HP now derives 67% of its revenues from international sales!

While many high tech companies now generate about 50% of their sales from outside of the U.S., HP derives 67% from international sales. Revenues from Brazil, Russia, India, and China (BRIC) now account for 9% of the company's $104.3 billion in sales. China is now HP's third-largest market.

In this month’s issue of the Globalization Insider, Monique Floch, Vendor Manager for HP’s Application and Content Globalization (ACG) team and one of the people at HP who makes this “large global footprint” possible, shares how HP has entered the world of e-auctions for purchasing localization services. Floch discusses the process they use, the controversy around the pricing of localization services and the steps ACG has taken to mitigate this, along with results and key learnings from the group’s first e-auction.

If you are a LISA Member, log onto the LISA web site and click here to access the presentation, Reverse e-Auctions: Overview of a Controversial Buying Process, that Floch recently gave during the LISA Forum Europe in Berlin.

HP’s ACG is the company’s largest localization group, and it regularly reviews its panel of vendors. Last year, an in-depth benchmark was conducted in partnership with HP Procurement for Western and Nordic languages. In addition to applying standard vendor selection processes, HP decided to test a new approach, asking the vendors to participate in a Reverse e-Auction (real-time bidding on sample projects).

HP definitely believes that quality carries a price

ACG was extremely disciplined in how it went about its first e-auction in 2006. It was also very careful to focus on the fact that, at the end of the day, localization is still an intellectual exercise that cannot be reduced to a price per word. However, HP does plan to continue using e-auctions, but price will only be one criterion for our final choice. They definitely believe that quality carries a price.

A bit of background on ACG’s operations will enable readers to understand why the team proceeded as it did. ACG is responsible for the globalization, translation and localization into any language for all products, applications and enterprise content from HP and its customers. Supporting it in this service is a worldwide network of 50 small- to medium-sized in-country language service providers that provide more than 40 languages.

ACG’s localization provider strategy is based on the following four pillars:

• maintaining a competitive service base, according to HP’s business needs
• establishing and maintaining partnerships with providers through constant and open communication based on frequent conference calls, on-site visits and annual operational reviews
• training providers on all HP tools and processes and controlling their performance through problem solving and efficient escalation of issues
• measuring provider performance and satisfaction through monitoring volumes, performance awards and ratings by HP Project Managers

HP does not believe that localization can be reduced to simply a price per word

In 2006, ACG decided to collaborate with HP Procurement EMEA (Europe, Middle East and Africa) to conduct a request for purchase (RFP), based on an e-auction model. The RFP (based on four phases) would fit into ACG’s program of conducting regular benchmarks to review providers and of optimizing the cost of localization to HP, while being fair to all parties. It was also designed to strengthen the provider base for Dutch, French, German, Italian, Portuguese, Spanish and the Scandinavian languages.

ACG decided to use the reverse e-auction approach because it was recommended by HP Procurement. HP Services itself, for example, participates in this type of an auction on a regular basis. It also represented a good process for standardizing prices for both HP and its providers.

The purpose of a reverse auction is to push bidding down, not up.

A definition is in order: a reverse auction differs from buying at auction in that its purpose is to push bidding down, not up. In this particular case, it was an auction in which all participants bid on-line in real-time. The winner is generally the one with the lowest price, but price was only one criterion for HP in this case. Other criteria included capacity, capabilities, expertise, quality and experience.

Prior to the auction, ACG provided training to all providers who elected to participate. This included clarification of all questions raised during the pre-bid period, along with careful communication of the contract template, rules vis-à-vis units definition and expected service levels.

During the e-auction itself, the three projects on which the participants had bid during the RFP process, were put up for auction. When participants entered their bids on-line, they were allowed to see their ranking, but they could not see who else was bidding or what the other bids were. At the end of the pre-defined time limit, the event closed after two minutes (unless a new bid was entered).

ACG was very disciplined in the preparation and monitoring of this event

The e-auction was monitored throughout by ACG Vendor Manager, Procurement and Technical Support. Participants were contacted when they entered completely inaccurate figures. Participants were also allowed to submit their pricelists within 24 hours following the e-auction if they were not able to enter all of their prices.

The preparation work was essential and served everyone well. Deviation did occur on the units to be measured and had to be monitored and accounted for, e.g., some participants quoted better depending on whether it was documentation or another task involved. Other participants, who were already working with HP, priced their quotes based on that fact. The sourcing tool turned out to be a good one, but it was only a tool, i.e., not the decision maker.

HP plans to use the e-auction process in the future

ACG considers the e-auction to have been a success and plans to use it in the future. The process was well documented, and participants were trained and supported both prior to and during the event itself. ACG also provided feedback after the e-auction to all participants regarding why they had been selected or not. Participants also provided feedback – they felt that it gave them the possibility to gauge their prices against others in real-time, but there was a lot of pressure involved.

Part of the process included ACG’s collection of all final pricelists and double-checking them to ensure that there were no e-auction errors. The team consciously chose to work in partnership with the participants, instead of only relying on an anonymous tool. The e-auction was only considered to be one part of the RFP, which included the other non-price-related criteria listed above.

The market trend is to use e-auctions to buy services, whether we like it or not

Benefits included:

• price optimization for ACG and its customers
• an increase in competitiveness for service providers and for ACG
• an opportunity for service providers to gauge their prices against others
• a reduction in time spent on negotiations by all parties
• a higher volume for selected partners

According to Floch, the market trend is to use e-auctions to buy services, whether we like it or not. However, all of us need to be careful to ensure that this process does not hide the importance of qualified resources, and that it does not cause localization to lose its intellectual aspect. In other words, localization cannot be reduced to simply a price per word.

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Monique Floch has been part of the Application and Content Globalization (ACG) team in Hewlett-Packard Services since 1994, first as a Localization Project Manager, and now as its Vendor Manager. She can be reached at Monique.floch@hp.com.