risk Index, it is one of two established indexes for the country-specific risk analysis. When looking at risk-indexes, it is normally the case that company-wide factors initially come to the fore. The Peren–Clement index also starts from this point, but orientates the factors towards a core statement that is relevant in practice. Similarly constructed Indexes (including the BERI Index, see German article) refrain from interrelating their risk analysis with corporate objectives in the course of events. But practical experience shows that the assessment of country-specific risks for direct investment can not be looked at separately from the particular existing motives. Empirical analyses show that especially cost- and production-dependent as well as marketing oriented motives dominate the decision for, or against, direct investments. The type of

and the motives of the particular companies result in different site-related factors and different emphasis on the individual factors respectively. For a cost-oriented foreign investment one would lay a stronger emphasis upon the cost- and production-oriented factors and the choice of location would be made thereafter. In contrast, for

marketing Marketing is the act of acquiring, satisfying and retaining customers. It is one of the primary components of Business administration, business management and commerce. Marketing is usually conducted by the seller, typically a retailer or ma ...

-oriented

s factors such as competitive environment and size of the market will be of higher importance. Peren–Clement’s risk-index is thus coined by three categories of influencing factors: * Company-wide factors * Cost- and production-oriented factors * Marketing-oriented factors The index can be complemented, amongst others, by inclusion of additional motives. For instance companies that aim to secure their

raw material A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials/Intermediate goods that are feedstock for future finished ...

base, will keep an eye on the accessibility of raw material sources. For this the

political stability Political stability is a situation characterized by the preservation of an intact and smoothly functioning government or political system, avoiding significant disruptions or changes over an extended duration. Political stability signifies a state ...

and compliance with stipulations play a role. The total achieved score for the individual country can now be classified in the model. Hereby the respective country-specific risks can be graded into classes and an estimation of risks can be made.

References

External links

Peren-Clement-Index
Gabler Lexikon *Springer Fachmedien Wiesbaden (ed.): 333 Keywords Marktforschung: Grundwissen für Manager, 2013, P. 137.

* Wiesbaden, Springer Fachmedien, ed. Kompakt-Lexikon Marketingpraxis: 2.200 Begriffe nachschlagen, verstehen, anwenden. Springer-Verlag, 2014. {{DEFAULTSORT:Peren-Clement Index Risk analysis methodologies

Users

Methods

References

Further reading

External links