Is the GILT industry now commoditized?

Eugene: Let’s make sure that we’re all singing out of the same hymnbook and define our terms. Here are some important indicators for commoditization:

• Volume or mass-produced
• Emphasis on unit cost
• Standardized processes
• Quality taken as a given
• Big push for automation

Now, can anyone involved in localization, and particularly software/IT, put their hands on their hearts and tell me that some of this doesn’t ring a bell or sound familiar? Most major simship projects (simultaneous shipment of multiple languages within a short period from the original language release) share many of the characteristics mentioned above.

Take a major release of a large enterprise-type software product as an example. This type of project can have in excess of a million words to be localized into thirty languages; is this not a mass production type of environment? I expect that most people will very quickly relate our obsession with word rates to focus on unit cost. And with the evolution of standards like XLIFF, TMX and Web Services, standardized processes will become the norm very soon.

Quality is still far from a given, in that it still takes a lot of time and effort to maintain high levels of quality. However, many of the quality issues are a direct result of the large amount of manual, error-prone processes involved, particularly in the heat of simship. And finally, there is no doubt that automation in the localization industry, whether we like it or not, is a reality and will eventually deliver huge improvements.

Donald: Commoditization is definitely present in certain sectors, as Eugene points out. After a rather promising - very promising even - start, we do not have to take a long look at our industry to see that it is in a deplorable state. Profits are plummeting; the value-added of our industry in the customer's eyes is abysmal, as clients hop from one vendor to another in search of the elusive miracle solution that we ourselves have promised.

However, there are certain sectors where I do not believe that it will ever be possible to apply commodity processes, e.g., the localization of web sites. This is a labor-intensive business and will remain that way.

Will this trend have positive or negative consequences, or perhaps both, for the industry?

The Human Touch in a Material World It sounds like the title of an epic saga. And, indeed, it could be. There are few industries in today’s world in which the introduction of technology and automation has had a direct negative impact on the unit revenues and profits of those who implement them. Yet, ours is one of them. Are we really commodities? Aren’t we actually the ones who provide the services that help sell commodities on international markets? Localization is a service. It is a conglomerate of numerous complex and interwoven processes, some of which are automated, most of which never will be. Automation cannot deliver huge improvements upon the intellectual or creative aspects of these processes, many of which are error-prone. It can’t improve the quality of a bad translation or turn an engineer into a linguist. Of course, we need to stay on top of technological advances, but accepting automation as the be all and end all of a services industry is like assuming that anyone can be a surgeon if only they have the right technology. Translation is highly intellectual, extremely complex and deserves more credit than it is currently getting. It is the single most important part of a localized product. It's what sells. Our glorious past has evolved to become our not-so-glorious present. The funny thing is, it’s our own fault. We gobbled up the massive localization budgets that publishers were more than happy to spend and wasted little time on client education or the long-term value of quality products on global markets, big or small. Our short-sightedness has forced us to localize faster and cheaper, not necessarily better, and sell technology as the answer to everyone’s localization prayers. Hence, the long-term value of quality localization services has now been reduced to short-term number-crunching. Technology and automation have certainly improved the standardized aspects of these services and could, theoretically, allow us to focus on what is truly important in our industry. Instead, they’ve started a brush fire that is suffocating the most important asset of this industry. It’s time we put it out. Kim Harris is Managing Director of text & form Software-Lokalisierung GmbH and can be reached at kim_harris@textform.de.

Eugene: That’s not really the point. The fact is that commoditization is here to stay, and we need to deal with it. As an industry, we need to go with the flow of the change and accept it as inevitable in our planning.

The proof of this is in the investments being made by customers themselves right now:

• in developing large automation systems to drive down costs
• in relocating certain tasks to lower-cost regions
• in machine translation

At this point, customers certainly aren’t going to deinstall automated systems that they’ve developed themselves or rip out institutionalized MT systems. So the discussion about what the industry is or isn’t, is somewhat academic at this point, as is the argument that we should stay the way we are while trying to educate the corporate world of the real value created by localization.

Donald: No, I disagree with you. I think that this is precisely the point. We need to examine and understand how we arrived at this point because therein may lie some valuable solutions.

This situation is a result of the fact that our industry is always promising better, faster, cheaper products and services. What the localization industry is offering as total business solutions are really workflow management systems that take care of only part of the localization process, the transactional part. After all, clients do not localize their products in order to automate processes, standardize formats or reduce costs or turnaround times. They localize their products for one reason only: to sell more of them. And to do so, they need to enter foreign markets. The good news is that for a product to succeed in foreign markets, clients have to go through us.

Further, our industry keeps barking up the wrong tree in hailing technology as the one and only solution to what really are linguistic and cultural challenges. Technology is a very important medium, but so is the message. What it’s all about in localization is communicating the right message to the right audience.

Commoditization only makes matters worse because it focuses only on unit cost, while failing to take into account the added value of a professional service such as localization.

The two of you may not agree on how the industry has arrived at this point, but can you agree on how to move forward?

Donald: We, as an industry, need to move up the value chain in establishing business partnerships with our customers. First in the value chain comes transactions, then product solutions, followed by business solutions, with the final step being the formation of true partnerships. To be able to move up, the professional service part of the localization process, i.e., language and culture that are the essence of localization, must be put at the forefront of our business offering.

We need to use business intelligence and apply it to truly understand the entire problem set that our (potential) customers are trying to solve. We must focus on the rewards of going global, not only on reducing the costs of entry. This changes the entire discussion with clients and levels the playing field, as the Americans like to describe it.

Eugene: I agree, but we have to be able to articulate what value we really bring, in real terms. The problem with a lot of value propositions offered by localization service providers today is that they’re not particularly strong. If we obtain the business intelligence, and if we can actually understand the pain our customers are experiencing, and we face up to the reality that in many cases we’re not providing the solutions required, then we can get somewhere.

Donald: Here’s an example of what I mean. Take a look at the ads from the three largest GILT service providers: All of them focus on the ROI for their particular products. However, we’re missing the big picture when we communicate with our audience in this way.

The message needs to be something like, “With our products and services, here’s the market share you can attain. If you invest $1 in German localization, you may grow to dominate the German-speaking market. Through us, you gain access to the entire world… this is a huge ROI.” By not positioning ourselves in this manner, we’re truly missing out.

Eugene: But you need to be very careful with this discussion, Donald. This argument works well for the major revenue-producing regions, but not as well for smaller regions. For example, it may cost $100,000 to localize for a Scandinavian country, but a company may only realize $150,000 to $200,000 in revenue. It’s a balancing act, and there’s no blanket solution to cover every situation. We need to understand these realities before we approach our customers.

Donald: Not so fast, Eugene. What we need to do is find out why a company is targeting Scandinavia. We must obtain the business intelligence and build our case on it to solve the underlying business problem. By doing so, we focus the client on the rewards (increased market share and diversification), and this changes the entire perspective.

What specific steps should LISA and its members be taking right now to prevent [further] commoditization, or as Donald more eloquently expresses it, “How can we not only stop, but reverse, the downward trend of our industry on the value chain?”

Eugene: “I don’t agree that it’s time to abandon the software world quite yet. There are many ways to move up the value chain by offering higher-level services and technical solutions.”

Eugene: Here’s how I see us moving ahead to reposition the industry and to gain ground. There are many opportunities, huge untapped markets literally crying out for solutions. Service providers need to focus on specific sectors, review their business requirements and understand their pain.

There is a lot of fairly complicated enterprise software that requires investment in online solutions to manage the localization process, e.g., complex test environments, customization of web front-ends, etc. Recognizing this need, our company created an online localization environment that provides all of the management and engineering tools required to allow our company and our partners to operate as a seamless entity on simship projects. You see, the real business problem here is shipping thirty languages in thirty days, not just an isolated testing challenge.

Donald: But we need to move beyond the IT industry, and fast. I think our industry has been wimping out to a rather small, yet powerful, number of client companies, namely software companies. However powerful they may be, their dreams of market expansion and diversification would vanish without the localization industry. Now, if this is not an upper hand in the market, I don’t know what is!

Moving beyond software, we need to understand the needs of e-commerce which is too huge to measure and, of course, dear to my heart, e-government which is extremely hard to automate.

Eugene: Definitely. We in Europe are under an EU directive to implement e-government as well. For us, that means integrating services within a multilingual context.

There’s not only a business opportunity here, but also a need for companies to verify that a new business application conforms to certain guidelines in an international environment.

Quite right, Eugene. That’s why LISA is forming the Global Products SIG to address the need to create a certification process and a recognized label for globally certified products.

Donald: This is a tremendous opportunity for us to cover the whole spectrum. It’s a perfect example of integrating technology and culture, which this industry so desperately needs. Translators alone can’t cut it. Techies alone can’t cut it. But together, we can cover the full spectrum. Once your web site is globalized, you’re going to get business from China, from India, from everywhere. And that means that the criteria for being global just expanded to cover the entire company all at once: your customer support, your training, your product fulfillment, your email, everything. And we need to be at the forefront, educating and helping our customers to prepare in all areas.

As you go up the value chain, as you offer higher-level services and enter other sectors, how will pricing be affected?

Eugene: At present, many service providers are horizontal, i.e., they try to be everything to everyone. Therefore, our current rates are usually a mix, based on translation and engineering tasks.

As more specialization occurs, and we add higher-level services, prices should increase since they will be based on time and materials charges, similar to those of other professional services.

Donald: Again, I can’t emphasize this enough: we must broaden our focus to encompass the full spectrum in this industry. Then, we can concentrate on the business offering. This means knowing exactly what you want to offer and how to price it.

And what do I mean by the “full spectrum?” The front end, e.g., the language and cultural issues associated with launching a truly global web site. Mark Davis, President of Unicode and Chief Globalization Architect at IBM, cited a great example during his keynote presentation at the last LISA Forum in San Francisco. He told us about a company that went through the exercise and cost of globalizing its web site and was then quite surprised to receive an email in Japanese two days afterwards that it couldn’t handle. How could they not know that they were going to attract business from Japan? Wasn’t this the whole point of incurring the cost to globalize their web site in the first place?!

Right now, we’re still way too focused on the back end, with the technical preparation of what is to be localized. Mark’s example is a clear illustration of the tremendous opportunity that exacts right now to offer solutions to cover the whole spectrum. The services provider that performed the globalization of this company’s web site, why weren’t they there to help their client when the Japanese email came in?

When we neglect to provide the whole solution (in this case, a globalized web site with the back end services ready for international business as well), the customer only focuses on the cost of the partial solution that we provide (here, a web site globalized at the technical level, but not implemented 100% to meet the needs of the company’s potential customers from around the world).

What specific steps can services providers take to change their position to offer a total business solution to their clients? Will clients see the value if the industry tries to move to pricing by the hour or per project?

Donald: When we performed positioning studies at the Translation Bureau in Canada, we discovered that we were missing out on many, many opportunities because our customers wanted us to cover the full spectrum of their needs. One example of this was content development, a function that is of extremely high value to customers and requires a high skill level. Beginning with this type of task, we began to convert our pricing from per word to per hour and even, in some cases, per project. It has been a gradual process over a number of years, but we’re now fully converted to hourly and per project pricing.

By expanding our business offering, understanding the value of what we are selling and pricing accordingly, we have shifted customer focus from individual tasks and per unit pricing to the value of our business solutions.

Eugene: I agree, Donald. Moving up the value chain and branching out into other sectors will definitely allow us to price accordingly. It’s crucial that we zero in on the high-value services, e.g., web portals, applications conformance within the web environment, corporate intranet development, etc. It’s easier to convert customers to per hour/per project pricing in cases where a specific unit of time equals a specific task or set of tasks.

Is there anything that LISA can do to advance the pricing issue?

Eugene: We need to get a good representative group from the industry and have them sit around the table with a focused agenda. Based on some recent presentations at LISA Forums, I sense a huge resistance on the customer side. I would like to see LISA start the debate so that we can figure out what’s behind this reluctance so that we can address the issue.

Is it still worthwhile to develop visibility at the boardroom level?

Eugene: Yes! In large Fortune 500 companies, the localization budgets range anywhere from $10 to more than $100 million, and that’s substantial in anyone’s terms.

However, that being said, we need to learn from our mistakes and stop trying to convince high-level executives of low-level localization tasks! Instead, we need to be smart and start packaging our skills as a premium package, along with strong technical solutions, and address it to the right audience. Then we can offer a proper business solution under the auspices of a proper agreement between partners.

Donald: I agree. There is still work to be done at the boardroom level, and ROI remains a major, major issue. As I explained before, we must refocus the ROI discussion away from specific products/services to the bigger picture of how our business solutions enable our customers to enter and be successful in new geographic/linguistic markets. Without our services, they can literally never leave their home market. Period. End of discussion. This is what we need to communicate!

As we adapt to servicing the “full spectrum,” as Donald describes it, are there different standards that become important?

Donald: Definitely. Right now, it seems to me that the ‘S’ in LISA, “standards,” only focuses on the technical part of the process. We need to add standards that cover the linguistic and cultural aspects, i.e., the global picture, and how they relate to one another and intertwine. If we aspire to cover the full spectrum, we need to begin work in this area.

Eugene: Absolutely, Donald. The really interesting thing about these standards, and particularly the XML-based standards and these new web services standards, is that they are about defining data in terms of what it really is. In other words, it’s very important that we build all of the language and cultural stuff into those standards upfront. We need to provide input into standards such as (1) XLIFF, an XML standard for localization, and (2) web services, a common way to handle data and a common way to communicate, and a common way to publish content over the Internet. If these standards are defined and adapted, then true innovative solutions are possible within the localization space.

Where do we go from here to implement change then?

Eugene: This industry is an amalgamation of many different and diverse skills sets and people with no clear unified vision. LISA is a wonderful environment to pull all of the different players in the localization space together, to sit down and just kick around some ideas as to how they see the localization industry playing out over time: moving up the food chain, adding different services, taking a more holistic view, figuring out where technology fits in, determining the direction in which standards are heading and how to ensure that our input is integrated, etc.

I’d really like to see an overall group formed, be that a SIG or whatever, just to look at future developments, to identify the opportunities, to determine what we should be doing now to position ourselves for the future.

Donald: I couldn’t agree more, Eugene. LISA is the place to do this. Perhaps we should start small with a couple of brainstorming sessions among a small group of us. From what I can see, I’m not sure that everyone is at the same level on this, so we need to raise the visibility on some of these issues a bit more. Then, we can launch the SIG.

Any last words of wisdom that either of you would like to share with our readers?

Eugene: Change can be healthy. Learn to embrace it!

Donald: We need to integrate technology and language. It’s as simple and as difficult as that.

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Donald Barabé is Business Development Director for the Canadian Government Translation Bureau and can be reached at Donald.Barabe@PWGSC.GC.CA.

Eugene McGinty is of CEO of Connect Global Solutions and can be reached at Eugene.McGinty@connectcgs.com.