Online Sourcing of Translation Services Guide to Purchasing Translation and Supporting Services Online By Renato Beninatto and Linda Souza
Online Sourcing of Translation Services By Renato Beninatto and Linda Souza ISBN: 1-933555-21-1 ISBN: 978-1-933555-21-8 Copyright 2005 by Common Sense Advisory, Inc., Lowell, Massachusetts, United States of America. Published by: Common Sense Advisory, Inc. 100 Merrimack Street Suite 301 Lowell, MA 01852-1708 USA +1.978.275.0500 info@commonsenseadvisory.com www.commonsenseadvisory.com No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Permission requests should be addressed to the Permissions Department, Common Sense Advisory, Inc., Suite 301, 100 Merrimack Street, Lowell, MA 01852-1708, +1.978.275.0500, E-Mail: info@commonsenseadvisory.com. See www.commonsenseadvisory.com/en/citationpolicy.html for usage guidelines. Trademarks: Common Sense Advisory, Global Watchtower, Global DataSet, DataPoint, Globa Vista, Quick Take, and Technical Take are trademarks of Common Sense Advisory, Inc. All other trademarks are the property of their respective owners. Information is based on the best available resources at the time of analysis. Opinions reflect the best judgment of Common Sense Advisory s analysts at the time, and are subject to change.
Online Sourcing of Translation Services i Table of Contents EDI Paved the Way for Internet-Based Online Purchasing... 1 Online Sourcing Will Grow in Popularity for Language Services... 1 How Do Buyers and Suppliers Feel about Online Sourcing?... 2 Who Should Read this Report?... 3 Online Sourcing Claws Its Way into Buyers Purchasing Portfolios... 4 Size Matters (So Does Spend)... 5 Buyers and Vendors Don t See Eye-to-Eye... 6 Price Carries Weight, but Not to the Exclusion of Other Criteria... 8 Vendors Participate If the Business Offered Is Significant... 8 Conclusions from Our Interviews with Early Adopters... 9 Buyers Reap Significant Rewards with Online Sourcing... 11 Focus on Procurement Functions Will Increase... 12 Online Sourcing Requires Planning and a Shift in Buying Models... 12 Buyers Must Level the Playing Field... 13 Danger Lurks with Inexperienced Buyers Going It Alone... 14 Making a Case for Online Sourcing... 15 Before You Do Anything, Figure Out Why and How You Will Go Online... 17 Find the Right Technology... 18 Approach Sourcing Tools as Rigorously as Corporate Applications... 19 Don t Buy More Technology Than You Need... 19 Research Available Technology and Service Options... 20 It s Show Time! Plan and Conduct the Event and Award Business... 21 Step 1: Assess the Opportunity... 22 Step 2: Gather Historical Purchasing Data... 23 Step 3: Select Suppliers... 24 Step 4: Conduct the Event... 26 Step 5: Award Business to the Lucky Winners... 28 Buyers Need to Assess Companies Unique Situations... 30 LSPs Have Little Choice When Asked to Bid at Auctions... 31 About Common Sense Advisory... 33 Future Research... 33 Figures Figure 1: Online Sourcing of Translation Increases with Revenues and Spend... 6 Figure 2: Buying Leverage Increases with the Size of Your Deal... 18 Figure 3: Typical Online Sourcing Process... 22 Figure 4: Sample Online Sourcing Bid Graph Prices Drop with Time... 29 Copyright 2005 by Common Sense Advisory, Inc.
ii Online Sourcing of Translation Services Tables Table 1: Do-It-Yourself and Commercial Technologies for Online Sourcing... 21 Table 2: Online Sourcing Challenges and Goals... 23 Table 3: Vendor Strategy Considerations... 25 Table 4: Award Criteria Considerations... 26 Table 5: Event Strategy Factors... 27 Copyright 2005 by Common Sense Advisory, Inc.
Online Sourcing of Translation Services 1 Topic Heated debates over the viability of online sourcing rage through meetings at industry conferences while rumors of muddled business deals pass through phone lines and jam inboxes from New York to Tokyo. Buyers of translation and other language-related services have been clashing with vendors in the last few years over the emergence of online sourcing commonly referred to as e- sourcing or online procurement as a viable method for purchasing language services. EDI Paved the Way for Internet-Based Online Purchasing Although Electronic Data Interchange (EDI) has been around since the late 1970s, online sourcing as we understand it today purchasing conducted via the internet emerged in the mid-1990s. Online sourcing sprang from the basic business need to maintain or improve profit margins by stimulating competition among suppliers to reduce costs. In its earliest form, e-sourcing was synonymous with reverse auctions, and this common misconception persists. Reverse auctions, or e-auctions, are online bidding events in which suppliers compete against each other in real time for a fixed duration, bidding down the price of their wares until the market comes to rest at what is theoretically fair market price. Online sourcing stretches far beyond this quest for fair market pricing; it includes other open- and sealed-bid online negotiation formats, requests for information (RFIs), and requests for proposals (RFPs). In some cases, online sourcing addresses other purchasingrelated issues such as supplier collaboration and management. Online Sourcing Will Grow in Popularity for Language Services Just how pervasive is the online sourcing trend? This report explores the move toward internet-based procurement and online auctions. As the technology and supporting services become more sophisticated, more companies will gradually jump on the bandwagon. They will designate online sourcing as a preferred method of purchasing and use it as a significant weapon in their spend management programs. Today, traditional purchasing methods such as back-and-forth negotiations and requests for quotes (RFQs) via e-mail, phone, or fax still dominate the Copyright 2005 by Common Sense Advisory, Inc.
2 Online Sourcing of Translation Services procurement scene. Companies experienced in e-sourcing will size up services for the online marketplace, with translation as a solid candidate. In our interviews and survey for this report, we found no evidence to suggest that buyers in the near-term will conduct the majority of translation purchasing via online negotiations. However, online sourcing will continue to be a part of business reality in the translation and localization industry as purchasing experts experiment with new tools and methodologies in the evolution of the strategic sourcing process. This report will help both buyers and vendors plan for that future and learn how to address immediate requirements. How Do Buyers and Suppliers Feel about Online Sourcing? In the translation and localization industry, online sourcing debuted five years ago. Since 2000, translation buyers have been slowly experimenting with online negotiations to purchase services. With the proliferation of e-sourcing over the last decade to buy a wide range of goods and services, it follows that buyers will explore how to apply this procurement method to translation services. Based on our interviews, we predict that online sourcing for language services will grow slowly but surely. Online sourcing leaves many vendors and even some buyers uneasy. Debate ranges from the applicability of e-sourcing for translation services to its impact on buyer-supplier relationships and business sustainability. Many vendors denounce e-sourcing because they feel the focus is exclusively on price, thus driving margins dangerously low sometimes too low to sustain and still deliver quality. Some buyers shun this type of sourcing because it seems too clinical an approach to a people industry, and inappropriate for capturing the intricacies of their sourcing needs. Other translation managers herald the rewards not all price-related associated with using this method, such as standardization of bids and consolidation of the vendor base. What is myth and what is reality in using online sourcing to procure services in the language industry? We decided to formalize anecdotal information from both sides of the table through interviews with translation buyers who had undertaken online sourcing initiatives and through vendor commentary on their experiences as participants. Copyright 2005 by Common Sense Advisory, Inc.
Online Sourcing of Translation Services 3 Who Should Read this Report? Common Sense Advisory believes that both buyers and vendors of translation and related services will find value in this report. Buyers will gain insight into online sourcing of translation. Companies that purchase translation and related services will benefit from the insights and lessons learned by their industry peers who have experience with this purchasing model. Language service providers (LSPs) will understand buyer motivations. LSPs will gain more insight into the decisions that drive translation managers to adopt online sourcing and how they formulate award decisions. This report will also help vendors strategize how to participate in future sourcing events. Finally, this report advocates documenting translation and localization processes, collecting data about pricing and performance, and evaluating the current capabilities and past work of suppliers. These are all best practices that will assist translation buyers whenever they choose to change suppliers, even if online sourcing is not in the offing. In turn, LSPs should expect to see an increased amount of buyer focus on such details whenever a contract is up for renewal, procurement experts enter the discussions, or executives decide to optimize corporate spending on services. Copyright 2005 by Common Sense Advisory, Inc.