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Online translation market: How is the current model able to sustain itself?
Autor de la hebra: dale newton

dale newton
España
Local time: 14:25
español al inglés
PERSONA QUE INICIÓ LA HEBRA
Association / translator lead solution. Rent. Apr 26

Dan, sure, here by economic rent I mean the part of a total price charged for a service beyond the total value of the service received by the end clients and translators.

Regarding your question to me, I couldn't claim to know what objective parameters of reasonable service fees/percentages are, but a certain percentage of that fee does represent profit, and unless the service in question cannot be done by some other means with the same quality for less profit than these agencies
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Dan, sure, here by economic rent I mean the part of a total price charged for a service beyond the total value of the service received by the end clients and translators.

Regarding your question to me, I couldn't claim to know what objective parameters of reasonable service fees/percentages are, but a certain percentage of that fee does represent profit, and unless the service in question cannot be done by some other means with the same quality for less profit than these agencies build into their prices (thereby returning to the translator a greater proportion of the sum payed by the client) what can be said with certainty is that the agency's existence represents a market inefficiency. No doubt a large part of the relative worsening of the position of translators versus agencies over time (as it appears to me) is driven by exploding marketing costs as part of a wider trend in all markets (something which does not contribute directly to the actual quality of the product in any way of course!) but notwithstanding this, I still have no doubt that the current model is sub-optimal from a translator's and end client's points of view. The existence of these agencies is not self-justifying - they wouldn't exist if it weren't for translators and clients - so if one accepts the above the question for me is, what exactly is preventing the market from configuring itself in a more efficient way?

Here are some typical commissions (also not immune to the effects of the marketing trend mentioned):

Mobile software development project intermediary commission: 5-10%
Estate agent fees: 4%
Language agency fees: 15-40% (rates already widely recognized as a problem within the industry, not just from a teachers point of view).
New car sales commission: 20-30%.

Cant find/think of anymore at the moment, but all are welcome to post anything which reaches or approaches the percentages in question here (50-100%)

I don't detect in your last post an answer to the question I had asked, and it's something I'd like to know people's opinions on here because it gets to the heart of whether, in their view, the market is efficient in free market terms, etc. I'll post again:

Is it your point of view that the reason that agencies run directly by associations/cooperatives don't exist is because they CANNOT, due to fundamental financial/economic/business reasons, do the job of regular agencies in a way which results in a higher percentage of the fees charged to the client going back to the translator in the end than those charged by these agencies in question (50-100%)?

[Edited at 2020-04-26 17:00 GMT]
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dale newton
España
Local time: 14:25
español al inglés
PERSONA QUE INICIÓ LA HEBRA
dominant presence Apr 26

Sadek_A wrote:

still maintain a dominant presence in the market


Without focusing on any specific name, I say they are not maintaining anything, they're not an active engine. Rather, they are simply a fireplace with wood "walking" right into it to be burned.



By maintaining their dominant presence I mean maintaining their ascendancy among online agencies (i.e they get the most business).

By my judgement, anyone sustaining a point of view that the marketplace is basically efficient will need to show how various factors mentioned in Sadek_A's post and others (degrees of monopolization, power privilege and control of demand gained from position in marketplace and human networks, ) either don't exist/don't have any relevance, or do exist but the marketplace is reasonably efficient in spite of them.

Also to that point, while poor self-advocacy and the naivety of translators no doubt exists and weakens their position, it seems to me that it could be argued either way to count, or not to count, as a market inefficiency as is could be considered irrational action, but could also be argued that it would be addressed through unionization/association or other possible solutions. Invite others' input on that.


 

Kay-Viktor Stegemann
Alemania
Local time: 14:25
Miembro 2016
inglés al alemán
Finding clients IS a value Apr 26

dale newton wrote:
I don't detect in your last post an answer to the question I had asked, and it's something I'd like to know people's opinions on here because it gets to the heart of whether, in their view, the market is efficient in free market terms, etc. I'll post again:

Is it your point of view that the reason that agencies run directly by associations/cooperatives don't exist is because they CANNOT, due to fundamental financial/economic/business reasons, do the job of regular agencies in a way which results in a higher percentage of the fees charged to the client going back to the translator in the end than those charged by these agencies in question (50-100%)?

[Edited at 2020-04-26 17:00 GMT]


It's not a financial/economic/business reason, but I think it's rather a psychological/personality reason. Nobody is stopping you or anyone to create an association/cooperative right now. Did you consider to do it? Do you think that combining a certain number of skilled translators to a cooperative would suffice to create a successful competitor that could outsmart agencies and pay better rates to the participating linguists?

The issue is that being a good translator is not enough to run this kind of shop. Selling products and services to anyone, and in this case mostly to business clients, is a job in itself, that needs its own kind of talents, skills, and methods. Are you a good salesperson? I'm not. And I know this from experience. My own futile attempts at selling something (not translation, for that matter) taught me the greatest respect for people who have this ability, and successful salespeople are with good reason often those with the biggest paycheck in any business, besides the boss.

On top of that, selling is not the only activity an agency needs to do. The organization and management part is quite substantial. Staying on top of hundreds of translators in dozens of languages, some of them regulars, some of them one-timers, some of them reliable, some of them so-so and some of them disappearing in the middle of a project, can give the best person a headache. Another job I would not want for me.

For those reasons, I don't begrudge the agency a penny of the money they make with my work, as long as they feed me my own rates. The translation market is very fragmented and indeed sometimes obscure, but it's the direct opposite of a monopoly: competition is fierce and ubiquitous, so that any agency that tries to increase their own profits beyond reasonable levels will be wiped out by the next agency that does not.

For the individual translator this means that you need to improve your own position in order to prevail in this market. Yes, you can improve your own rates, which essentially means that the agency might indeed have to cut their own profit in order to pay your rate. But this will not happen just because you say so. It will happen if the agency has no alternative; if you are the one and only person to do a certain job to the client's satisfaction, so that everyone is happy.

[Edited at 2020-04-26 18:14 GMT]


Dan Lucas
Thomas T. Frost
Chris S
Agneta Pallinder
Teresa Borges
Güzide Arslaner
Harvetta Asamoah
 

Dan Lucas  Identity Verified
Reino Unido
Local time: 13:25
Miembro 2014
japonés al inglés
The "commission" chimera Apr 26

dale newton wrote:
the question for me is, what exactly is preventing the market from configuring itself in a more efficient way?

Nothing. It already is very efficient. If it were not then, as Thomas and Kay-Victor both remarked earlier in the thread, there would be nothing to stop an agency behaving more efficiently and taking market share from others. That, in fact, is what the top 10 LSPs have been doing over the past decade or so: they are consolidators of an inefficient industry, mopping up smaller firms, generating economies of scale, and pushing down costs.

Your problem is that you're getting hung-up on the word "commission" because you fail to understand that the markup that agencies take is a reflection of their costs, not something they just arbitrarily stick on top of the job done by the translator. Who pays for sales, marketing and client acquisition? Who handles finding and managing translators through the translation process? Who pays for proofreading and editing, for billing and payments? Who pays for the IT, the HR, and the dozens of offices around the globe to house all the staff? Not freelancers.

Your argument is a analogous to arguing that McDonald's is taking a huge "commission" because it sells burgers for more than the cost of the individual components that make up the burgers. That's not commission. That's profit. By your yardstick, any profitable business is taking an unjustifiable "commission". I did invite you to suggest what level of profitability would be appropriate, but you explicitly declined to do so. If we can't quantify it, how can we discuss it?

But going back to the LSPs, if they are making money hand over fist through extortionate "commissions" as you call them, they should be putting up some impressive profit margins, right? Except they're not, as far as I can see.

The three largest LSPs are privately held, so they don't need to report profits, though Lionbridge (in second place) used to be listed, and in the last figures I saw back in, I think 2017, its reported profitability was pitiful (a few percent of sales). SDL, in fourth place, is listed and reports results, and only had an operating margin of 10% in 2019. Those aren't the figures of a company that's coining it. RWS in fifth is solidly profitable, at around 17% OPM, but I think they are quite specialised (medical and patents?). The Japanese suppliers all have low margins, typically less than 10%.

Compare that to, say, Intel (30% OPM) or a bunch of other large firms and you'll see that these LSPs are not particularly profitable companies, even if they are all attaining margins of 10%, which is probably not be the case. So where's the inefficiency? Where are the outsized returns? They don't exist. If you're looking for a glaring structural flaw in the industry, you're going to need to provide some actual evidence.

I didn't answer your question about "50-100% fees" because it is nonsensical, as I hope my point about profitability has just shown. Those "fees" represent agencies covering the costs incurred by their substantial footprints.

A rather fragmented response - writing this on the fly when I should be focused on my deadlines - but I wanted to get something down as you seem to be denying the basic equation of 99% of businesses, which is revenue - costs = profit. I think it's because you aren't aware that LSPs do in fact have significant costs.

Regards,
Dan

[Edited at 2020-04-26 18:19 GMT]


Thomas T. Frost
Chris S
Kay-Viktor Stegemann
Kevin Fulton
Philip Lees
Agneta Pallinder
Teresa Borges
 

Chris S  Identity Verified
Reino Unido
sueco al inglés
+ ...
Efficient? Apr 26

The only thing I would add is that, being on the inside as we are, we can see just how inefficient the agencies are. Too many people and too many systems and overreliance on poor translators whose output needs to be corrected/improved at multiple levels. In a perfect market surely they would be more efficient? Perhaps they are all just badly run. Or perhaps technology is not actually adding value as they claim.

At the end of the day, if I’m supplying twice the quality at half the
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The only thing I would add is that, being on the inside as we are, we can see just how inefficient the agencies are. Too many people and too many systems and overreliance on poor translators whose output needs to be corrected/improved at multiple levels. In a perfect market surely they would be more efficient? Perhaps they are all just badly run. Or perhaps technology is not actually adding value as they claim.

At the end of the day, if I’m supplying twice the quality at half the price, it’s not a very efficient market.
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Brian Joyce  Identity Verified
Reino Unido
francés al inglés
brave new world Apr 26

I still have no doubt that the current model is sub-optimal from a translator's and end client's points of view. The existence of these agencies is not self-justifying - they wouldn't exist if it weren't for translators and clients - so if one accepts the above the question for me is, what exactly is preventing the market from configuring itself in a more efficient way?
Dale Newton

Dale, can I just ask, are you an
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I still have no doubt that the current model is sub-optimal from a translator's and end client's points of view. The existence of these agencies is not self-justifying - they wouldn't exist if it weren't for translators and clients - so if one accepts the above the question for me is, what exactly is preventing the market from configuring itself in a more efficient way?
Dale Newton

Dale, can I just ask, are you an anarcho-syndicalist? Sound to me like you believe people work for the greater good of society, not me.
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Sadek_A  Identity Verified
Local time: 08:25
inglés al árabe
+ ...
simpler, faster path; but, only if there is will Apr 26

dale newton wrote:

would be addressed through unionization/association or other possible solutions


unionization/association? No. That's an added human factor, which has the potential to generate more conflict of interest at some point and for any reason.

other possible solutions? Yes. Those lie with the "translation brokers" themselves:

- Stop HR overflood. Don't hire more linguists than you already need.

- Stop project overflood. Don't accept projects under a minimum number of words. Don't break large projects into several tiny ones.

- Stop bulk-production mentality. We're not in textile and apparel industry.

- Stop disloyalty. Don't discard linguists over disagreement.

- Stop one-rate-fits-all. Don't miss out on all those hard, reputation-promoting projects just because you're too stubborn to adapt to fairer terms.

- Stop unbalanced, uneven job distribution. A standard quota must be applied to all hired linguists. An honest linguist doing the job themselves must NOT get undermined by a dishonest sub-broker claiming to produce tens of thousands of words a day by themselves when, in fact, they are outsourcing.

- Stop asking for unpaid work/favors. This is a business, not a charity.

- Stop charging your linguists processing fees to be able to receive their payments. Your linguists already pay fees to their respective, local banks.

- Lastly, respect to be respected, and make it worthwhile for linguists so linguists can make it worthwhile for you. Keep up the current, stubborn business model, and you will eventually shut down.

A final note: said brokers are built through funding campaigns by major market players with stakes in all related sectors, such as web development, web hosting, internet security, SEO, online marketing, and online payment.

Now, how much would a translation portal with all its secondary components cost? $100K?

How much of a back-up fund until business picks up? Another $100K?

It's not hard for, say, 10 hands-on linguists to chip in and start this $200K portal!

But, things as they are now, how can they guarantee fair competition? How can they secure stable online hosting, security, SEO, marketing, and payment when these very things are run by their competitors? How can they keep their business secrets a secret?


Nadja Balogh
 

Maxi Schwarz  Identity Verified
Local time: 07:25
alemán al inglés
+ ...
first things first Apr 27

dale newton wrote:

I have a young friend who's looking for work and speaks 4 languages and has a degree so I suggested looking for translation work. To get him going I took a look online for the sources of work which exist these days and although I hadn't been entirely oblivious to the trend I came away kind of shocked at how bad the conditions.......

I speak 5 language myself. However I only work in three of them. I am trained in the field of translation. I got my first clients, after earning my certification in this profession, by phoning potential clients locally, asking them if they would like my information, and mailing that info to those who said yes, with a "per your request in our telecom of [date]". I wouldn't look on-line first, unless I wanted to be exploited. Does your friend have any knowledge of, or training in, translation? That would go a long way.

I charge a minimum of $0.18. Those are my fees. I don't care how much agencies charge their clients on top of this. My fee is my fee. Agencies are customers, and customers also don't tell professionals what they are going to pay them. Those are the realities that I know. Those conditions you write of, I don't go near such things.


Chris S
Dan Lucas
Vera Schoen
Teresa Borges
John Fossey
Aisha Maniar
Helen Shiner
 

Dan Lucas  Identity Verified
Reino Unido
Local time: 13:25
Miembro 2014
japonés al inglés
A crude case study Apr 27

Dan Lucas wrote:
Your problem is that you're getting hung-up on the word "commission" because you fail to understand that the markup that agencies take is a reflection of their costs, not something they just arbitrarily stick on top of the job done by the translator.

I just wanted to clarify my earlier statements with a simple example. I spent a couple of decades analysing and modelling company accounts, so what is obvious to me may not be straightforward to others. I apologise if I have been (more than usually) patronising. I also apologise if what follows is equally patronising.

Imagine a very simple agency. It has one project manager employee, paid £35,000 a year for the sake of argument. It has other costs of £1,000 a year.

This company receives a number of jobs every year. These are sent out to freelance translators. Let's imagine that no effort is required: the project manager just receives a job from a client and forwards the file to a translator chosen at random from a list, without even looking at the file or checking availability.

When the job is complete, the project manager forwards the file to the client, again without even looking at it, let alone checking it. The rest of the time the project manager watches Netflix and browses the ProZ.com forums.

Total payments by the agency to all of its translators for these jobs come to £1,000,000 for the year.

I imagine that this is the kind of situation that Dale believes to exist at the average agency. If that were the case, one could understand his talk of "economic rent". The PM is doing nothing and, if anything, is a hindrance to communications.

What would the P&L statement of this company look like? Well, let's assume the 100% markup mentioned a few times in this thread. The agency takes the jobs for which it paid translators a total of £1,000,000 and charges its clients £2,000,000 - for doing nothing except forwarding emails!

How about profit? We know what costs are: £35,000 for the project manager's salary and £1,000 for other costs, plus the £1,000,000 paid to translators, so a total of £1,036,000 . Profit is revenue minus costs, so 2,000,000 - 1,036,000 = £964,0000. So the profit margin is 964,000/2,000,000 = 48.2%! Amazing. Even Intel, with a demi-monopoly in its market, only has 30% operating profit margins.

The question is whether the large agencies being discussed here have such eye-poppingly high margins. If they do not - and as I pointed out earlier, they don't - then why is that, given the hypothesis that agencies do nothing and add no value? If an agency has a profit margin of 10% instead of 48%, what does that mean?

The answer is that agencies are doing something, and they are incurring costs in the course of doing that something (sales, marketing, supplier acquisition and management, project management, QA, compliance, HR, rent, utilities, legal and other professional expenses, and so on). If they were not doing "something", they would be posting higher profits, as demonstrated above.

Do companies want higher profits? All other things being equal, higher profits mean higher dividends for the owners of the company, which is of course a positive, so yes, the company has an incentive to generate higher profits.

There will be some variation in these numbers depending on the company, the time of year, and the economic cycle. There will be operating profit margins in the low single digits (Lionbridge posted an operating margin of 4.1% for the last quarter it announced before delisting) and operating profit margins in the high teens (RWS' most recent filing). What we are not seeing is operating margins of 40% or 50% that would suggest that agencies are doing nothing. They are clearly doing quite a lot of this something.

After that, we just come back to the question I posed earlier: what level of profitability is acceptable, or unacceptable? My personal view is that in a market such as translation, with effectively no regulation specific to the industry, any profit that the firm can generate in the face of sustained and fierce competition is acceptable. Competition keeps organisations honest, which is why public-sector entities cause problems for consumers - there is no competition, and no choice.

In fact, I think pretty much any level of profit is reasonable for nearly all industries, except where a monopoly/monopsony exists. But that's a whole other thread.

I've posted too many times to this thread already, so this will be my last contribution and I will bow out and leave the last word to others.

Regards,
Dan


Christiane Allen
John Fossey
Jorge Payan
 

Giovanni Guarnieri MITI, MIL  Identity Verified
Reino Unido
Local time: 13:25
Miembro 2004
inglés al italiano
Interesting thread... Apr 27

I don't really care about the margin agencies make, as long as I can apply MY rate...

Talking about 10% or 30% profits... it's only natural that companies want to keep the profits down, so the pay less tax?


[Edited at 2020-04-28 10:03 GMT]


Chris S
 

Stephen Emm  Identity Verified
Local time: 13:25
francés al inglés
+ ...
Agencies Apr 27

I think some freelancers don't really have an understanding of what translation agencies do.

Before going freelance I worked in the UK office of a large Swiss multi-national translation company. One of our customers was a well-known French car manufacturer, for whom we translated all of the owner manuals and workshop repair manuals into English.

These documents went into 15 different languages, so you can imagine how many words this was a year (we are talking millions).
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I think some freelancers don't really have an understanding of what translation agencies do.

Before going freelance I worked in the UK office of a large Swiss multi-national translation company. One of our customers was a well-known French car manufacturer, for whom we translated all of the owner manuals and workshop repair manuals into English.

These documents went into 15 different languages, so you can imagine how many words this was a year (we are talking millions).

At the UK office, we had four staff just working solely on translating and proofreading these documents and time was also required to manage and plan the workflow.

When there was an excess of work, we sent these documents out to freelancers.

In the above case, it wouldn't be really accurate to suggest that the agency is somehow adding "nothing" it is managing a multi-million word workflow into 15 different langues and translating and reviewing most of this work in-house, managing translation memories/terminology, etc.

Why would the customer want it otherwise? Why would they want to manage this workflow and try and work with dozens of individual translators when it can employ an agency to do this for them?
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Dan Lucas
John Fossey
 

Giovanni Guarnieri MITI, MIL  Identity Verified
Reino Unido
Local time: 13:25
Miembro 2004
inglés al italiano
Because... Apr 27

Stephen Emm wrote:
Why would the customer want it otherwise? Why would they want to manage this workflow and try and work with dozens of individual translators when it can employ an agency to do this for them?


It would be cheaper...


 

Lincoln Hui  Identity Verified
Hong Kong
Local time: 20:25
Miembro
chino al inglés
+ ...
Cheaper? Apr 27

Giovanni Guarnieri MITI, MIL wrote:

Stephen Emm wrote:
Why would the customer want it otherwise? Why would they want to manage this workflow and try and work with dozens of individual translators when it can employ an agency to do this for them?


It would be cheaper...

Sure, by exploiting employees and giving them more work to do without paying them more.

The next step, of course, is to find somebody in the company who speaks a little bit of French and have them do the translation, also without paying them any more.

[Edited at 2020-04-27 17:01 GMT]


 

Stephen Emm  Identity Verified
Local time: 13:25
francés al inglés
+ ...
Would it Apr 27

Would it?

They would have to employ a team of project managers and editors, who, in this case knew 15 different languages!

Would they be able to find enough French to Finnish translators, for example?

It's easier (and probably cheaper) to contract it out.


 

Chris S  Identity Verified
Reino Unido
sueco al inglés
+ ...
Yes, cheaper Apr 27

As long as they have a consistent flow of work to occupy their staff, keeping translation in-house is way cheaper, partly because they’re not paying for the agency’s profits (and inefficiency).

Even big companies are quite capable of sourcing and using freelancers directly.

Outsourcing isn’t always the thing any more.


Giovanni Guarnieri MITI, MIL
Dan Lucas
 
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