Saturday, January 29, 2011

PPP process just like BOT: official

By Mia A. Aznar

Monday, January 24, 2011

THOSE interested in going into the government’s public-private partnership (PPP) will find that the processes are still very similar to the build-operate-transfer (BOT).

Although the official guidelines are yet to be released by the National Economic Development Authority (Neda) central office, Neda 7 project investment budgeting division head Boy Tagalog said those familiar with the BOT process will find that the PPP has the same principles.

“The principle is that there will be no cash outlay on the part of the government and that the private sector is allowed to charge a fee to pay for their investment,” he

The difference, he said, is a more rigid evaluation of the kind of projects that are proposed for PPP.

He said the feasibility study of a project that is proposed under PPP undergoes economic, financial and technical feasibility evaluations. Tagalog added that they will also determine if fees the private entity wants to collect from the public to pay off the investment is reasonable within a prescribed period.

For now, Tagalog said that as far as Central Visayas is concerned, no government agency has announced solicitations for a PPP project and they have not received any proposals from private entities wanting to fund a project through PPP for this year.

Like with the BOT, Tagalog said any private entity that wants to fund a project through PPP will make their proposal to a government agency or local government unit, depending on the kind of project they would want to undertake.

He believes that by next year, such undertakings could take place.

President Benigno Aquino III recently renamed the BOC Center to the PPP Center and transferred it from an attached agency of the Department of Trade and Industry to the Neda.

In his executive order signed in September, Aquino said processing for solicited PPP proposals should be completed within six months.

Published in the Sun.Star Cebu newspaper on January 25, 2011.

Saturday, January 22, 2011

Relocation company opens in Cebu

By Katlene O. Cacho

AN INTERNATIONAL relocation services company has expanded its operations to Cebu to facilitate the settlement of domestic and international clients who wish to relocate in Visayas and Mindanao.

Santa Fe managing director for the Philippines Vedit Kurangil said on Friday said the company’s expansion to Cebu is a good move because of the province’s improved economy.

“Cebu is one of the important cities in the country with the largest commercial operations next to Manila. There are a lot of investors coming to Cebu and we wish toprovide settlement and mobility services to this growing market,” Kurangil said.

Santa Fe is the logistic and mobility arm of East Asiatic Company Ltd. (EAC). It provides individual and corporate clients services such as visa and immigration requirements assistance, cultural training, school search, tenancy management, financial management and moving.

The company was established in 1988 in Hong Kong. It currently operates through offices in 13 countries across Asia like China, India, Indonesia, Japan, Macau, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

Its Cebu facility is located on Plaridel St. Alang-Alang, Mandaue City. It started commercial operations last September.

Kurangil said the company hopes to make the Cebu facility the main hub serving the Visayas and Mindanao areas. The company hopes to attract the call center market as well as expats who already consider the VisMin area as their choice area for business or retirement.

Aside from the company’s assistance on relocation services, Santa Fe also provides records management services across Asia and general cargo and logistics services in China and Hong Kong.

Published in the Sun.Star Cebu newspaper on January 17, 2011.

Plan BPO growth by city, not by country, says official

By Mia A. Aznar

RATHER than plan the business process outsourcing sector’s growth by country, a “city-centric” focus is more ideal, a leader in the industry said.

Jonathan Defensor de Luzuriaga, executive vice president of CIBI Information Inc. and former executive director for industry affairs of the Business Processing Association of the Philippines, said that in choosing an area to outsource their services to, multi-national companies no longer compare by country, but by city.

In comparing cities, he said there are more efficient means to highlight local value propositions. He added that it is also more responsive in decision and implementation capabilities and that there is a greater ability to distance a city from the general image of its country.

De Luzuriaga pointed out that Cebu does not have problems projecting itself as a safe city because it is far from Mindanao and has, so far, not had any serious security issues, unlike some cities in Mindanao.

De Luzuriaga said that Cebu should be less dependent on national marketing because a city-centric approach has more focused marketing and promotion efforts.

This way, cities will also be known for specific services that they provide.

He explained that one-stop shops for outsourcing are no longer the norm in the industry.

In his presentation during a recent forum, de Luzuriaga said that though the demand for BPO is global in nature, clients have consistently required localized and focused development and assessment strategies.

He noted that clients of CIBI, which is a provider of business and personal information, require very specific data from their advisory and location service assessment services.

“Broad, country-level overviews are becoming less relevant in a more focused and competitive landscape,” he said.

For Cebu, he said BPO companies here can compete with Colombo, Sri Lanka in offering knowledge process outsourcing (KPO) services.

Quoting the Business Monitor International Philippines Information Technology Report for the last quarter of 2010, de Luzuriaga said Cebu is estimated to contribute to six percent of the country’s BPO revenue.

The report also said that about 14 percent of BPO employees are employed in Cebu.

Published in the Sun.Star Cebu newspaper on January 18, 2011.

Bickering ‘blocking Cebu’s progress’

By Mia A. Aznar

POOR political climate, poor infrastructure and no planning are some of the challenges facing Cebu’s development, a business leader said.
Gordon Alan “Dondi” Joseph, president of the Cebu Business Club, said the number and values of investments in Cebu are going down.

Joseph, who spoke on business and governance before members of the Rotary Club of Cebu West (RCCW) Tuesday evening, said it was time politicians ceased their squabbling and start planning for Cebu’s future.

“Political bickering has to stop. It’s blocking progress,” he said.

For Cebu to be competitive, Joseph said Cebu needs strategic planning and good governance, just as good businesses need planning and management.

Showing figures on Cebu’s investments for three years, Joseph showed that from 2007 to 2009, investments in Cebu (both foreign and local) dropped from P14.8 billion in 2009 and P22.4 billion in 2008 to just P1.4 billion in 2009.

Quoting a Global Urban Competitiveness Report, Joseph also told members of the RCCW that Cebu is ranked in the bottom—475 out of 500 cities in the world.

The 2009-2010 report was prepared by experts and scholars around the world. The report showed that Cebu dropped 10 places from the previous report in 2007-2008.

He also showed a report from the World Bank stating 20 percent of the country’s national budget goes to corruption.

Joseph added that doing business in Cebu is difficult.

Other factors that he feels affect Cebu’s development are the quality of education, land use and transportation, water supply, power supply, competition with emerging economic centers and the decreasing quality of life perception.

He particularly lamented that no one has yet been able to address the water supply problem.
“And we’ve known about it since the 1960s,” he added.

He also hopes education and job creation will be given more attention, saying getting jobs for the unemployed is the quickest way out of poverty.

Joseph said such problems have led a group of business leaders to form the Cebu Leads Foundation Inc., which he described as business and civic society’s response to the current problems Cebu is facing.

He said the foundation will build a consensus for a constructive, developmental vision for Cebu.
Its first undertaking is helping to solve the worsening traffic in Metro Cebu, as it organized the first Metro Cebu traffic summit.

Published in the Sun.Star Cebu newspaper on January 20, 2011.

‘Mid-sized firms should leverage enterprise tech’

RAYMOND Goh, the author, is Symantec’s regional technical director for systems engineering and customer advisory services, Asia south region. He has more than 18 years experience in the IT industry and is responsible for strategic engagements with organizations in the region on their security, storage and systems management requirements.

LARGE enterprises are not the only ones looking into advanced technologies. Mid-sized businesses are increasingly looking into leveraging enterprise technologies that help them meet the challenges of managing their information daily. As their business grows, midsized businesses will have a jump start on their enterprise IT plan by considering these solutions early.

Today, tools like deduplication, archiving and virtualization are being packaged in ways that put them within reach of midsized business. The following are some key technologies that midsized companies could consider to increase efficiency, save money and maximize IT resources.


Deduplication is one of the most effective technologies mid-sized businesses can deploy to address both rapid data growth and tight budgets. By eliminating redundant data across multiple backups or systems to reduce the amount of data stored,deduplication can reduce the amount of backup data stored by up to 90 percent or more.

As a result, businesses can dramatically reduce backup storage costs by consolidating and reusing existing storage resources.


Many IT administrators in mid-sized organizations would agree that keeping old, infrequently accessed and redundant data on expensive servers is a waste of space. It is also a costly and time-consuming challenge to manage, maintain and back up the data. Symantec has found that it is 1,500 times more expensive to review an expired document than to store it. Businesses that are reviewing expired documents are wasting precious hours they could have saved – if only they had a proper archiving system in place. Archiving takes infrequently used information off of primary storage, indexes it and moves it into less expensive disks for longer-term retention.

Endpoint Virtualization

Today, many mid-sized businesses are finding that important information is scattered across their desktops, laptops, PDAs, and servers. Endpoint virtualization can separate information that matters from the rest of the IT environment, so that it can be better protected, managed and secured.

As the use of mobile devices has been increasingly popular in midsized businesses, it is more important than ever to protect and manage endpoints, whether physical, virtual or hybrid. The point of virtualization is to make the end user more productive and secure, regardless of what device they are using.

Looking Ahead

With the rising IT storage costs, delivering an effective strategy to organizations looking to address the challenges of managing their information is critical for businesses today. Midsized businesses should not be afraid to look at advanced technologies in their IT planning that will enable them to manage their information more effectively.

Published in the Sun.Star Cebu newspaper on January 21, 2011.

Gawad Kalinga breaks ground for socialized housing in old Lorega cemetery

SIX more medium-rise buildings will soon be constructed on top of the Lorega-San Miguel Cemetery, an official said.

Councilor Alvin Dizon said the cemetery will house a total of seven buildings in order to accommodate all the families currently living inside the facility.

Dizon, however, said the additional buildings will be constructed depending on the availability of funds.

Gawad Kalinga broke ground on the first of the seven buildings yesterday, along with representatives from the City Government, Rep. Rachel del Mar (Cebu City, north district) Department of Social Welfare and Development (DSWD), and Action for Nurturing Children and Environment (ANCE).

“I hope you will take care of these houses. Take good care of what we worked hard to give to you,” del Mar said.

She represented her father, former congressman Raul del Mar, who gave P10 million from his Priority Development Assistance Fund (PDAF) for the P13-million socialized housing project.
The remaining P3 million will be shouldered by the City and several non-government organizations.

The construction of the first building, which will accommodate 60 families, will start in February and will be completed after six months.

“And we hope that before we finish the building, we shall have rounded up additional funds for the next building,” said Jerome Awit of Gawad Kalinga. GK is theimplementing agency of the socialized housing project at Lorega cemetery.

But while the development of the housing project is underway, the Kamansi Lawis San Roque Phantom Association (Kalasapa) from Lorega wrote the City Council to express their sentiments.
In their letter, the group asked the City to conduct a case study to assess theeffectivity of the project, give the building and lot for free and to ask the beneficiaries to pay only building maintenance fees and issue a certificate of occupancy.

They also want to allow burial in areas within the cemetery that will not be affected by the project.

But Dizon, in his report for the committee on housing, said the assessment of the project can only be done once the building is constructed.

Dizon also said the rental housing scheme cannot be waived.

“The rental housing scheme pertains to the use of the land owned by the City where the building is located,” he said.

The councilor assured though that rent will be affordable.

Dizon reiterated that burials are now prohibited since these will violate the Sanitation Code and pose a threat to public health.

Dizon said that Kalasapa organization and its members are not directly affected by the project.
Published in the Sun.Star Cebu newspaper on January 23, 2011.

Saturday, January 15, 2011

House bent on cutting VAT by half

By Jess Diaz (The Philippine Star)
Updated January 16, 2011 12:00 AM

MANILA, Philippines – The House of Representatives is bent on reducing the 12-percent value added tax (VAT) to six percent.

Batangas Rep. Hermilando Mandanas, ways and means committee chairman, said yesterday his committee would submit its report on the reduction when Congress resumes session next week.
He said he is asking President Aquino to certify his bill on the 50-percent VAT cut as urgent and to include it in the list of priority measures he plans to present to leaders of Congress.

He said his proposal would “lower direct VAT payments of consumers, eliminate the corruption-laden input tax credit deductions and increase by P50 billion the government’s VAT collections.”
He added that by considering his VAT reduction bill, the House is not going against the President’s appeal for lawmakers to desist from imposing new taxes.

Mandanas pointed out that VAT is not a new tax and that his proposal, which his committee has endorsed, in fact calls for reducing and not increasing the levy.

Under the Mandanas bill, the VAT would be reduced to six percent but would be applied on all manufacturers, producers, wholesalers, traders, and retailers of products and services, as well as on end-users.

He lamented that under the present system, the 12-percent value added levy is shouldered only by end-users or buyers of products and services.

Businessmen and other merchants involved in the production, distribution and sale of products and services do not pay VAT as the law entitles them to what Mandanas calls “input tax credit deductions.”

For instance, Mandanas said owners of malls and supermarkets can claim part of their infrastructure, security and electricity costs as deductions.

Because of these deductibles, the government, in many cases, ends up having a financial obligation with mall and supermarket owners and other businessmen, instead of it receiving VAT payments from these merchants, he said.

For his part, Quezon Rep. Danilo Suarez said he would continue to push for the restructuring of excise taxes on cigarettes and liquor, or the so-called “sin” products.

He said tax rates on these products have been fixed in 2004 yet, and the small adjustment the law allows is not even enough for inflation.

His proposal calls for reducing the tax brackets for cigarettes from four to two, and at the same time increasing the rates.

The Mandanas committee is still considering the Suarez proposal and similar measures introduced by several House members, including Representatives Henedina Abad of Batanes and Niel Tupas Jr. of Iloilo.

Mandanas, Abad and Tupas are party mates of the President in the Liberal Party and are part of the majority coalition in the House, while Suarez belongs to the minority.

Suarez lamented that administration allies are sitting on tax proposals despite the fact that the government badly needs additional revenues.

Capitol sets Suroy-Suroy Sugbo in Cebu’s North

By Rizel S. Adlawan
Sunday, January 16, 2011

TOURISTS and balik-bayans will have the chance to enjoy Cebu more as the Provincial Capitol scheduled the Suroy-Suroy Sugbo in the north on Jan. 19 to 21.
Gov. Gwendolyn Garcia said they have arranged for day tours in Bantayan Island in order to accommodate those who are waitlisted.

They have allotted 160 slots for the three-day Suroy-Suroy, but it was stretched to 207.

The governor considered it “phenomenal” because 130 slots were immediately taken when their booth first opened at SM City Cebu.

She said most of the resorts in Bantayan were already fully-booked so they have re-packaged the tour. Some can’t stay overnight in the island and may stay in the mainland after a day tour.

“We have to stretch the Bantayan accommodation because some are by threes and by foursalready. At present, it has been stretched to 207 slots, all fully-paid,” she said.
She said senior citizens will be joining and a big group from Las Vegas.

The first stop will be in the town of Consolacion, and the tour will end in Liloan town.

Published in the Sun.Star Cebu newspaper on January 16, 2011.

Mayor creates unit to handle free patents

By Jujemay G. Awit
Sunday, January 16, 2011

CEBU City Mayor Michael Rama issued an executive order for the creation of a Land Management Office and Land Management Council to implement the provisions under Republic Act (RA) 10023 or the Act Authorizing the Issuance of Free Patents to Residential Lands.

Rama issued the order immediately after he, along with Vice Mayor Joy Augustus Young and the other officials of the Cebu City Government, attended an orientation on RA 10023 held at the Radisson Blue Hotel last Friday.

Former president Gloria Macapagal-Arroyo signed the law last year, which allows informal settlers that have made a home in a particular land for 10 straight years to apply for a free patent to title the lot.

Free patent used to cover 30 years.

A patent can only be applied if the lot has been zoned as a residential area.

The half-day seminar was organized by the Foundation for Economic Freedom (FEF), theUnited States Agency for International Development and The Asia Foundation.

Target site

The FEF considered around 250 parcels of lots in Villagonzalo I in Barangay Tejero, Cebu City as a target site for residential free patent titling.

Rama said most informal settlers believe that the land they have been living on is theirs because they have been there for a long time.

Rama,though,lamented that Cebu City, unlike other highly urbanized cities, does not have a lot of land it can call its own.

“But the South Road Properties (SRP) is an area that no one can claim, that land is ours,” said Rama.

Department of Interior and Local Government’s (DILG) Angel Ojastro said the problem of informal settlers has not had a solution for almost three decades.

The root cause is the absence of security of land tenure.

DILG Secretary Jesse Robredo, in a speech that Ojastro read, said there should be no dole-outs to informal settlers.

According to the law, for a highly urbanized city like Cebu City, application for residential free patent should not be for more than 200 square meters of land.

In a presentation, FEF’s Engr. Rhea Lyn Dealca noted the importance of a land office that will gather information about the use, ownership and other characteristics of land within the borders of the local government unit.

After the orientation, Rama signed and issued the executive order.

“The City Government, in order to perform its mandate to promote economic growth, provide social welfare to its constituents and pursue sustainable development, needs to improve the way it manages its land,” the executive order read.

Published in the Sun.Star Cebu newspaper on January 16, 2011.

Daluz proposes to exempt them from paying taxes

A CEBU City councilor wants to implement a five-year exemption on business taxes for businessmen who plan to put up theme parks, adventure parks and similar entities in the city.
At the same time, the local legislator is also proposing a 25 percent reduction in the amusement tax rate of the said facilities.

Councilor Jose Daluz III, who chairs the council’s committee on budget and finance, said his proposal was meant to encourage business owners to venture into parks.

“This will serve as an incentive to a businessman who wants to venture into such kind of businesses,” he said.

Daluz, in an interview, believes that adventure parks that offer among others ziplines, theme parks and zoos should be supported.

“Aron daghan sad investor ganahan mo-invest diri sa atong syudad (So that investors will be enticed to invest in our city). We have the mountain barangays that can be used as location for this kind of establishments,” he added.

Mayor Michael Rama , in a separte interview, supports Daluz’s proposals, saying it will give joy to the children.

He, however, said the reduction of amusement tax should be 20 percent.
In the current set-up, the City collects 30 percent tax on the gross receipts of places of amusement.

Daluz said he already brought up his plan to City Treasurer Ofelia Oliva, who he said has expressed no opposition.

Daluz said he also asked Oliva if the reduction of taxes won’t affect the P6-billion target collection of the City Government for this year.

“And she said mabawi ra daw (it can be recovered) because these establishments are magnets of tourists, profit-generating,” he said.

Sun.Star Cebu tried to call Oliva, but calls were left unanswered.

Daluz said he will be filing two ordinances that will cover his two proposals before the City Council.

Published in the Sun.Star Cebu newspaper on January 16, 2011.

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Thursday, January 13, 2011

Cebu mayor: City to be disaster-ready

CEBU CITY -- Cebu Governor Gwendolyn Garcia and Cebu City Mayor Michael Rama vowed to support the campaign to reduce disaster risk in the region during its launching at Capitol on Thursday.

The United Nations International Strategy for Disaster Reduction (UNISDR) also honored San Francisco Vice Mayor Alfredo Arquillano Jr. for his advocacy on disaster preparedness.

He was named Campaign Champion in the Asia Pacific region.

In a press conference, Garcia also announced that over 17,000 new tanods in the province, who will undergo training for six to eight months, will be equipped to respond to calamities.

Apart from Garcia and Rama, mayors and vice mayors of different towns in the province signed up for the campaign, which is led by the UNISDR.

Senator Loren Legarda, who attended the launching, said the region is prone to landslides and flooding, and Cebu is vulnerable to temperature changes and droughts.

“Urban governance is very important,” she said.

The country must adopt pre-emptive risk reduction measures because response mechanisms are never enough, said Michael Diamond, country director of the Plan International, a humanitarian group that works in 66 countries.

He noted that the Philippines lags behind Japan in disaster risk reduction, although the latter has more people exposed to natural hazards.

“Should a cyclone of the same magnitude strike both countries, the death toll in the Philippines would be 17 times higher than in Japan,” he said.

By joining the campaign, local officials should implement the 10 essentials for making cities resilient.

These essentials include building local alliances, funding disaster risk reduction programs, maintaining data on hazards and vulnerabilities, investing in infrastructure that reduce risk and installing early warning systems.

“Cebu City is one with all when it comes to disaster risk reduction,” Rama said.

Jerry Velasquez, a representative from the UNISDR, said Cebu Province has made a record for having the most number of mayors to sign up for the campaign in one event.

In an increasingly urbanized world, the poor are the most vulnerable sector in the face of disasters, he said, adding that “reducing disaster risk is everyone’s business.”

Arquillano vowed to continue his advocacy for disaster preparedness and urged towns and cities to become resilient to disasters.

“We must act now, boldly and urgently,” he said.

Dumanjug Mayor Nelson Garcia, the president of the League of Municipalities in the Philippines Cebu chapter, said towns and cities, instead of finger-pointing, must start implementing preventive measures against calamities.

“We can save lives and billions of properties if we’re prepared,” he said.

The launching was also attended by government agencies and civil society groups.

Legarda said disaster risk reduction and climate change adaptation must be included in national and local development planning.

She also urged government agencies to build infrastructure that are safe amid natural hazards.
Disaster risk in urban areas, according to the UNISDR, is driven by rising populations, weak urban governance and unplanned urban development.

Meanwhile, the Office of Civil Defense Executive Officer Ronald Flores on Thursday reminded the local chief executives that calamity funds can only be used for risk reduction projects.

Using the funds other than for its specified purpose will put them at risk of being criminally and administratively charged for violating Republic Act 10121.

Interviewed during the launching of the Disaster Risk Reduction Campaign, Flores said that previous local officials would declare unused calamity funds as savings and would convert these into general funds.

They would allocate the funds for bonus and other benefits of the LGU.

“Under the law, that practice is illegal. Unused calamity funds must be placed under the special trust fund and shall stay at the municipal, city or provincial coffer for five years. This trust fund can only be used for projects that can reduce vulnerability of the people in the community to disasters and calamities,” Flores said. (RSB/EOB/Sun.Star Cebu)

Published in the Sun.Star Cebu newspaper on January 14, 2011.

Next phase of Ayala plan set to start in 1st quarter

By Mia A. Aznar

ANOTHER phase of the Ayala Center Cebu will begin construction by the first quarter of the year, an official of Cebu Holdings Inc. has confirmed.

CHI President Francis Monera said they are finishing the new passenger terminal, which is facing the Archbishop Reyes Ave., and will start the construction of the mall’s phase 2B. The existing terminal is beside the south surface parking lot of the mall, which will also be where phase 2B will be located.

He said that once the new terminal is finished and being used, construction will begin for phase 2B.

Luxury brands

Monera said this phase will have “the best Ayala Mall can offer” and will feature stores of luxury brands. He did not name what brands are expected to open, saying the commitment from these stores will come once their final plans are presented.

He said, however, that the design for this phase has provisions for the expansion of Rustan’s and for an IT zone.

The construction of the phase is estimated at P2.8 billion and will take up a leasable area of 36,000 square meters. This area, he said, is about 1/3 of the existing mall, which is 96,000 square meters.

The expansion will make the mall conform to its original master plan.

Although The Terraces was not part of the original plan, Monera said the design for phase 2B allows it to be “seamlessly connected” to the mall.

He assured that there is a big improvement in terms of design and circulation.

It is expected to be completed in 2013.

Published in the Sun.Star Cebu newspaper on January 11, 2011.

Developer signs deal to take over project in Bohol

JC ARMAMENTO Development Inc. (JCAD Inc.), a Cebu-based developer, signed a multi-million peso deal for the takeover of the Bethany Village Project in Bohol late last year.

The project will be renamed into Bethlehem Garden Homes, a Caribbean-inspired community of 309 houses of four different models, duplexes and two-storey single attached and singe detached houses.

Among the community’s features are a crafted and elegant gate with 24-hour security guard house, eight to 12-meter wide concrete road network, cemented curbs and gutters , ample water and power supply, underground drainage, ready cable and telephone lines, Wi-Fi zone, garden playground, basketball court and a multi-purpose hall for the homeowners.

Restituto Tan, the former owner and developer, signed the takeover deal of the project with JCAD Inc.

Considering that the project is the first and only approved complex subdivision in Bohol, the new developer is very optimistic that it will sell well and address the housing backlog of Tagbilaran City.

JCAD Inc. chief executive officer and president Arniel Joshua Armamento is a former disc jockey before working in Dubai, where he managed to build business capital and own several business there, including The Filipino Expats Magazine and Expat Entertainment.

He established JCAD with business partners, convinced of the opportunity in the real estate sector.

JCAD, which is located on North Road, Mandaue City, partners with Majestic LLC Group of Dubai , which is in the hospitality and finance business and headed by managing partner Omar Al Mazrooqi.

“JCAD Inc. is not only developing a subdivision, JCAD. Inc is building a community designed to meet international standards of urban living,” the company said in a press statement. (PR)

Published in the Sun.Star Cebu newspaper on January 14, 2011.

Philippines ‘needs to transition’ to knowledge process outsourcing

By Mia A. Aznar
Thursday, January 13, 2011

AFTER making its mark in the contact center segment, the Philippines has to transition to knowledge process outsourcing (KPO) if it wants to continue expanding its reach in business process outsourcing.

Jonathan Defensor de Luzuriaga, executive vice president of CIBI Information Center, said that while contact centers pay $8 to $12 an hour, KPO and information technology outsourcing pay $15 to $24 an hour.

KPO, de Luzuriaga explained, is a segment of outsourcing “with more intellectual requirements.”

Aside from the usual BPO tasks, those working in KPO have to bring in their own talents.
De Luzuriaga, in an economic briefing sponsored by Apple One Properties, added that those who are already employed by the BPO industry can easily build their careers by moving up to KPO.

He added that KPO is not as “manpower intensive” as BPO.

To maximize KPO, de Luzuriaga said that the country, including Cebu, should not lose focus on communication skills. He said this skill is very important, regardless of what outsourcing segment an employee is in.

The specialized niches in KPO he identified are in health care, engineering, legal and financial and accounting.

“It is not difficult for Cebu to have a good chance of getting all of this. There is a level of KPO work happening here,” he said.

He told reporters yesterday that some big companies already do research and test seatbelts and car consoles in Cebu.

“Things being done in Cebu are affecting the globe in one way or another,” he said, although he did not name which companies were already doing this.

“We are beginning to discover that we are more than just voice now,” he added.

While he believes Cebu can be a good place to start with finance and accounting, he named Davao and Cagayan de Oro cities as its competitors in offering KPO services.

For Cebu, he noted that healthcare education is strong in and that there is apotential in offering health care information management.

De Luzuriaga clarified that medical transcription was not out, saying it is more of a low-end type of BPO.

But after US President Barack Obama announced the need to digitize all their health records, de Luzuriaga believes there is an opportunity in health care information management here.

The important thing, he said, is for a city to come up with its niche and to focus on it rather than try to offer all types of service at the same time.

“We can’t be anything and everything to everyone. There’s nothing wrong with being good at one thing,” de Luzuriaga said.

The challenge is coming up with enough talented graduates who can do what companies offering KPO require of them.

Published in the Sun.Star Cebu newspaper on January 14, 2011.

Wednesday, January 12, 2011

The Truth About Real Estate Prices

by Lisa Smith

The layman’s theory of real estate goes something like this: The Pilgrims arrived. They started using land. More Europeans came. The demand for land was so high that Native Americans were pushed out to make room for the newly arriving settlers. More land can't be built, so demand and prices will always rise, making real estate a great investment. Unfortunately, the formula isn't quite that simple. Here we take a look at real estate prices, and the long-held theory that they will rise indefinitely.

TUTORIAL: Exploring Real Estate Investments

Historical Real Estate Prices, Bubbles and BeyondPrior to the well-publicized burst of the housing bubble and the resulting real estate crash that began in earnest in 2007, historical housing price data from the National Association of Realtors (NAR) seemed to support the theory of endlessly rising prices. The chart below tracks median home prices from 1968 to 2004 and shows an average yearly increase of 6.4%, without a single decline during the 36-year period.

Figure 1: Medium home prices from 1968 to 2004

Source: National Association of Realtors

What the Data Doesn’t ShowUnfortunately for homeowners, 2004 was the last year of healthy growth numbers before the market flattened. By 2006, NAR data showed just a 1% increase.

After that, the markets experienced an unprecedented decline. Nationally, prices fell in 2007. They fell again in 2008 and yet again in 2009. By mid-2010, housing prices had fallen back to 2004 levels in a stagnant market. What had for decades seemed like a one-way ticket to growing profits had fallen by more than 30% in just a few years, according to Standard and Poor’s data.

(Why Housing Market Bubbles Pop provides additional insight into declining real estate prices.)
Even before the numbers began to go the wrong way, the sales price trends data provided an incomplete picture. The National Association of Home Builders reports that the average home size in America was 983 square feet in 1950, 1,500 square feet in 1970, and 2,349 square feet in 2004. This trend continued in the first half of the 2000s, after which it began to decline somewhat. (For more information on home sizes, take a look at McMansion: A Closer Look At The Big House Trend.)

With the size of homes getting bigger and inflation adding to the cost of building materials, it is only logical that home prices would rise. But what happens if inflation is factored out of the picture? The result is something completely unexpected. Even before the real estate crash of the late 2000s, home prices fell frequently and significantly. (When the housing market is down, selling your home becomes a daunting task. Learn the top recession home-selling tips in Closing A Real Estate Deal In A Down Market.)

In Fact, World War I, the Great Depression, World War II, the 1970s and the 1980s, all saw periods of significant price decline. Lesser declines have occurred on a regular basis at other points as well. (To see a great illustration of this, check out this graph produced by the New York Times in 2006.)

National Numbers, Regional Trends and Your NeighborhoodEven the national trend numbers tell only part of the picture. Housing price trends can vary widely from geographic region to geographic region. A boom in California can mask a bust in Detroit. Even within the same city, numbers can vary widely. Areas that are experiencing new growth or gentrification can show significant price appreciation while areas across town can be in decline.

When looking at the national and regional statistics, be sure to account for the reality of the market in your local area. Rising prices at the national level may not help you if your city, state or neighborhood is in decline.

RealityAnother important point to consider when looking at real estate as an investment is that your “investment” won’t ever pay off unless you sell it. So even if your primary residence has doubled in value since you bought it, from a practical standpoint, it probably just means that your real estate taxes have gone up. All of the gain that you have experienced is merely a gain on paper until you sell the property.

If you chose to sell and hope to purchase another home in the same area, remember that the prices of other homes have risen too. To truly book a gain from your sale, you will likely need to move to smaller home in the same area or move out of the area and find a less expensive place to live.

While it is possible to tap the equity in your home by taking out a loan against it, using your house as an ATM has proved to be a foolish strategy in the past. Not only does the interest you pay eat into your profit, but the loan payment takes away from your financial stability. If real estate prices decline, you could find yourself in the unenviable position of owing more on the loan than the house is worth. (For more insight, see Home Equity Loans: The Costs.)

So, Is Real Estate a Bad Investment?By now you may be thinking that there is no value in purchasing a home in the hope that it will gain in value over time. While it is true that you are unlikely to see any profits that you can spend if you plan to live in the same house all of your life, if you go into the purchase with an exit strategy, there is a much better chance of seeing a cash profit.

First, consider the reason you’re a buying a home. If the answer is “to live in it” then you should stop thinking about profits and losses. If the answer is “to make money” then you need to enter the transaction with an exit strategy. Keeping in mind the purchase price of the property, you should have a sell price in mind. When your price point is reached, you would sell the property just as you would a stock that has appreciated. This may not be a practical approach for your primary residence, depending on your lifestyle, but it is exactly what many real estate investors do when they purchase properties, renovate them and sell them. Just remember that prices don’t always move up. In 2010, some parts of the market were down 40% from their peaks.

In the past, Japan has seen housing prices fall even more. That doesn't mean that those prices won't bounce back into profitable territory, but keep in mind that in some cases it could take a very long time.The Bottom LineWith history as a guide, most would-be homeowners would do well to buy a place they actually hope to inhabit, pay off the mortgage quickly, live there until retirement, and then downsize and move to a less expensive home. It’s not a sure bet, but this strategy does increase the likelihood of making a profit.

by Lisa Smith

Becoming A Landlord: More Trouble Than It's Worth?

by Lisa Smith

Real estate! It's the way to make money … or so some people claim. On the surface, it seems likes like a surefire bet; in reality, it's usually more headache than it's worth. The challenges start early, and they almost always involve time and money. Let's take a look at six of the big ones. (For a background reading, check out Investing In Real Estate.)

Challenge 1: Finding a PropertyEntire books have been written about finding a good rental property. So much text has been dedicated to the topic because of its critical importance. Buy the wrong property and you'll never make money. Keep in mind that buying a fixer upper requires that you have the skills, time, tools and cash to make the necessary repairs. If you're in no hurry, this may be a way to get a bargain on your investment. If you already have a full-time job and a family, time is money, and every minute spent repairing the rental is a minute not spent on a more profitable or enjoyable activity. (To find out what factors you should weigh when searching for income-producing real estate, read Top 10 Features Of A Profitable Rental Property.)

Challenge 2: Preparing the UnitGetting the unit into rental condition often requires, at a bare minimum, carpet and paint. Both items require time and money. Window screens, deck stain and lawn maintenance are other common needs. Every time a tenant departs, these issues need to be revisited, after all, fresh paint and new carpet go a long way toward making a rental property look great.

Challenge 3: Finding TenantsThe internet provides a fast and inexpensive way to find prospective tenants. Of course, you often get what you pay for. Running an ad in a reputable publication often generates a better class of respondents. Instead of college kids looking to save a buck, you increase your odds of getting families and responsible older adults. Running an ad for a month will take a small bite out of your wallet. Properly screening your tenants by running a credit check and background check will take another bite. The investment is well worth the time and money, as proper screening increases your odds of getting responsible tenants. Responsible tenants pay their bills on time, take care of your property and don't require you to engage in the costly and time-consuming eviction process. (For more, see Tips For The Prospective Landlord.)

Challenge 4: HasslesEven great tenants and perfect rental properties come with a host of hassles. Broken pipes, stuffed drains, broken garage door springs, pets and roommates are just a few of the challenges that arise. Even good tenants want your full attention when sewage is backing up into their home or the cable company accidentally cuts the telephone lines.Bad tenants are an even bigger challenge. Daily calls and late or unpaid rent can add up to the hassles. Move-out day is another challenging time. Damage to walls, floors, carpets and other components of the home can lead to disputes and costly repairs. Since every moment wasted arguing is a moment the house sits vacant, you are often better off biting the bullet and paying for the repairs yourself. (See Five Mistakes Real Estate Investors Should Avoid for more.)

Challenge 5: MaintenanceMaintenance of major components is a big ticket item. New appliances cost hundreds of dollars; a new roof or driveway can cost thousands of dollars. If the rent is $500 per month and the roof is $5,000, you can find yourself losing money fast. Add in carpet, paint and a new stove, and tenants that don't stay long - and the property could lose money for years.Challenge 6: Interest RatesWhat do interest rates have to do with anything? Plenty! When rates fall, it's often cheaper to buy than to rent! Lowering the rent to remain competitive can put a real cramp in your ability to make a buck. (To learn more, read To Rent or Buy? There's More To It Than Money.)

How Money is MadeWith all the challenges that must be overcome, can the little guy make a buck? Yes, but it requires a plan. Four profitable approaches are highlighted below:

1. DuplexSharing the space by purchasing a duplex is often a profitable undertaking. By living in half of the property and renting half, at the very least you can use the tenants rent to pay some (or all) of the mortgage. Since you are on site and plan to take care of the property anyway, the extra cash is a bonus. Of course, all of the challenges still apply, and living on site means that you are always available and will be in close contact with the tenants. Plan appropriately and screen carefully.

2. Go BasicRenting out a ratty apartment that has no nice amenities, doing as little maintenance as possible and not keeping up appearances leads to profits. If you don't believe it, look at off-campus housing in any college town in the country. It doesn't sound very nice, but a clean, basic, stripped down property (no ceiling fans, air-conditioning etc) keeps the process simple. Four walls and a floor provide a minimum of maintenance requirements and few things that can break or be damaged. Attracting tenants through government subsidized programs, such as Section 8 housing, provides guaranteed income. The challenge here tends to be that, in exchange for a few bucks in the hand, you often get a rough class of tenants and a property that gets worn hard.

3. Long-Term HoldingsMany real estate investors will tell you that they basically break even on the rent and expenses. Their approach is to buy a bargain-priced property, let the tenants pay off the mortgage, and then sell in 30 years and take the cash. While it's a reasonable approach, the profits are likely to be small. After writing off depreciation on the property while it is in use, the capital gains tax on the sale price can be hefty. It can be profitable, but still requires time and effort that might have been better spent elsewhere. (For another take, check out Top 5 Must-Haves For Flipping Houses.)

4. Hard CoreSerious landlords take a serious approach. They incorporate, buy 10 units, and do a significant portion of the work themselves. It's a lifestyle decision that requires spurts of serious time and energy, and a strategy for buying and selling to maximize tax-loss write offs and minimize income. (For more, see Should You Incorporate Your Business?)Conclusion: An Approach for You?Is becoming a landlord worth the effort? Only you can decide. Just be sure to look before you leap and go into your new endeavor with realistic expectations and a solid game plan. By knowing what you are getting yourself into before you do it, you'll be better prepared for what you encounter and more likely to enjoy the experience. (For even more, check out our Investopedia Special Feature: Real Estate: From Crash To Cash.)

by Lisa Smith (Contact Author Biography)

Tips For The Prospective Landlord

by Andrew Beattie

Investing in rental real estate looks like a great idea on paper. You just buy a place in a nice area, find tenants and let the cash roll in. However, there are some matters you have to consider before buying a property and putting a "for rent" ad in the newspaper. Here we provide a rundown of the pros and cons of owning rental property and give you a few tips on how to turn a profit as a landlord.

Advantages of Rental Real EstateThe advantages of rental real estate are quite substantial. One that is not listed below is the fact that when you own rental real estate, you own a tangible asset.

You can paint it when you're happy with it and throw rocks at it when you're not. Shares of Enron, by contrast, are much harder to hit with a stone. (To learn more, see Diversification Beyond Equities.)

Many people who feel uncomfortable investing in financial instruments have no qualms about investing in real estate. This is a psychological distinction, as a bad stock and a bad rental property are equally capable of losing money, forcing you to sell for a loss. That said, here are the advantages that show up on paper: Current Income - This refers to the rent money that is left over after the mortgage and related expenses have been paid.

Current income is basically monthly cash that you did not have to work for - your property produces it for you.Appreciation - This is the increase in value that properties generally experience as time passes.

Appreciation is not guaranteed. However, if you own a property in a stable area (cities), the property will likely increase in value over the years. Even properties in sparsely populated and less desirable areas may appreciate due to general inflation. (For more on this, see the Inflation Tutorial.)

Leverage - Rental properties can be purchased with borrowed funds. This means that you can purchase a rental property by putting down only a percentage of the total value. Essentially, you can control the whole property and the equity it holds while only paying a fraction of its total cost. Also, the property you purchase secures the debt rather than your other assets.

You may lose the rental property, but you shouldn't lose your own home. T

ax Advantages - Your rental income may be tax free if you do not receive net cash flow after expenses are deducted. This means that your mortgage is being paid down and you own more of the total value of the property (rather than just controlling it), but you do not pay taxes on the money that is doing this for you. In addition to this, you can also pull out tax-free money by refinancing your loan if the property appreciates and the interest rates have fallen.

Lastly, you may be able to avoid paying taxes on the sale of a rental property if you sell it and reinvest the money in another property (called switching or tax-free exchange).

(To learn more, read Smart Real Estate Transactions.)

Disadvantages of Rental Real EstateFor every upside, there is a downside, and rental real estate is no different. Rental real estate may expose you to the following:Liability - What happens if a stair breaks under your tenant's feet? With the increase in frivolous lawsuits and the unquantifiable nature of "emotional distress", liability can be a scary thing. Providing someone with shelter in return for money puts you and the tenant in a relationship where both parties bear responsibility.

You have to be certain that the property you are renting out meets all government codes. Unexpected Expenses - What do you do when you pull up the basement carpet and find a crack that opens onto the abyss? It is impossible to prepare for every expense related to owning rental property, so there are bound to be some unexpected ones.

Things such as boilers, plumbing and fixtures often need to be replaced and are not prohibitively expensive. However, faulty wiring, bad foundations, compromised roofing and the like can be very expensive to repair. If you can't find a way to pay for repairs, you will be left without a tenant and with the grim prospect of selling the property at a significant discount. Also, as building codes evolve over time, lead paint, asbestos, cedar roofing tiles and other materials that passed inspection in the past may be reevaluated to your disadvantage.

Bad Tenants - No one wants to have to use a collection agency to collect overdue rent. Unfortunately, almost every landlord has a story that involves police cars escorting his or her tenant out of the property - erasing all hopes of getting the five months' worth of overdue rent. Bad tenants can also increase your unexpected expenses and even hit you with a lawsuit.

Vacancy - No money coming in means that you have to make the payments out of your own pocket. If you have an emergency fund for the rental property, you will be able to survive long vacancies with little trouble. If you don't have one, you may find yourself scrambling to pay the rent to the harshest landlord of all - the bank. (For further reading, see Build Yourself An Emergency Fund.)

TipsMinimizing the disadvantages of owning real estate is actually quite simple. While you won't be able to eliminate the pitfalls completely, following these guidelines will take the teeth out of their bite.

Keep Your Expectations Reasonable - Have the goal of positive cash flow, but don't expect to be purchasing a new yacht at year's end. If you keep your expectations in check, you won't be tempted to jack up the rent and push out good tenants.

Find a Balance between Earnings and Effort - Are you "hands on", or should you work with a property management firm? Current income doesn't seem so great if you are putting in another full-time shift working on your rental property. There are property management firms that will run your rental property for a percentage of the rental income.

Know the Rules - Federal and state laws outline your responsibilities and liabilities, so you can't claim ignorance when something happens. You will have to do some reading; nevertheless, it is better to spend 20 hours in the library than in the courtroom.

Have the Property Inspected - One of the best ways to avoid unexpected expenses is to have the property inspected by a professional before you buy it.

Make Sure Your Leases Are Legal - If you make a mistake on the lease, you will find it more difficult to litigate if a tenant violates the terms.

Take the Time To Call References and Run Credit Checks - Too many landlords rush to fill a vacancy rather than taking the time to make sure the prospective tenant is a better option than an empty property. If you have time, you may want to drive by a prospective tenant's current living space - that is what your property will probably look like when that tenant lives there. (See Consumer Credit Report: What's On It.)

Join the Landlords' Association in Your Area - Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property.

Make Friends with a Lawyer, a Tax Professional and a Banker - If you find that you like owning rental properties, a network including these three professionals will be essential if you want to increase your holdings.

Make Sure You Have the Right Kind of Insurance - After learning the rules, you will need to buy insurance to cover your liability. You will need the help of an insurance professional to select the proper package for your type of rental property.

Create an Emergency Fund - This is essentially money earmarked for unexpected expenses that are not covered by insurance. There is no set amount for an emergency fund, some say 20% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund.

ConclusionInvesting in a rental property can be an excellent decision if you go into it informed. Consider these words from Donald Trump: "It's tangible. It's solid. It's beautiful. It's artistic … I just love real estate."For further reading, check out Shopping For A Mortgage and Understanding The Mortgage Payment Structure. by Andrew Beattie (Contact Author Biography)

Andrew Beattie is a managing editor and contributor at

Leverage: Increasing Your Real Estate Net Worth

by Lisa Smith

Leverage is the use of various financial instruments or borrowed capital to increase the potential return of an investment – and it is an extremely common term on both Wall Street and in the Main Street real estate market. (Learn more about the various uses of leverage in Leveraged Investment Showdown.)

TUTORIAL: Exploring Real Estate Investments

Consider the common real estate purchase requirement of a 20% down payment – or $100,000 on a $500,000 asset. The buyer is essentially using a relatively small percentage of his or her own money to make the purchase, and the majority of the money is being provided by the lender. Real estate investors often refer to the remainder of the purchase price as "other people's money," since persons other than the borrower provided the money needed to make the purchase.

Assuming the property appreciates at 5% per year, the borrower's net worth from this purchase would grow to $525,000 in just 12 months. Comparing this gain to the gain from an unleveraged purchase highlights that value of leverage. For example, the same borrower could have used the $100,000 to make an outright, paid-in-full purchase of a $100,000 property. Assuming the same 5% rate of appreciation, the buyer's net worth from the purchase would have increased $5,000 over the course of 12 months versus $25,000 for the more expensive property. The $20,000 difference demonstrates the potential net worth increase provided through the employment of leverage. Now, picture that 5% gain every year for 20 years. Over time, the use of leverage can have a significant, positive impact on your net worth.

Ways to Access LeverageThe easiest way to access leverage is to use your own money. In the case of a mortgage, a standard 20% down payment gets you 100% of the house in which you want to live. Some mortgage programs let you put even less money down.

If you are purchasing the property as an investment, you may be in a position where your partners furnish some (or even all) of the money. Similarly, some sellers are willing to finance some of the purchase price of the property they wish to sell. Under such an arrangement, you can purchase a property with little money down and, in some cases, no money down at all.

Infomercials, Scams and RealityImages of no-money-down purchases bring to mind those late-night infomercials where smooth-talking pitchmen suggest that you can earn millions of dollars buying properties with no money down. While this is possible, there are some questions you should ask yourself before jumping in:

How many people do you personally know who became millionaires working 20 hours a week because other people sold them valuable real estate with no money down?

If you had a genius plan whereby people gave you millions and millions of dollars worth or real estate with no money down, why would you need to make late-night infomercials selling real estate buying lessons?

The Dangers of LeverageJust as leverage can work on your behalf, it can also work against you. Revisiting our earlier example, if you use a $100,000 down payment to purchase a $500,000 home, and real estate prices in your area decline for several years in a row, the leverage works in reverse. After year one, your $500,000 property could be worth $475,000 if it depreciates by 5%. A year after that, it could be worth $451,250 - a loss in equity of $48,750.

Under that same 5% price-decline scenario, if that $100,000 had been used for an all-cash purchase of a $100,000 home, the buyer would have lost just $5,000 the first year home prices fell.

In real estate markets where prices fall significantly, homeowners can end up owing more money on the house than the house is actually worth. For investors, declining prices can reduce or even eliminate profits. If rents fall too, the result can be a property that cannot be rented at a price that will cover the cost of the mortgage and other expenses. (If you are contemplating becoming a landlord, read Tips For The Prospective Landlord and Becoming A Landlord: More Trouble Than It's Worth? for a look at the pros and cons.)

The problems get even bigger when multiple units are involved, as real estate investors often put down as little money as possible. The goal is to leverage your money by taking control of 100% of the assets while only putting down 20% of the value. Consider the $500,000 we reviewed in our previous example. Since the home is purchased with $100,000 as a down payment, if the value of the home declines by 30%, the home is worth just $350,000 but the investor still must pay interest and principal on the full value of the $400,000 loan. Should the amount the investor gets in rent decline too, the result could be default on the property. If the investor was using the cash flow from that property to pay the mortgage on other properties, the loss of income could produce a domino effect that can end with an entire portfolio in foreclosure over one bad loan on one property.

Leverage You Can Live With … and In!Although they may not think about it as leverage, most people use a mortgage when they buy a home. They pay off the loan over a period of years or decades, all the while getting to enjoy the use of the property. The moral of the story is that leverage is a common tool that works well, when used prudently.

To learn about the perks of real estate investing, see our Exploring Real Estate Investment Tutorial and Investing In Real Estate.

by Lisa Smith (Contact Author Biography)

The Importance Of Your Credit Rating

People have become increasingly dependent on credit. Therefore, it's crucial that you understand personal credit reports and your credit rating (or score). Here we'll explore what a credit score is, how it is determined, why it is important and, finally, some tips to acquire and maintain good credit.

What Is a Credit Rating? When you use credit, you are borrowing money that you promise to pay back within a specified period of time. A credit score is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed. The credit bureaus that issue these scores have different evaluation systems, each based on different factors. Some may take into consideration only the information contained in your credit report, which we look at below. The primary factors used to calculate an individual's credit score are his or her credit payment history, current debts, time length of credit history, credit type mix and frequency of applications for new credit. Because the scoring systems are based on different criteria which are weighted differently, the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may issue differing scores for an individual, even though the scores are based on the same credit report information. You may hear the term FICO score in reference to your credit score - the terms are essentially synonymous. FICO is an acronym for the Fair Isaacs Corporation, the creator of the software used to calculate credit scores. Scores range between 350 (extremely high risk) and 850 (extremely low risk). Here is a breakdown of the distribution of scores for the American population in 2003:

What About a Credit Rating? In addition to using credit (FICO) scores, most countries (including the U.S. and Canada) use a scale of 0-9 to rate your personal credit. On this scale, each number is preceded by one of two letters: "I" signifies installment credit (like home or auto financing), and "R" stands for revolving credit (such as a credit card). Each creditor will issue its own rating for individuals. For example, you may have an R1 rating with Visa (the highest level of credit rating), but you might simultaneously have an R5 from MasterCard if you've neglected to pay your MasterCard bill for many months. Although the "R" and "I" systems are still in use, the prevailing trend is to move away from this multiple rating scale toward the single digit FICO score. Nevertheless, here is how the scale breaks down:

R0 or I0
You are new to the credit world, and you have an insufficient credit history for making an accurate judgment of your future risk.
R1 or I1
You pay your credit back in 1 month.
R2 or I2
You pay your credit back in 2 months.
R3 or I3
You pay your credit back in 3 months.
R4 or I4
You pay your credit back in 4 months.
R5 or I5
You have not repaid in four months, but you are not a "9" yet.
R7 or I7
Your debt payments are made under consolidation.
R8 or I8
Debt was cleared by selling the item (repossession).
R9 or I9
You officially have bad debt (default), which usually means it is uncollectible.

What Makes up Your Credit Score? When you borrow money, your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit. Although all these factors are included in credit score calculations, they are not given equal weighting. Here is how the weighting breaks down:

As you can see by the pie graph, your credit rating is most affected by your historical propensity for paying off your debt. The factor that can boost your credit rating the most is having a past that shows you pay off your debts fairly quickly. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will all help your credit score.Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula. (For a few tricks of the trade, see How Credit Cards Affect Your Credit Rating.)Why Your Credit Rating Is Important When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them. According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. The table below shows how individuals with varying credit scores will pay dramatically different interest rates on similar mortgage amounts - the difference in interest, in turn, has a large impact on the monthly payments (which pay off both interest and principal):
Source: Credit Is a Fragile Thing Being aware of your credit and your credit score is very important, especially since you can harm your credit without even being aware of it. Here's a true story of what can happen: Paul applied for a travel reward miles card, but never received any response from the credit card company. Since it was a high-limit travel card, Paul just assumed that he'd been declined and never thought about it again. More than a year later, Paul goes to the bank to inquire about a mortgage. The people at the bank pull up Paul's credit report and find a bad debt from the credit card company. According to the credit report, the company tried to collect for a year but recently wrote it off as a bad debt, reporting it as an R9, the worst score you can get. Of course, all this is news to Paul. Well, it turns out there was a clerical error, and Paul's apartment suite number was missing from the address the credit card company had on file. Paul had been approved for the card but never actually received it, and any subsequent correspondence didn't get through either. So the credit card company still charged Paul the annual fee, which he didn't pay, because he didn't know the debt existed. The annual fee collected interest for a year until the credit card company wrote it off. In the end, after jumping though several fiery hoops, Paul was able to get the problem rectified, and the card company admitted fault and notified the credit-reporting agency. The point is, even though it was a small balance due (about $150), the administration error almost got in the way of Paul getting a mortgage. Nowadays, since all data goes through computers, incorrect information can easily get onto your credit report. (For more on fighting an error on your credit report, see Check Your Credit Report.)Tips to Improve or Maintain a High Credit Score:

Make loan payments on time and for the correct amount.
Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score.
Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible.
Be aware of what type of credit you have. Credit from financing companies can negatively affect your score.
Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.
Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are.
Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history. Conclusion The importance of credit today is significant; overlooking this fact can be very detrimental to your financial health. Being aware of how your credit score is calculated is essential. By following the tips we have laid out for you, you should be able to either maintain or improve your credit score. Now that you understand the importance of your credit score, here are some of the major sites you can visit to check your credit rating:

Trans Union:
by Investopedia Staff (Contact Author Biography) believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.

Filed Under: Credit Cards, Personal Finance

How Venture Capitalists Make Investment Choices
by Ben McClure (Contact Author Biography)

Filed Under: Business, Entrepreneur, Venture Capital

It's easy to dislike angel and venture capitalist investors. For entrepreneurs looking to raise capital for their start-up businesses, these early-stage investors can be awfully hard to find, and when you do find them, it's even tougher to get investment dollars out of them.

But, think again: angels and venture capitalists (VCs) are taking on serious risk. New ventures frequently have little or no sales; the founders may have only the faintest real-life management experience, and the business plan may be based on nothing more than a concept or a simple prototype. There are good reasons why VCs are tight with their investment dollars. (For more check out The Essentials Of Cash Flow.)

TUTORIAL: Starting A Small Business

Risk Vs. RewardStill, despite facing enormous risks, VCs do fork-out millions of dollars to tiny, untested ventures with the hope that they will eventually transform into the next big thing. So, what things prompt VCs pull out their checkbooks?

With mature companies, the process of establishing value and investability is fairly straightforward. Established companies produce sales, profits and cash flow that can be used to arrive at a fairly reliable measure of value. With early-stage ventures, however, VCs have to put much more effort into getting inside the business and the opportunity.

Here are some of their key considerations:

ManagementQuite simply, management is, by far and away, the most important factor that smart investors take into consideration. VCs invest in a management team and its ability to execute on the business plan, first and foremost. They are not looking for "green" managers; they are looking ideally for executives who have successfully built businesses that have generated high returns for the investors. Businesses looking for venture capital investment should be able to provide a list of experienced, qualified people who will play central roles in the company's development. Businesses that lack talented managers should be willing to hire them from outside. There is an old saying that holds true for many VCs: they prefer to invest in a bad idea led by accomplished management than a great business plan supported by a team of inexperienced managers. (For more on finding great companies, check out Evaluating A Company's Management.)

Size of the MarketDemonstrating that the business will target a large, addressable market opportunity is important for grabbing VC investors' attention. For VCs, "large" typically means a market that can generate $1 billion or more in revenues. In order to receive the large returns that they expect from investments, VCs generally want to ensure that their portfolio companies have a chance of growing sales worth hundreds of millions of dollars. The bigger the market size the greater the likelihood of a trade sale, making the business even more exciting for VCs looking for potential ways to exit their investment. Ideally, the business will grow fast enough for them to take first or second place in the market.

Venture capitalists expect business plans to include detailed market size analysis. Market sizing should be presented from the "top down" and from the "bottom up." That means providing third-party estimates found in market research reports, but also feedback from potential customers, showing their willingness to buy and pay for the business' product. (Learn the motives that drive companies into the arms of an acquirer, read Why Successful Business Owners Sell Out.)

Great Product with Competitive EdgeInvestors want to invest in great products and services with a competitive edge that is long lasting. They look for a solution to a real, burning problem that hasn't been solved before by other companies in the marketplace. They look for products and services that customers can't do without – because it's so much better or because it's so much cheaper than anything else in the market. VCs look for a competitive advantage in the market. They want their portfolio companies to be able to generate sales and profits before competitors enter the market and reduce profitability. The fewer direct competitors, the better.
Awareness of RisksVC's job is to take on risk. So, naturally, they all want to know what they getting into when they take a stake in an early stage company. When they speak to the business' founders or read the business plan VCs will want to be absolutely clear about what the business has accomplished and what need to be accomplished.

Could regulatory or legal issues pop up?
Is this the right product for today or 10 years from today?
Is there enough money in the fund to fully meet the opportunity?
Is there an eventual exit from the investment and a chance to see a return?
The ways that VCs measure, evaluate and try to minimize risk can vary depending on the type of fund and the individuals who are making the investment decisions. But at the end of the day, VCs are trying to mitigate risk while producing big returns from their investments. (There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them, see Identifying And Managing Business Risks.)

ConclusionThe rewards of a spectacularly successful, high-return investment can be spoiled by money-losing investments. So, before putting money into an opportunity, venture capitalists spend a lot of time assessing opportunities and looking for key ingredient for success. They want to know whether management is up to the task, the size of the market opportunity and whether the product has what it takes to make money. Moreover, they want to reduce the riskiness of the opportunity.

by Ben McClure (Contact Author Biography)Ben McClure is a long-time contributor to Ben is the director of Bay of Thermi Limited, an independent research and consulting firm that specializes in preparing early stage ventures for new investment and the marketplace. He works with a wide range of clients in the North America, Europe and Latin America. Ben was a highly-rated European equities analyst at London-based Old Mutual Securities, and led new venture development at a major technology commercialization consulting group in Canada. He started his career as writer/analyst at the Economist Group. Mr. McClure graduated from the University of Alberta's School of Business with an MBA. Ben's hard and fast investing philosophy is that the herd is always wrong, but heck, if it pays, there's nothing wrong with being a sheep. He lives in Thessaloniki, Greece. You can learn more about Bay of Thermi Limited at

Filed Under: Business, Entrepreneur, Venture Capital