INSIDER: The obvious question: why Latin America? Why Argentina rather than another country in Latin America?

Argentina has even better prerequisites for excellent localization services than Ireland had in the 80’s.

The uniqueness of the opportunity was the key. Having worked very closely with the localization vendor industry on the buyer’s side of the business for close to twenty years, I never had any real desire to open a vendor business myself. The industry is full of excellent companies, and I never saw how to offer a sufficiently differentiating angle.

The circumstances in Argentina changed this, as the country has even better prerequisites for excellent localization services than Ireland had in the 80’s – good infrastructure, skilled linguistic and technical resources, close cultural alignment and time zone compatibility with the U.S. and Europe, and most importantly – a significant cost advantage.

INSIDER: Why offshore outsourcing?

Our industry actually has a long history of offshore outsourcing.

Because it makes sense. Our industry actually has a long history of offshore outsourcing, driven by the fact that the language aspect of the service was often not available locally in terms of capacity or quality. Currently, the driver is cost-efficiency. While the scope for linguistic services going offshore is restricted for obvious reasons, there is still a significant opportunity to provide them from the smartest location. The opportunity in related services – project management, engineering/testing, DTP/graphics – is even greater. I estimate that today more than 90% of these activities are carried out in locations that are not cost-effective. Clients are too smart to let that continue.

INSIDER: What surprised you the most during the initial phase of setting up your business?

Probably how everything is more time-consuming than you imagine. Having spent many years in large corporations with substantial support mechanisms, it was an eye-opener to suddenly be on my own and realize the amount of work required in the background in order to make things happen.

INSIDER: What two pieces of advice do you wish someone had given you prior to opening your business in Argentina?

I have learned to expect the unexpected.

When the opportunity arose to set up Idea Factory Languages (IFL) in partnership with an existing Argentinean company, especially one whose owners are leading figures in the Latin American IT industry and one that has many synergies with our own business, there was never any doubt in my mind that this was right approach. I always knew that knowledge of how to establish and run a business in a place like Argentina would be critical to our success and was not something I could bring to the table. So fortunately, I have had constant access to expert advice that has truly been invaluable. In general terms though, I have learned to expect the unexpected. It is a country with high levels of bureaucracy and sometimes, what seems like a simple thing, may take longer than it should.

INSIDER: What are the current issues in localization for Latin America? Is more than one version required nowadays when shipping a product throughout Spanish-speaking Latin America?

The Hispanic population is now the largest ethnic majority group in the U.S.

Spanish language demographics are an important consideration for business planning. Approximately 90% of the world’s Spanish-speaking population lives on the American continent, with the remaining 10% in Spain. Although the latter is still a more mature and stable commercial market, there is no doubt about where the potential for future growth lies. The U.S. market is also becoming increasingly significant since its Hispanic population is now the largest ethnic majority group with some 40 million people (and growing fast). Nowadays, a business positioning with a Latin American bias makes more sense than one with a European bias.

Whether or not it is necessary to produce a single or multiple Spanish versions of a product is very much a customer-specific issue. It depends on many factors, such as the type of product or service, the target audience, competition in the particular marketplace – just to mention a few. Generally speaking, it makes sense to try and create the core product in a single, unified version of Spanish. In my experience, this is perfectly feasible to accomplish as long as you have cooperation and understanding between both sides of the Atlantic from a customer perspective. It may, however, make sense to customize some company and product information, especially on the marketing side.

INSIDER: How are the current economic and political conditions in Argentina? Is the worst over? How do they affect your business?

The situation has stabilized, and there is a sense of cautious optimism.

The overall sentiment is that the situation has stabilized, and there is a sense of cautious optimism. However, the country has a long way to go, and it will not move quickly. Economically, the national debt will hang over any progress like a shadow for years to come, and at the same time, the country needs to tackle huge problems in terms of generating internal revenues. The new president has made an encouraging start, but the road forward has numerous potential pitfalls.

The uncertain local climate means that there really is not a local business for us, since companies are not investing at the moment. Fortunately, this is a disadvantage we can overcome by providing our international customers with the right service offering.

INSIDER: Why should a potential customer choose Idea Factory Languages over a vendor based in Europe, N. America or Asia?

The reality is that nine out of ten clients pay more for localization services than they should!

In general, customers will increasingly have to justify their decisions to outsource production to Europe and North America. The reality is that nine out of ten clients pay more for localization services than they should! In line with industry predictions, the best way to really optimize cost-efficiency is to take advantage of offshore opportunities, working with a reputable vendor operating in a low-cost environment, which can offer savings of up to 50%, over the locations you mention.

I place our potential customers in two categories – direct customers and multi-language vendors (MLVs) – and IFL is equally focused on providing both with a value-adding service. Our direct customers initially look towards us for a single solution for their Latin American translation/localization needs, as we cover both Spanish and Brazilian Portuguese internally. While Spain currently has more experienced companies providing language services, I believe customers welcome having a serious supplier in Latin America such as IFL – not only for the considerable cost savings potential, but also because we are better-positioned to produce a generic version of Spanish.

As our relationships develop, clients will increasingly look to IFL for more cost-effective ways to deal with additional areas – multilingual project management, engineering/testing and DTP services. We have already seen customers initiating a relationship with us to meet their Latin American localization needs and then moving on to extend cooperation to cover further services. The transition is natural once the relationship and trust are established.

As for our customers who are MLVs, we offer the opportunity to extend offshore efficiencies to their direct customers without having to make a commitment to acquisition or investment in a new location. Trying to maintain and manage large freelance networks, as well as the required quality assurance organization, is proving more and more difficult for them, both from the cost and functional perspectives. In IFL, they find a reliable and cost-effective supplier of services into languages that are critical to their activities. They need dependable partners that will enable them to compete from a cost perspective and build predictability into margin calculations, allowing them to focus on areas where they build value for their customers, particularly in project management.

I think the only situation where a customer would make a comparison with Asia is for specialist tasks, such as testing. Our key advantages here are a much stronger cultural alignment with the U.S. and Europe, a higher level of English communication skills and our location in a time zone that makes cooperation efficient.

INSIDER: What are your predictions for the offshore outsourcing trend in the language industry over the next twelve to eighteen months? Will it pick up speed or slow down? What countries will be targeted for new operations?

I don’t think we will see a real localization industry developing in India in the foreseeable future.

It will inevitably accelerate. We are the result of an aggressive U.S. drive to offshore outsourcing that has seen the demise of manufacturing in mainland America and which is now being extended to other “displaceable services.” Clients will realize the opportunities and gradually take steps to take advantage wherever possible. As always, it will be a gradual process, with the usual spread of fast movers and followers.

Even those who think they are not doing anything in relation to offshore outsourcing will nevertheless be impacted indirectly, as MLVs will increasingly shift activities offshore (either internally or through changes in their partner network). This customer base is the one least likely to realize the benefits, if they choose not to take a collaborative approach with their suppliers – MLVs are unlikely to offer up cost savings on a plate to those less savvy buyers!

In terms of locales, the strength of software outsourcing initiatives in China and India is likely to rub off to some degree on the localization industry. The two industries have gone hand-in-hand before. I believe that this is more likely to be in the realm of the larger MLVs, who will be keen to try and capitalize on existing investments in these regions. The focus will be on back-office tasks, including non-production activities such as finance functions and specialist tasks (e.g., DTP or engineering). Their challenge will be to transfer knowledge and integrate functions efficiently. The challenge for clients will be to ensure that they receive a return on any cost efficiencies achieved.

I don’t think we will see a real localization industry developing in India in the foreseeable future – there are simply no reasons why this should happen. China, Korea, and to a lesser degree Taiwan, have a number of existing localization companies, but I believe they will continue to be focused primarily on serving the needs for the Asian market. I think Eastern Europe may see some movement for task-based activities such as engineering/testing on the basis of the strong technical resource base there. However, this region has been much talked about for several years now with little concrete change other than good progress by some individual vendors. The region is likely to see some upturn due to EU expansion-related activities, but on the whole, I think that the region lacks the essential cost advantages.

Latin America, and Argentina in particular, holds by far the greatest opportunity in the sense of general localization outsourcing. However, whether we will see an upsurge in new production operations is questionable. Logistics issues will prevent the large MLVs from moving in, although acquisitions could be feasible to provide an entry point. The financial situation will make it difficult for new companies to form locally, so naturally I believe we will see growth in existing companies, such as IFL.

INSIDER: What do you like most about living and doing business in Argentina?

The wealth of well-educated, highly skilled individuals, and their hunger for opportunity.

Having lived in Sweden, Scotland and Ireland previously, I have to say that a more agreeable climate feels very nice… Buenos Aires is a fantastic place, full of the kind of problems you associate with a large city of course, but the city has many unique and attractive features - lots of green areas, incredible architecture, a rich cultural tradition, only to mention a few. Fabulous food and wine don’t detract from my appreciation either …! Unfortunately, I have not had much opportunity to explore other parts of Argentina, but I’m realizing how amazing this large country is in terms of diversity and beauty. I’m hoping to get more chances to travel here in due course.

In terms of doing business, the part that has impressed me most is the people. The wealth of well-educated, highly skilled individuals, and their hunger for opportunity, is what convinces me more than anything else about the incredible opportunity that the country represents.

Teddy Bengtsson is Founding Partner and CEO of Idea Factory Languages, Inc. in Buenos Aires, Argentina. Bengtsson’s twenty-year career in the localization industry has included management positions at Aldus, Microsoft and Oracle. You can reach him at teddy.bengtsson@idea-factory.net.