BERI

International market entry always warrants a careful assessment of the risk associated with foreign target [Page 137]countries. In evaluating and selecting foreign markets, companies may choose to follow a highly customized country-by-country approach or to work with established country-comparisons. One such established comparison is BERI. BERI, or Business Environment Risk Intelligence, is a company providing ratings, analyses, and forecasts for more than 140 countries. BERI's services are designed to assist executives in risk assessment when making decisions about entering foreign markets or establishing operations abroad. Their most widely known service, Business Risk Service (BRS) is published three times per year. For each country it provides a general outlook outlining opportunities and problems, economic and financial indicators, political information including a future probable scenario, and a composite score, called the Profit Opportunity Recommendation, that consists of the Political Risk Index (PRI), the Operations Risk Index (ORI), and the Remittance and Repatriation Factor (R-Factor).

The PRI provides an assessment of a country's political risk. It is based on the qualitative judgments of 10 political and social factors—six internal causes of political risk (fractionalization of the political spectrum; fractionalization by language, religion, or ethnicity; coercive measures; mentality; social conditions; organization; and strength of forces for a radical government), two external causes of political risk (dependence on a major hostile power; negative influences of regional political forces), and two symptoms of political risk (societal conflict; instability as perceived by nonconstitutional changes, assassinations, and guerrilla wars). Calculated on a scale from 0 to 100 points, countries above 70 points are considered low-risk countries, while countries with a score of less than 40 are considered to be of prohibitive risk.

The ORI is the weighted average of scores on a list of 15 different political, economic, financial, and structural variables. These are policy continuity, attitude toward foreign investors, degree of privatization, monetary inflation, balance of payments, bureaucratic delays, economic growth, currency convertibility, enforceability of contracts, labor cost/productivity, professional services and contractors, communications and transportation, local management and partners, short-term credit, and long-term loans and venture capital. The ORI is provided on a scale from 0 to 100 points with points above 70 indicating stable countries with a favorable business climate and points below 40 indicating nonacceptable countries.

The R-Factor gives an indication of the risk that profits and capital cannot be transferred out of a country or that access to convertible currencies is barred. It is calculated using a vast amount of data, which are categorized into four subindices—Legal Framework, Foreign Exchange Generation, Accumulated International Reserves, and Foreign Debt Assessment. The three indices are then combined into the Profit Opportunity Recommendation (POR). The POR is a measure of general country risk and classifies countries into four categories—fit for foreign direct investment, suitable for medium to long-term contractual relationships, ideal for transaction-by-transaction trade, or not suited for any business activity. It is calculated for the present, for one-year, and for five-year forecasts.

BERI derives its data from two independent expert panels that provide country ratings and qualitative observations. One panel judges political conditions in countries, while the other offers perspectives on the operating environment. The members of each panel are more than 100 senior bank and corporate executives as well as government officials. In addition to BRS, BERI offers other services, including the Financial Ethics Index, the Quality of Workforce Index, Lenders Risk Ratings, and Mineral Extraction Risk Assessment. Founded in 1966 by F. T. Haner, BERI operates globally and is headquartered in the United States.

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