“Liar, Liar! Pants On Fire!” is a playground taunt that kids shout when they think a playmate is lying [1]. In this post we look at the economics of telling the truth (or otherwise) about translation quality.

Is there some realistic way for customers to figure out if you are telling the truth about what you can deliver?

When customers have a hard time figuring out whether or not you provide a service that’s any better than the next guy’s, is it realistic to think you can push up the price?

It’s not just translators who struggle with these dilemmas and it’s not just translators who have to deal with customers who don’t seem to fully value the skill and effort required to produce better than average work. These sorts of problems have been the subject of much study by economists—and some of them have come up a few tricks that have been good enough to win them a Nobel Prize.

In this post, I look at a Nobel Prize-winning idea known as market signalling and begin to explore how translators might benefit from the insights it provides.

In a recent conversation with Luigi Muzii [2] we raised the question of how translation providers might more profitably “signal” quality. Here we continue the conversation:

Paul: Luigi, last time we talked we developed a model of the translation industry characterised by information asymmetry—a situation where translators have a profound understanding of what is at stake when trying to communicate across different languages, but people who need the translations—on average—don’t.

George Akerlof studied markets where sellers of products have more information than buyers about product quality. He showed that low-quality products may squeeze out high-quality products in such markets, and that prices of high-quality products may suffer as a result. He won the Nobel Prize in Economics for his insights.

We discussed how this produces a  market of uncertain product quality where buyers have difficulty differentiating between good and poor quality work.

Luigi: That’s right. Instead of buying what they need, buyers often have nothing better to go on than price to select a provider—and so translation providers end up engaging in destructive price competition. As prices fall, translation providers have little option but to seek cheaper (and usually lower quality) resources to keep their businesses afloat. This triggers a downward price-quality spiral and we see Gresham’s Law in operation—bad quality drives out the good—as we discussed in an earlier post [3].

Paul: So how can we reverse this situation? Can we imagine a situation where buyers would consider more than just price when looking for a translator, and where LSPs compete with each other to engage the most appropriate (not the cheapest) linguists for the job?

Luigi: Absolutely! We know this because linguists are not the only ones who find themselves in a situation of information asymmetry. Most of us manage to buy services from our lawyers or purchase new refrigerators without having to do a law degree or without studying refrigeration engineering first! Trying to educate the customer is an uphill battle—there are smarter ways to look at the problem.

It was an American economist, Michael Spence, who figured out how we are often able to make good decisions when we are not experts in the subject or have insufficient information. He got the 2001 Nobel Prize for Economics for his ideas.

Andrew Michael Spence is an American economist and recipient of the 2001 Nobel Prize in Economics. He is currently a senior fellow at Stanford University’s Hoover Institution.

The idea Spence developed is called market signalling [4]. He looked at what makes signals credible enough for us to choose between alternatives when we really don’t have enough knowledge or information to understand the difference.

Paul: That’s exactly the situation most translation buyers find themselves in!

Luigi: Precisely. If translator A can deliver a better service than a lower-priced competitor B, but a potential buyer is unable to independently check which provider would actually be more advantageous, Michael Spence’s ideas on market signalling provides a way to help us understand on what basis the buyer might choose the better quality service from translator A.

Paul: So how does Spence’s theory work?

Luigi: In a previous conversation we used the second-hand car market to illustrate what can happen when buyers and sellers do not have the same knowledge or understanding of the product they are buying and selling. So let’s go back to second-hand cars to see how Spence’s ideas on market signalling work in that situation [4].

Imagine that you want to buy a second-hand car and you find two cars you like equally well—but one has a warranty and the other doesn’t. You’d probably prefer the one with the warranty (and if you have the budget for it, the chances are good that you’d also be willing to pay a bit more for it). If something goes wrong with the car, the seller will fix it free of charge.

Paul: Fixing up “bad” translations by the original translator at no cost is no news in the translation industry.

Luigi: Indeed. But getting translations “fixed” (or cars repaired) can be a real hassle!

Paul: Yes. The very thought of a car breaking down is a nightmare. The inconvenience of not being able to use it while repairs are being done would a big consideration for me when buying a car.

Luigi: That’s right! You are probably more interested in getting a quality car—one that won’t break down—than you are in having the dealer pay for any repairs. In fact, you’re hoping that there won’t be any repairs!

The meaning behind the offer to fix the car at the seller’s expense goes way beyond just saving money for the buyer. Spence’s insight was that the potential cost of a warranty to the seller is interpreted by the buyer as a signal about the true quality of the car.

Paul: So what’s the reasoning behind the seller’s strategy in offering a warranty then?

Luigi: As most of us don’t have any special expertise as mechanics, it’s difficult for us to independently verify whether the car with a warranty is any better than the car without one.

Paul: Again, this is the same dilemma that most translation buyers face!

Luigi: Yes. If the seller wants to get a better price for a car which is unlikely to give the buyer any trouble, then he needs an effective method of communicating the truth about its actual condition. His message needs to be one that we are going to take seriously.

If the seller knows that the car has had a good track record (or perhaps he has had it checked out mechanically), then he can be confident about offering a warranty because he knows that the chances that we’ll come back to him demanding costly repairs is quite low. If the car is actually in good condition, then offering a warranty is unlikely to cost him anything.

Paul: I get it: the seller’s very offer to pay for any repairs is a signal that he knows that the chances of a breakdown are actually low. So that makes me more inclined to believe him because I know that he wants to increase his profit and he will not want to pay my repair bills if he can possibly avoid it!

Luigi: Exactly. It’s the potential loss to the seller that makes his message credible. He’s now in a position to demand a higher price and we are more likely to pay it because we have some confidence that he’s telling the truth. Our payoff is that we will escape the hassle of a breakdown. It’s a win-win situation.

Paul: Now, what about the lower quality cars on the salesman’s lot?

Luigi: If the seller knows that a car is actually in poor condition, he can be pretty certain that if he offers you a warranty it is going to cost him. In theory, he could push up the asking price by offering a warranty on a poor quality car. But that’s risky—he knows that the worse the condition of the car, the more likely he will make a loss from inevitable and expensive repairs later on. As buyers, we’re not so silly, and we know that too!

To make a profit, his best strategy may be to sell cars of lower quality at a lower price – and without a warranty. After all, there’s still a good market for cheap cars, just as there is a good market for lower value translations!

Paul: I can see that just promising quality is not enough. As buyers, we are unlikely to be persuaded by some sign over the car yard which promises that the seller only offers top quality cars. “Talk is cheap,” as they say. I guess a promise to deliver quality becomes credible only when the seller puts his money where his mouth is.

Luigi: Yes. This explains why the offer of a warranty is much more than a simple “added benefit” to induce the customer to buy. A good warranty is a credible signal of the actual quality of the car. Even though we may not be able to verify the quality of the car ourselves, we figure that a canny car salesman wouldn’t volunteer to pay for potentially expensive repairs unless there was a very low chance of things going wrong.

Paul: We can now see an important principle here—the one that earned Michael Spence the Nobel Prize. Here’s how some other economists have expressed it:

Actions speak louder than words. To be an effective signal, an action should be incapable of being mimicked by a rational liar: it must be unprofitable when truth differs from what you want to convey… [6]

Luigi: Yes. The salesman with low-quality cars on his lot simply can’t afford to offer the same sort of warranty as a competitor with good quality cars.

Paul: The principle is that it simply doesn’t make economic sense to offer a warranty and then to lie about the quality.

Luigi: Exactly. The seller with high-quality cars can afford to offer a really outstanding warranty because he knows he won’t have to honour it very often. In a situation where the seller knows the truth, but we don’t, we have to read the signals. If a salesman won’t match the warranty of his competitor you can be sure that he’s done his profit and loss calculations and has figured that it is not in his own financial interest to offer it to you. We may not be able to figure out the quality of a second-hand car by looking under the hood, but we can intuitively figure it out by reading the market signals.

When we can see that the seller faces a significant cost or penalty by not telling the truth, then we believe him. That’s the trick!

Paul: So how can we apply this principle to the translation industry? Are you suggesting that good quality translators might earn more if they offered a money back guarantee?

Luigi: Ha, ha! Translations are not cars, and the analogy with the second-hand car market can only be taken so far. Just offering a simple warranty may not be enough. Buyers wanting a “quality” second-hand car might be willing to pay more for one with a warranty because their ultimate payoff is avoiding the inconvenience of a breakdown.

But does the average translation buyer think about “quality” in these terms when she goes out looking for a translator?

Paul: I suspect that most buyers are not really sure about what translation quality actually means—at least not in the same way that translators tend to think about it.

Luigi: Exactly. So why would they want to pay more for some vague notion of “quality”—even with a guarantee? To get a better price for better quality translation work we not only have to make our signalling credible, but we also have to think about what the customer’s payoff is—we have to be able to communicate quality in her terms, not ours…

Paul: These Nobel Prize-winning ideas are all very well, Luigi, but we need to illustrate them with some practical examples. Let’s look at how translators might get a better price by signalling “quality” in a way that is both credible and meaningful to buyers in our next session!

Notes:

[1] “Liar, Liar! Pants On Fire!” is a playground taunt that kids shout when they think a playmate is lying. “Pants (or bottom) on fire” is a euphemism for spanking, the expected punishment for not telling the truth. (http://bit.ly/H3HH62). The taunt may be a paraphrased version of William Blake’s 1810 poem “The Liar”, http://yhoo.it/bAkK6X.

[2] See Luigi’s biography here: http://www.slideshare.net/muzii

[3] Sulzberger, P. (2012), Are bad translators driving out the good? http://wp.me/p1ptPs-Ag

[4] Spence, A. M. (1974). Market Signaling: Informational Transfer in Hiring and Related Screening Processes. Cambridge: Harvard University Press.

[5] The argument here follows the one outlined by Dixit and Nalebuff in Chapter 8 (Interpreting and Manipulating Information) of their book, The Art of Strategy (2008), W.W. Norton & Company, NY.

[6] Dixit A.K. & Nalebuff B. J. (2008). The Art of Strategy, W.W. Norton & Company, NY, USA, p. 239.

Of course, this assessment may be totally unfair to used car salesmen…

But the market for translation has many similarities with the second-hand car market. Luigi Muzii [1] has frequently made this comparison [2]. Luigi is someone who is never too shy to elaborate on a controversial viewpoint, so I asked him what he had in mind:

Paul: Luigi, do you really think that translators are like second-hand car dealers?

Luigi Muzii

Luigi: No, not at all, Paul! Well… there might be the occasional one! But people who buy and sell translations find themselves in the same sort of economic predicament as people who buy and sell second-hand cars.

Paul: So what sort of predicament is that, Luigi?

Luigi: The sellers know a lot more about the quality of the cars they are selling than the buyers do. In economics this is called “information asymmetry” – and it has a really significant effect on price.

Paul: I can see the parallel with the translation industry. Buyers have huge difficulty in determining the quality of the services they buy – but the sellers, the translators themselves, have a very profound understanding of what determines a good versus a poor translation.

Luigi: Yes, just like the second-hand car market, the translation market is characterised by uncertain product quality – at least from the buyer’s perspective. This problem was studied by the American economist George Akerlof, currently Professor of Economics at the University of California, Berkeley. He won the 2001 Nobel Prize in Economics for his ideas on this problem – the very problem that bedevils the translation industry [3].

George Akerlof – awarded the Nobel Prize for his ideas on the economic effects of asymmetrical information.

Paul: So how does the theory work?

Luigi: To make it simple, let’s imagine that there are only two kinds of used cars on the market – good quality ones (let’s call them “peaches”) and “lemons” (cars which frequently break down and require a lot of maintenance) [4].

Now suppose that the owners of lemons are willing to sell them for $1,000. There is a good market for cheap cars, and so let’s suppose that potential buyers are willing to pay up to $1,500 for a lower quality car. Let’s further suppose that the owners of peaches are willing to accept $3,000 for their better quality cars and potential buyers are willing to pay up to $4,000 for one.

Paul: If the quality of different cars on the market was clear and obvious to everyone, then the market would work well, wouldn’t it? Everyone would get the level of quality they expected and were prepared to pay for.

Luigi: Yes. Lemons would sell for a price between $1,000 and $1,500 and peaches would be traded between $3,000 and $4,000.

Paul:  But the quality of second-hand cars just isn’t obvious is it? While the sellers know whether their cars are lemons or peaches, the buyers don’t.

Luigi: Correct! All the buyers know is that half the cars are lemons and half the cars are peaches. So there’s a risk of getting a lemon when you really want to buy a peach. Knowing this, buyers would only be willing to pay around the mid-point between the most they would pay for a lemon and the most they would pay for a peach:

1/2 x ($1,500 + $4,000) = $2,750

Paul: The sellers of lemons would be delighted to get this price for their defective cars! But this certainly wouldn’t be acceptable to sellers who know that their cars are of good quality and are actually worth a lot more would it?

Luigi: Exactly. Can you imagine what a huge effect this has on the market?

Paul: I guess the sellers of poor quality cars would be encouraged and the sellers of higher  quality ones would be discouraged. Soon enough the number of lemon sellers in the market would grow and the number of peach sellers would decrease.

Luigi:  Correct. Once buyers understand that the chance of getting a lemon is now more than 50/50 the price begins to fall again. Let’s imagine that after a while, two-thirds of the cars on the market are now lemons and only one-third are peaches. The equation becomes

1/3 ($1,500 + $4,000) = $1,833

Paul: Yes, the average price has dropped! So this is what is called the “race to the bottom”.

Luigi: Yes! Naturally this example is a bit oversimplified, but we can see this mechanism at play in the translation market. The core of the problem is the inherent difficulty buyers have in distinguishing between the value different translation providers offer. When every translation provider in the market attempts to stand out from the crowd by claiming that they deliver “quality”, it’s no wonder that buyers find it hard to tell the difference between them. Promising to do “a good quality job” is hardly a unique selling proposition is it?

Where both peaches and lemons are all labelled as “top quality”, buyers are confronted with a market of uncertain product quality. This is how the translation market looks to buyers. The consequence of this sort of market is that bad quality tends to drive out better quality as we discussed previously.

Paul: What happens to the sellers of peaches in these circumstances?

Luigi: This sort of market provides an incentive for many translation companies to pass off a low quality product as a higher quality one; decreasing profit margins encourage sellers to look for cheaper, lower quality resources. This just puts more “lemons” on to the market, and so prices continue to spiral downwards making the problem even worse.

Paul: If “information asymmetry” is the problem, would educating the customer help fix the problem, do you think?

Luigi: Just think how many years it has taken you and me to develop an understanding of what translation quality means. Even then, you and I probably have very different opinions on what translation quality is or how we should assess it. What chance has the average translation buyer got to understand the question in any meaningful way?

Educating the customer may sound like a nice idea – but it’s not even a very practical approach. Customers are rarely willing to be instructed by those who are not considered to be their peers – their translators, after all, are only service providers!

Paul: So what is the answer to this dilemma, Luigi?

Luigi: When translation providers in the market signal that they all deliver “top quality”, it’s no wonder that buyers have difficulty in telling them apart. It simply provides them with a strong incentive to choose lower-priced services. The translation industry has a “signalling problem” [5]. How translation providers could more profitably signal what they offer (in a practical way that ordinary buyers are able to understand) might be a good topic for our next discussion.

Paul: How to make the profession more profitable is an important topic. I look forward to that discussion, Luigi!

Notes:

[1] AKA “il barbaro”, Luigi Muzii is a founding member and associate at sQuid. He has been working in the language industry since 1982 as a translator, localizer, technical writer and consultant. He spent 12 years in several departments of a major Italian telecommunications company, and two years in a broadcasting service company. In 2002 he started his own consulting firm to act as an information design and delivery consultant. He was visiting professor of terminology and localization at the LUSPIO University in Rome for almost ten years, and is the author of a book on technical writing, and of many papers and articles. He was one of the founders of the Italian association for terminology (ASSITERM) and of Gruppo L10N, a group of localization professionals volunteering in educational programs.

[2] Muzii L. (2012).  A Contrarian’s View on Translation Standards, eBook downloadable from  http://www.lulu.com/shop/luigi-muzii/a-contrarians-view-on-translation-standards/ebook/product-20440187.html, page 6.

[3] Akerlof, G. (1970). The Market for “Lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics. 84,3:3:488-500

[4] The example here is taken from Dixit A.K. & Nalebuff B.J. (2008). The Art of Strategy, W.W. Norton & Company, NY, USA, pp 243-244. See also Rosenthal E.C. (2011). The Complete Idiot’s Guide to Game Theory, Alpha Books, NY, USA, pp 102-105.

[5] See “Signaling Games and The Lemons Problem”, Chapter 24 in Dutta P.K. (1999). Strategies and Games, Theory and Practice, MIT Press, Cambridge, MA, USA

Luigi Muzii and Sir Thomas Gresham

Many of us have a sense of unease from what seem like conflicting signals from the translation marketplace. On the one hand, the demand for translation appears to be increasing worldwide, but on the other, prices appear to be dropping or at least are stagnant [1].

Most pundits agree that there is significant “price compression” in the translation industry. Many translators wonder if advances in machine translation or global economic troubles are to blame. I talked to a man who rejects these beliefs. He has plenty of strong views on the subject, and considers himself to be somewhat of a “contrarian” often with a lone voice on the important issues.

This is Luigi Muzii… AKA “il barbaro” [2].

Although he concedes that he never had any great yearnings to be a translator, Luigi has spent the last 30 years right in the midst of it—translator, terminologist, teacher and entrepreneur. This is what he has to say…

Paul: When you talk about the state of the translation industry, I note that you frequently refer to Gresham’s law [3]. Who was Gresham, and what is this law?

Luigi: Sir Thomas Gresham was an English merchant and financier who worked for King Edward VI and his half-sisters, Queens Mary I and Elizabeth I. He observed that coins which contained the highest quantity of gold or silver would quickly disappear from circulation. As long as these “good” coins had the same face value as the “bad” ones, people would hoard them or melt them down allowing the less valuable ones to flood into circulation.

On the basis of this observation, in 1857 a Scottish economist, Henry Dunning Macleod [4], coined the term “Gresham’s Law”—an economic principle commonly stated as: Bad money drives out good.

Paul: Do you think that this principle is in operation in the translation industry?

Luigi: Most certainly. My observation is that the bad translators drive out the good ones. To understand why and how this happens, we have to understand some of the structural problems which cause so much pain in the industry.

Paul: So how would you describe the industry’s most pressing pain point?

Luigi: The most damaging problem is that the main parameter in selling/buying translation is price–and usually price alone. Rather than looking to understand and meet their customers’ real needs, language service providers find themselves trapped in a downward spiral of destructive price competition. The effects are passed down the line affecting all players in the industry. The damage is made worse when professional translation services are auctioned via portals like ProZ and TranslatorsCafe. Projects are offered to a large, undifferentiated mass of translators and those who offer the lowest bids generally win the tender and get the work.

Paul: So, how does this sort of price compression “drive out” good translation resources replacing them with worse ones?

Luigi: The industry is dominated by a large number of vendors who often add little or no value to the services they buy in from linguists. These resellers typically compete against each other, not on the basis of skill or efficiency, but on the basis of price. This outsourcing and reselling approach is an obsolete and inefficient business model in my opinion.

To survive and withstand price competition in the market, resellers who are unable to improve or streamline their processes find they have no choice but to put pressure on the rates they pay to their translators. This approach marginalises the best translators who become increasingly unwilling to work for such poor rewards and the net effect is that they are eventually squeezed out of the market.

When good, professional translators have the same “face value” as amateurs or moonlighters, we see the application of Gresham’s law in full force. But it’s not just translators–it applies to translation tools, production methods and other translation resources too!

This process has begun to backfire on both the customer and the middlemen who perpetuate this obsolete system. The unprecedented growth in demand for translation in tandem with the effect of Gresham’s Law will lead inexorably to a chronic shortfall of qualified language specialists. The gap between the lower and the higher end of the translation labour market is widening and the process will inevitably continue.

Paul: Is there any real evidence for a shrinking supply of “good” translators?

Luigi: For the past six years CSA have conducted a regular business confidence survey of translation players. In every quarter since they began conducting the survey, LSPs have increasingly complained about not being able to find enough qualified language specialists to meet their needs. [5]

Paul: A diminishing workforce of trained and experienced professionals available to LSPs suggests a crisis ahead for the industry. Do you foresee a collapse of the existing system?

Luigi: When asked to foresee the future, Renato Beninatto prompted me to think of a statement from Wacker and Taylor’s The Visionary’s Handbook [6] which says “The closer your vision gets to a provable future, the more you are simply describing the present”. A similar sentiment was expressed by John Maynard Keynes’s who said “The long run is a misleading guide to current affairs. In the long run we are all dead.” [7]

That’s why I like to see myself as an observer and analyst rather than a visionary or a diviner.

Nevertheless, I have long been warning that the translation industry’s typical business model is obsolete and ineffective. Price competition has undermined the very foundations of the whole system. Reducing staff is impractical in an industry almost entirely based on outsourcing and freelancing, therefore price competition can be only be sustained by cutting direct costs. Generally this can be pursued only through lowering the rates paid to translators and using—but not investing in—technology. And this takes us back to the vicious circle implied in Gresham’s Law.

Paul: Do you think that new, more efficient business models will emerge as a result of this evolving crisis?

Luigi: The demand for translation has been increasing steadily over the last three decades due to the explosion of content made possible by information technology. This growth will continue—and this is no prediction! Content is doubling every year and this growth is outstripping the rate at which translators are entering the profession: it takes many years to create a professional translator. The only way to handle this growth in content is by increasing translators’ productivity, but the translation industry remains a relatively low-tech industry where the “do more with less” philosophy is an imperative that very few can (or are willing) to follow.

In the immediate future I see the translation industry remaining highly fragmented with an even larger concentration of the volume of business in the hands of a bunch of multi-language vendors (MLVs) who hire translators from the lower layer of the resource market to keep competing on price. This side of the industry will soon count for more than a half of the pie. The other side will be made up of tiny local boutique firms and tech-savvy translator pools making use of cutting-edge collaborative tools.

Translation is rapidly shifting online and the costs associated with the online economy are trending toward zero at a very fast pace. The prevailing model will be “freeconomics” where basic services are offered for free, while advanced or special features are charged at a premium. The future is in disintermediation and collaboration.

Paul: What’s the take-away for translators, Luigi?

Luigi: The winners will be those translators who can leverage their specialist linguistic skills by increasing their productivity with advances in technology. These are the ones who may ultimately escape Gresham’s iron law.

Notes:

[1] Translation Prices – Up, Down, or Unchanged?, Donald A. DePalma, Common Sense Advisory, July, 2012. http://bit.ly/McUPnj

[2] Luigi Muzii (“the barbarian”) – brief biographies can be found here http://www.slideshare.net/muzii and here http://thebigwave.it/authors/#muzii

[3] Gresham’s Law http://en.wikipedia.org/wiki/Gresham’s_law

[4] Henry Dunning Macleod: see http://en.wikipedia.org/wiki/Henry_Dunning_Macleod

[5] Translation Demand-Supply Mismatch, Donald A. DePalma, Common Sense Advisory, May 2012. http://bit.ly/R6SgrP

[6] The Visionary’s Handbook: Nine Paradoxes That Will Shape the Future of Your Business (2000), Watts Wacker, Jim Taylor and Howard Means, HarperBusiness.

[7] A Tract on Monetary Reform (1923), John Maynard Keynes

“I always get paid in full – no fees or deductions and in my own currency. Is that magic, or what?”

What magic is making this translator so happy?

(Hint. Her foreign customers always pay her invoices in full - in her own currency and free of any foreign exchange charges or bank fees.)

Is this just some sleight of hand or are we talking about real, practical solutions here?

In several previous posts, I looked at some of the problems translators have when getting paid by translation agencies and direct customers outside their own currency zone.

In this post I look at a potential solution from “Translator Pay”, an international money transfer system purposely designed for translators.

When working with foreign customers, translators often discover that they get paid less than they expect and LSPs frequently find the process of paying their freelancers a costly, time-consuming process.

Given that translators must inevitably work in an international environment, it makes sense to eliminate some of the annoying obstacles that get in the way of doing business across national boundaries.

How can translators (freelancers and translation companies alike) get paid the full amount of their invoices in their own currency - free of deductions, foreign exchange charges and bank fees?

In a previous post, we saw how Frank, an American freelance translator, ended up receiving some $US 60 less than he expected for a translation job he did for an agency in UK. Not only were sending and receiving fees automatically deducted from his payment  by the banks, but he also took a hit from a not-so-good exchange rate when pounds were converted into US dollars.

In a different scenario, Veronica’s London agency had to pay all the fees to get Frank paid. Veronica discovered that she had paid him 15% more than she had originally budgeted for.

So here we have a dilemma – either Frank gets paid in full (and Veronica feels she is out of pocket), or Frank’s translation fee shrinks while Veronica manages to avoid all the costs in getting the money into his bank account. If one of them wins, the other guy always loses [1].

Well, why don’t they just share the costs of international transfers? Would that work?

Sharing is getting close, but negotiating this is far more difficult than it sounds.

It would be hard for Frank to know in advance what Veronica’s sending fees are going to be. What bank or money transfer company will she choose? What sending method will she opt for? What will the exchange rate be on the day the transfer is made? Does Veronica have any incentive to look for the best possible exchange rate? Or would she check who is offering the lowest transfer fees? Can she even afford the time to go to such trouble?

Veronica may very well be happy to share the costs of an international transfer with Frank – in principle. But to negotiate splitting the fees, she would also have to know what fee Frank’s US bank will charge. With dozens of other freelancers to worry about, (all in different countries, all with accounts in different banks, all of which have different sets of fees) just making all the payments is trouble enough without this extra task.

Let’s face it, Veronica’s best strategy is to pay all her foreign freelancers in British pounds via the bank’s default system. She has no real incentive to hunt down the best possible exchange rates. That can just be left to chance – after all how many dollars Frank gets for her pounds is Frank’s problem. Why should she have to worry about the fees either? By default, the banks will automatically deduct all their various sending and receiving fees from whatever money she  sends off to Frank. This is Veronica’s most rational, easiest and cheapest option – isn’t it? She’s not running a charity here!

So now let’s look at the problem from her freelancers’ point of view. Ideally, they want to receive the full amount of their translation fee – why should they settle for less just because Veronica happens to be in a different country? It’s her problem if she wants to use foreign  translators. So she should pay!

So why don’t more freelancers ask Veronica’s agency to take full responsibility for paying all the fees and to make sure that their invoices are paid free of any deductions? [2] The main reason is that many of them will worry that the overseas LSPs they work for will think that such a request is a demand for a higher fee. They fear that foreign LSPs will consider them as troublesome or too expensive and stop sending them work.

Thus many freelancers feel that they are in a weak position and just accept the situation (but feel very resentful as a result). Some just refuse to work for clients outside their currency zone to avoid the problem altogether.

So what would it take to change this situation so that both parties get a benefit? Is there some sort of trade-off we can engineer which would turn this into a practical win-win situation? [3]

We can reformulate the question like this: What problems would we have to solve for Veronica to motivate her to ensure that Frank always got paid 100% of his fee in his own currency?

Now, Veronica really does have some big, messy admin problems associated with paying her freelancers. She has to manage the banking details of dozens of foreign translators; one wants to be paid via PayPal, another wants to be paid via telegraphic transfer via the bank and yet another one wants to be paid in some other way. Going through the motions of paying each translator one by one in his or her own particular way, sorting out all the bank accounts, the exchange rates and different currencies can eat up a lot of time.

… then Veronica gets this email:

Dear Veronica,

Frank and his fellow translators overseas want to get paid the full amount of their invoices, in their own currency – just like they do when they get paid by their local customers. However, we understand that it’s very expensive for you to organise this for all your foreign translators.

But, let’s say we could:

Completely eliminate any “receiving fees” when making international transfers? Frank would be very pleased if he discovered that his bank had stopped charging him a $16 fee every time you pay him. If we can get rid of this, you can be sure that your other freelancers won’t be pestering you to pay them something extra to cover their bank fees.

Hunt down more favourable exchange rates on your behalf – better than you could ever get from your bank? The better the exchange rate we can find, the less you’ll have to pay (in your currency) to ensure that translators like Frank get their payments in full in their currency.

What about those bank “sending fees” – your bank charges you £17 (and sometimes £30)? Now, either you have to pay them or they get deducted from Frank’s payment. Either way, one of you is going to be unhappy about it. What say we can get someone to send the money to your translators for, say, £5? Would that make a difference?

Now we know that, on average, an agency like yours spends around  14 hours a month just processing payments to freelancers like Frank [4]. Multiply that by the hourly cost of your company’s overheads, and then multiply that by 12 months and you’ll find that paying your freelancers can be very expensive. Instead of 14 hours a month, let’s say it just took you an hour, or even just half an hour to pay them all? [5]

Let’s say you didn’t have to store and manage all your freelancers’ constantly changing bank account details (let’s put all that sort of information securely in the cloud and let the freelancers manage that by themselves).

What about a system where you just enter the amount you have to pay each translator and then you just click a button and the system sorts out which translators get paid in which currency, works out the best exchange rate for each one and deposits the money into the correct foreign bank account.

Now, let’s also imagine that this system is completely free. You wouldn’t have to buy anything or pay any subscription fees. You can just use it. Of course it would be completely free for Frank and his fellow translators too.

Do you think you’d go for such a system? I’m sure that Frank and the other translators would think that you’re just the best agency around!

Your sincerely,
Translator Pay

PS. It’s not just Frank who can get paid the full amount of his invoice in own currency. As a translation agency, you also need to get paid by your foreign customers. You just need to ask them to pay you via Translator Pay. You’ll get the full amount of your invoice in your own currency just like Frank – free of any bank fees and forex charges. Of course, your customers will like the system too – with exchange rates better than their own bank can give them you, they get to save money too. We don’t think they’ll even notice the £5 transfer fee.

Magic tricks?

Not at all! It’s all just common sense. Translator Pay will be provided by an established international money transfer provider who has been prepared to invest some money in a new system to meet the special needs of translators. [6]

There’s no catch – it will be free for all translators, LSPs and their customers to use. A small group of LSPs is about to begin testing the system. When that’s finished anyone in the translation industry can use it!

Next post: Who is behind Translator Pay? How will it work in practice?

[1] The analysis of the problems Frank and Veronica have is taken from game theory, which was developed in the 1940s and 1950s at Princeton. In game theory this situation is called a zero-sum game. The the sum of the gains of one player equals the sum of the losses of the other. See http://en.wikipedia.org/wiki/Zero_sum

[2] Most freelancers think LSPs should pay the fees. See The Banks vs. Translators: What do freelancers think about how they get paid? http://bit.ly/LRlFXl

[3] A non-zero-sum describes a situation in which the parties’ combined gains (in this case) are more than zero – i.e. they both “win”.

[4] The headache and heartache of paying translators. How LSPs feel about cross-border payments. http://bit.ly/LIByuH

[5] At the time of writing (July 2012), the Translator Pay system is about to begin live testing with a number of LSPs. More reliable statistics on how much time it will save LSPs will be available soon!

[6] I too have also invested a small sum in Translator Pay to help get it developed.

Dear Translator,

XYZ Translations is a leading language service provider in London, UK. Attached, please find a document in German which we need to have translated into US English. It is an analysis of the German market for fixed-income government bonds denominated in euros. The English version is intended for a sophisticated readership in the USA. If you are willing to take on the work, we propose a fee of £250…

Frank looked at the email. An American translator well versed in the intricacies of translating financial material from German, he has always relied on local US clients and LSPs for work. An offer like this, from a foreign customer, could be a great opportunity to expand his client base.

“Now, what does £250 mean in dollar terms,” he wonders. ” … how many US cents per word would I be earning?”

Frank does a quick word count of the German document and, using his trusted conversion formula, he estimates that the finished job would be about 3,200 English words.

Now he needs to figure out what £250 is in US dollars. He remembers how to use Google’s quick currency converter and types “250 GBP to USD” into Google’s search box:

“Now, $392 divided by 3,200 is just over 12 cents a word.” he figures. “OK, it’s a bit on the low side for a text like this, but it’s a good start and it will be great to have a new customer in the UK.”

He emails his acceptance of the job to his new London customer.

Has Frank just set himself up for one big disappointment?

The job proceeds without a hitch and Frank delivers his translation on time. XYZ Translations are delighted to have a financial expert on their team and are very happy with his work.

The day duly arrives when the agency wants to pay Frank the £250 they promised.

Veronica, the responsible project manager at XYZ Translations, logs into the company’s online bank account and looks for an “international money transfer” function. She sees a bewildering array of options and finds that charges to send money abroad range from £9 to £30 per transaction ^[1]. The difference seems to depend on the destination country, on how long it will take to deliver the money and on whether the transaction is processed by the customer online or through a bank employee.

Unfortunately, the list of countries for the cheapest option doesn’t seem to include the USA and while the “Priority Payments” option is available for the USA, it’s the most costly at £30 per transfer. To Veronica this seems like a lot of expense just to wire £250. She notes, however, that if she avoids contacting the bank by telephone (or in person) and completes the whole transfer process online, it will only cost £17.

She selects the £17 option and clicks the “Make a transfer” button and is then prompted to enter the amount she wants to pay. She enters £250.

Has Veronica just made a big mistake?

She doesn’t realise that the bank’s £17 transfer fee is going to be deducted from the £250 she is supposed to sending to the USA. Poor old Frank’s earnings have just dwindled down to £233!

The bank’s online system automatically calculates how many US dollars it will send at the bank’s current exchange rate of £1 to $US 1.5078 ^[2].

Frank’s £233 is duly converted to US dollars and is dispatched to his account at Bank of America. Some days later, Frank is notified that the payment has been credited to his account.

He looks at the amount in disbelief!

No, not the $US 392 he was hoping for!

No, not even the $US 351 which was dispatched from London by Veronica a few days ago.

Frank sees a deposit of only $US 335!

Is this some sort of mistake? Poor Frank hadn’t figured that his own bank would also deduct a further $US 16 as a “receiving fee“ ^[3].

Franks does a quick calculation and divides his final payment by the final word count of the job he delivered. To his horror, he discovers that he has worked for only 9.5 cents per word – a far cry from the 12 to 15 cents he usually receives from his local US customers. His final payment shrank by almost $US 60 from his original expectations.

Something’s not right here…

XYZ Translations have paid the £250 they had promised to Frank and feel that they have fully honoured their obligations. But all the costs of getting the money across the Atlantic into Frank’s bank account were entirely at his expense.

Now, let’s replay the story…

… but this time, Frank is a bit wiser to how the system works.

Frank gets the offer of £250 from XYZ Translations. He does his word count, checks the online exchange rate on Google and again decides that he’s happy to settle for $392. But this time his reply is:

“Dear XYZ Translations,

Thank you for your offer of £250 for the German to English job. I note that at today’s exchange rate (1.5707), which I checked on  Google, your proposed fee is equivalent to $US 392. I would be happy to undertake your project for this amount, plus the $US 16 fee my bank charges to accept foreign payments – i.e. $US 392 + $US 16 = $US 408.”

What are XYZ Translations going to make of this?

Veronica looks at Frank’s response and figures that Frank only appears to be asking for an extra $US 16 over her original offer of £250. Using the same exchange rate quoted by Frank, she figures that that’s about £10. Veronica decides that it’s not such a big amount so she quickly agrees and the project proceeds.

Has Veronica made a costly mistake?

It’s now payday again. Veronica’s task is a little different this time. She has to figure how many pounds she needs to pay to ensure that exactly $US 408 is sent off to Frank.

Let’s assume that the GBP:USD exchange rate applied by XYZ’s local bank in London is still £1 to $US 1.5078 ^[4]. Veronica multiplies $US 408 by the inverse of the exchange rate (1 divided by 1.5078 = 0.6632) and discovers that she needs to pay Frank £270.

Hmmm… that’s not an extra £10, but £20 more than she had budgeted for!

Now she has to remember to add in the London bank’s “sending fee“, which is £17.

Oh, dear! The total now comes to £287. That’s £37, or almost 15 percent, more than her initial offer of £250!

Something’s wrong here. This time XYZ  Translations feel they are out of pocket, while Frank gets off unscathed and receives his payment in full with no deductions at all.

So what went wrong?

1. Frank’s use of Google’s currency converter helped to set up a very misleading expectation of how much he would receive from XYZ Translations. Veronica too, relied on this rate when figuring out how much more she would have to pay for the extra $US 16 Frank requested. The foreign currency rates provided by Google are supplied by Citibank and represent the mid-point between the bank’s buy and sell rates. This rate might be ideal for economists to make comparisons between different countries, but it is not the rate that banks apply to international money transfers. The mark-up on the day’s exchange rate is how banks make their profit when exchanging currencies. The actual buy or sell rates that a bank will charge can vary by up to about 5% above or below the “average” rates quoted on Google or on many other online foreign exchange calculators.

2. Frank and Veronica failed to specify who should take responsibility for paying the costs of making the cross-border payment (or whether such costs could be shared). A critical part of the price negotiation was simply ignored and left to chance.

3. When making transfers to their freelancers, LSPs need to check if the bank’s fee is inclusive or exclusive of the amount being sent.

4. Making comparisons between different payment providers is always very difficult. Figuring out how much any international transfer will ultimately cost is not easy. Many banks and money transfer companies that appear to charge very low fees bury their mark-up in the exchange rate. Others may provide a good exchange rate, but charge sizeable fees.

5. Most banks will charge a fee for not only sending money abroad but also for receiving it. These fees can vary wildly from bank to bank and country to country.

6. Making cross-border payments via the major banks can be a very expensive exercise. But there are many other players in the market place who will do the job for a lot less. The trick is to find a reliable operator who has a low fee structure and has access to exchange rates that are better than those offered by the major banks.

So, who should pay the fees?

Here is the dilemma.

For a freelance translator like Frank, getting $US 60 less than expected on an average-sized job is a small disaster. Given the difficulty of figuring out the cost of international money transfers, it’s not surprising that Frank might prefer to stick with his local customers rather than risk taking on foreign ones.

XYZ Translations, too, is going to think twice before taking on foreign contractors who demand payment in their own currency and who may be unwilling to share the costs of international money transfers. Anyway, figuring out how to pay lots of foreign freelancers every month in many different currencies can be very time consuming – and very messy.

So I went looking for a better solution…

Don DePalma of Common Sense Advisory reports that the global demand for language services continues to grow but that prices continue to fall. He attributes the problem to a number of factors – the ease with which low-cost suppliers can now market their services globally, advances in technology allowing recycled translations to be billed at lower rates, and general economic pressures on the buyers ^[5]. Luigi Muzii, however, argues that the highly fragmented structure of the industry preserves outdated and inefficient business models ^[6].

Whether such price compression can be accounted for by external pressures or whether they are due to internal structural weakness, there is no doubt that we must search for new ways to strengthen the industry. To grow and prosper, the translation industry needs – at the very least – to be able to trade globally without the hassle, the uncertainty and the expense imposed by the conventional banking system.

Both LSPs and freelancers are part of the same ecosystem, and struggle with the same economic pressures. Frank and Veronica need to be able to do business with each other in a transparent and mutually beneficial manner.

Our industry needs an international money transfer system that…

• is transparent, in that it allows both parties to an international transaction to understand the full cost of that transaction in their own respective currencies;
• allows the parties to factor these costs fairly into their pricing;
• doesn’t hinder international business dealings through excessive bank charges;
• is easy to use and can handle multiple transactions in many different currencies on a routine basis. It needs to be cheaper and easier for LSPs to pay their foreign freelancers in their own currencies.

So I went looking for an international payment provider who would agree to set this up – someone who would be prepared to provide inexpensive money transfers and build an online user interface that meets the translation industry’s specific needs.

Someone with a magic wand, perhaps?

… well, I found one.

Next post: What is Translator Pay? Can it really solve our problems? What’s the catch? When will it be available? How will it work? What’s my role in all this?

For a sneak preview, you can visit Translator Pay’s website at www.translatorpay.com where you are welcome to register your interest if you would like to be notified by email when the system is launched.

Notes

[1] The sending fees quoted here were taken from HSBC’s money transfer rates published on-line at http://www.hsbc.co.uk/1/2/international-money-transfer/details as of Friday, 20th July 2012.

[2] The GBP/USD foreign exchange rate advertised by HSBC on http://www.fxcompared.com/ as of Friday, 20th July 2012.

[3] Based on Bank of America fees for receiving international transfers:  http://www.bankofamerica.com/deposits/checksave/index.cfm?template=lc_faq_wire; Citibank https://online.citibank.com/US/JRS/pands/detail.do?ID=WireTransfers as of Friday 20th July 2012.

[4] The GBP/USD foreign exchange rate advertised by HSBC on http://www.fxcompared.com/ as of Friday, 20th July 2012.

[5] Donald A. DePalma (July 2012), Translation Prices – Up, Down, or Unchanged? Common Sense Advisory, Inc http://www.commonsenseadvisory.com/Default.aspx?Contenttype=ArticleDetAD&tabID=63&Aid=2906&moduleId=390

[6] Luigi Muzii, (July 20912), Make yourselves sheep and the wolves will eat you, The Big Wave of Language Technology, http://thebigwave.it/quirks/sheep-and-wolves/

LSPs depend on their foreign freelancers. But they say that paying them is not only very time-consuming, but an expensive exercise.

Paying and getting paid – it’s a pretty touchy subject. Few of us are immune from strong feelings on the subject.

In a previous post, I looked at what freelance translators felt were the main frustrations of getting paid across different currency zones.

In this post I look at the problem of international payments from the point of view of the translation agencies – the largest group of payers of independent translators. (I’ll leave the question of the difficulties language service providers face in getting paid themselves by their foreign clients to a future post.)

Taking on lots of geographically dispersed freelance translators as subcontractors is in the nature of the game – but it raises all sorts of risks and awkward problems that many other small businesses don’t have.

Promising to pay subcontractors involves multiple risks.

The translation business is still emerging from an age when it was something of a “cottage industry” when it was held together by a bunch of enthusiastic linguists. They were clever, but typically didn’t have a lot of smarts about how to run a business. The vast majority of LSPs today are still small businesses – smarter, but still with relatively little financial leverage. The industry is highly fragmented – made up of tens of thousands of tiny companies. In 2011 CSA reported that almost 70% of the market was made up of companies with just two to five employees [1].

While bilingualism is very common, well-honed translation skills are not. In an apparent contradiction of the laws of supply and demand there is significant pressure on price for translation from customers who find it hard to distinguish between amateur linguists and skilled professionals. The industry therefore is always under price pressure, and the majority of language service providers work on relatively narrow margins.

Committing to undertake a new translation project for a customer typically involves assembling a virtual team of appropriately qualified subcontractors – frequently located in different countries. Small and medium-sized LSPs gamble on the risk that their customer will ultimately pay them, and proceed to invest their meagre capital in the labour of its project managers and take on new liabilities by promising to pay its global translator team.

Increasingly, customers are foreign too. Accepting work from a customer in a foreign country is a risky business – the customer might not only not pay, but has a good chance of escaping any efforts at collecting the debt. If the customer is in a different currency zone this also implies an exchange rate exposure for the LSP. The price might sound OK at the time the job is being negotiated, but by the time the job has been completed and payment is made, fluctuations in the exchange rates can potentially turn a profitable job into a loss.

If the freelance subcontractors involved in the project demand to be paid in their own currency, forex fluctuations are also a source of wildcard factors which can further complicate attempts to make the job profitable.

What frustrates LSPs when paying their subcontractors?

I asked a small group of LSPs to define their main frustrations when making payments to their foreign subcontractors. Although the sample size was very small, three topics emerged as the most salient:

PayPal came in for some criticism. In theory, PayPal should solve many problems for LSPs. Sometimes freelancers are owed quite small amounts, but the cost of transferring relatively tiny amounts around the  globe via the banks just doesn’t make sense because the fees are so high in proportion to the amount being paid. PayPal was specifically designed for international transfers of such small amounts. However, when describing the problem of holding small payments until the total is large enough to justify the transfer fee, one LSP wrote:

So [the translators] sometimes go unpaid for quite a while and it’s frustrating. We urge them to sign up for PayPal but for some reason some are reluctant to do so.

Perhaps it isn’t so surprising that many freelance translators are reluctant to use PayPal. After the translation agency has paid PayPal a fee to transfer the money, PayPal deducts a significant additional chunk from the payment when the translator attempts to claim it – providing a well-founded basis for some resentment. Heartache for the LSP, too bad for the translator.

Another LSP noted that “PayPal payments require more management as they often bounce back and this needs monitoring.”

It is inevitable that freelancers are going to change their bank account details from time to time and some will also want to change the method used to pay them – one exasperated LSPs noted that sometimes this was “multiple times a year“. (Some good solutions to these particular sorts of frustrations will be discussed here in a future post.)

It is unsurprising that LSPs frequently mentioned that foreign exchange fluctuations, bank fees and associated money transfer costs were a constant annoyance. Sixty percent of freelancers engaged by the LSPs I surveyed live in a different currency zone and therefore cannot be paid inexpensively via the local banking system.

When asked about the costs associated with making payments to their external translators (i.e. transfer charges, bank fees and forex commissions), 60% of LSPs found them to be expensive or very expensive.

Not only are international transfers generally expensive, but interestingly, LSPs typically tend to choose the most expensive methods when paying their freelancers. Sixty percent of the LSPs surveyed said that they often paid their translators using telegraphic transfers (“wires”) via the banks and 80% said they often use PayPal. Both are expensive in comparison with many other methods.

There are potentially huge saving to be made – but using the most expensive payment method is often the path of least resistance. Finding out who might offer a less expensive service or who has more competitive exchange rates involves isn’t as straightforward it might seem. Given the difficult nature of the business, and how easily fees and commissions can be buried in the transaction, shopping around and finding the best service is actually extremely difficult and very time-consuming. So sending an expensive “wire” via the bank might get the business done – but over a year, (and over many payments to many translators), this can add up to a pretty big sum. Who has the time to do a big research project to find a better way when there are more pressing matters for a small business trying to stay afloat?

Perhaps it’s understandable that only 20% of LSPs always ensure that their freelancers are paid in their own currency. Presumably most wish to avoid the cost and trouble of handling foreign currency exchange if they can. But this leaves the trouble and the expense with the freelancer. As both LSPs and freelance translators are under price pressure, the all need a sensible way to reduce their costs.

One has to ask – is there a legitimate way to help both?

Maybe there is…

Paying freelancers is not only expensive, but fiddly and time-consuming.

Maintaining up-to-date information about freelancers’ banking details, keeping track of their preferred payment providers, the appropriate currency to use for each translator and documenting their individual rates or price arrangements can be a challenge – especially as such information tends to change quite frequently. Unexpected changes to such details add to the stress of the person with the responsibility for making payments to the subcontractors by upsetting payment schedules – often carefully prepared well in advance.

I asked the LSPs to what extent they agreed that “Paying lots of small amounts to subcontractors is very time-consuming”. All of them agreed – 60% of them “strongly agreed“. I then asked them how long it actually takes to do all the administration to pay their subcontractors each month. On average, LSPs in the survey spend 13.5 hours (range 1-40 hours) doing this fiddly task. Clearly a headache for many.

Sixty percent of the LSPs agreed or strongly agreed that ”A payment system which paid subcontractors automatically handling various currencies” would be better than the system they currently use.

What wizardry would be necessary to take the pain out of paying foreign freelancers each month?

Let’s just imagine what it might be like…

What about a system which would simplify the messy administration of paying freelancers, when with the click of a button, all the translators get paid automatically? Each in his or her own currency and directly to the correct bank account without having to keep this constantly changing information up to date? One click and you’re done. Would that do the trick?

Or, could we imagine a system which was actually inexpensive?  One that perhaps would track down the lowest possible exchange rates and find the cheapest possible route to get the money transferred – without inflated bank fees and commissions? And without the accounts person having to figure it all out?

Now what about a system which would keep the freelancers happy by ensuring that they got 100% of the amount they were expecting in their own currency – without bank fees, forex commissions or other deductions?

The very nature of our translation profession is international. As translators, from the solo professional at home to the big agencies, we increasingly need to be able to trade globally as easily as we can do business locally. After all, that’s the promise of the “global village”.   So this “foreign money” problem needs to be solved.

Could we do that?

Could we have such a system? Just for us translators?

Would the banks let us get away with it?

Next post: Well, I went looking for some sensible solutions and this is what I found…

Notes

[1] The Language Services Market: 2011, By Nataly Kelly and Robert G. Stewart, Common Sense Advisory, Inc.

In a previous post I posed the question – Does the global banking system disadvantage translators?

To look at this question more closely, I carried out a small survey (n=40) to gauge how solo translators and small translation companies feel about getting paid – especially by customers in foreign countries [1].

In this post, I look specifically at how freelance translators responded to the survey.

Translators express their frustrations

I first asked the survey respondents to tell me what frustrations they typically have when getting paid by their customers – both direct clients and foreign agencies. Here are the topics that came up most frequently:

Comments from translators such as

Bank transaction expenses, late payments and lost income, e.g. due to exchange charges, fees paid to online services such as PayPal…

were typical.

While global banking is highly regulated, this doesn’t mean the system is particularly fair or designed in the interests of individuals who want to do business across national boundaries. Some of the available payment systems (including the commercial banks, PayPal and other international money transfer services) frequently make their money by charging fees to both the payer and the payee and then taking a good margin and other commissions on exchanging one currency for another. This can make international transfers of small amounts an expensive operation.

I asked the survey respondents how frequently they had to pay bank fees or other charges to receive their money.

80% of the translators surveyed regularly pay fees just to get their hard-earned cash into their bank account. Those who never pay fees typically contrive to avoid them by only taking on customers within their own currency zone.

My ‘foreign’ clients are intra-EU so there is neither currency nor fee issues (bank transfers are free). But that’s the reason I systematically refuse to work with US or Australian clients…

commented one respondent.

When asked how they felt about such bank fees, commissions and foreign exchange charges, over 62% of translators rated them as high or very high.

Whether or not foreign customers are willing to pay in the translator’s currency significantly affects the cost of getting paid. I asked the survey respondents to tell me who makes the decision about which currency they’ll get paid in.

Less than a third of the translators surveyed feel they are able to insist on being paid in their own currency.

Agreeing to be paid in a foreign currency carries a significant risk. By the time you get paid, (often a month or two later) the value of the payment, when converted into your own currency, will most certainly have changed. Sometimes you might be lucky enough to make some windfall profits, but on the other hand there is also the possibility of ending up disappointed that the “good price” you offered to your client has withered into a small loss… On top of that there is the cost of the forex conversion (which may include various fees and commissions some of which are not always disclosed). The exchange rate used to convert the currency may not necessarily be the best available or the most favourable to you.

The particular money transfer system selected is also an important consideration which affects the cost of getting paid. Comparing the costs of different payment providers can be tricky. I’ll look at this problem (and how to simplify it) in a future post. Banks and money transfer providers use a wide range of different built-in fees (many of which are often hidden) and apply different margins on the exchange rates etc. The differences can be substantial.

I asked the respondents to tell me who decides on which payment or money transfer system is to be used to pay them – the translator or the customer:

Less than a third of translators always insist on the method used to pay them.

Clearly, it would be of benefit to translators if they knew which payment providers could actually save them the most money. It would be even more important to know if their customers would actually agree to pay them via their preferred provider.

I asked the translators who they thought should be responsible for covering the costs of getting their money into their bank accounts – including any transfer fees and the currency conversion. 86% of translators thought that these costs should be covered by the payer, i.e. their direct clients or the translation agencies they work for.

86% of translators stated a preference for receiving their money in their own currency and 89% would prefer the payer to sort out the currency conversion so they didn’t have to worry about any loss of income from fluctuations in foreign exchange rates.

But the payers, the translation agencies in particular, have their problems too. In my next post I’ll look at the survey results which highlight the problems small and mid-sized translation companies face in making international payments to their freelancers.

Is there some sort of magic which would allow translators to quote their prices in their own currency to foreign customers - and actually receive that amount? A system which would  ensure that they got paid directly into their local bank account without the cost of foreign exchange conversions or any bank fees to just receive the money?

Wouldn’t this  go a long way to making the global marketplace an easier place for translators to conduct business?

The trick here is to ensure that both the payer and the payee get a benefit. I’ll look at the potential of this sort of “win-win” magic later in this series of posts.

Notes:
[1] Survey respondents were recruited via Twitter and were located across 13 different countries: Belgium, Canada, Egypt, France, Germany, Greece, Italy, Netherlands, New Zealand, Russia, Spain, UK and USA.

Or is a proportion of your income disappearing into bank fees, forex commissions and other deductions? When you are paid in a foreign currency, do you assume that you are actually getting a good deal when the payment is converted to your local currency? Or are you paying exorbitant fees and commissions buried in the exchange rate (perhaps without even being aware of it)?

Your foreign customers will most certainly have paid a fee to send the money they owe you. But is the payment provider doubling his money by collecting a fee from both sides of the transaction – at your expense? Or after the sending bank has charged your customer a fee is your local bank getting in on the act by charging you another one just so you can get it into your account?

In a series of posts, I will look at:

• Problems freelancers frequently face when getting paid by their direct clients or foreign translation agencies ;
• Problems agencies encounter when getting paid by their customers; and
• Problems agencies have in paying their geographically dispersed subcontractors.

… and more importantly, some practical ways we can solve some of these problems and put more money into translators’ pockets.

Translators in the global economy

Translators are the spearhead of globalisation… well, aren’t they? They’re the ones who make it possible for Japanese manufacturers to sell their cars in Ecuador, Dallas or San Marino. They’re the ones whose skills are required to put the commercial contracts of all sorts of cross-border services into the language of the buyer.

So, if translators are helping everyone else enter a lucrative and expanding global market, how come they find it so difficult to take advantage of the same sorts of international opportunities themselves? After all, the multilingual global marketplace is the translator’s natural environment – why shouldn’t it be as easy for translators to do business globally as it is to do business at home?

The small guy and the big banking system

One of the major obstacles in the way of individual translators and small and medium-sized translation companies fully participating in the global marketplace is the nature of the international banking system – a system  built for bigger players.

For really large transactions between suppliers of goods in one country and buyers in another there are many financial instruments such as letters of credit and insurance arrangements which ensure that the seller gets paid.

But what about small businesses and individual professionals like translators? They also need to trade globally and to get paid across national borders. But freelance translators typically get paid in relatively small amounts, like €50, €500 or €1,000. There are no safety nets for small players like these who want to take on new foreign customers. To get the work, they have to carry the full risk of not getting paid. And when they do get paid, it’s often at a high cost.

The cost of transferring millions of dollars across national boundaries via the international banking system is tiny in comparison with the huge amounts being transferred. But relative to the small sums earned by translators the cost of transferring money between currency zones can be huge.

There are many options for transferring money across national borders and currency zones – and the cost of different methods can differ wildly. Foreign exchange and money transfer companies can provide currency exchange rates that beat the banks. But you typically have to be sending more than £5000 across currency zones to find a foreign exchange company who will not charge you a hefty transfer fee. The average small translation company who pays out lots of relatively small amounts to their freelancers is probably losing money every time it sends money abroad because of poor exchange rates and high fees. And often, it’s the solo professional translator at home who ends up paying for it all.

An uncertain economic climate

While the translation industry is currently growing at an estimated 12.7% [1], the uncertain economic climate is putting pressure on small translation businesses - freelancers and LSPs alike. Chasing the cash they are owed is often a challenge for an increasing number of small business owners. Customers not making payments on time – or not making them at all, is a growing problem according to a recent survey [2].

In 2008, only 2% of small business owners said getting paid was their most challenging problem. That figure jumped to 12.8% in 2009 and continued to edge up to 14.1% in 2010, the most recent year the data is available.

Can something be done to make cross-border trading for translators as easy, safe and inexpensive as doing business locally?

Or is this just a pipe dream?

Maybe not…

In my next post I look more specifically at how international money transfers affect translators. I report on a small survey I conducted to gauge how solo translators and small translation companies feel about getting paid and the particular problems they face.

Notes:
[1] The Language Services Market: 2012, by Nataly Kelly, Donald A. DePalma, Robert G. Stewart  Common Sense Advisory, Inc., http://t.co/3VYFdQKI

[2] Kauffman Foundation, a Kansas City, Mo., research organization focused on entrepreneurship, http://www.entrepreneur.com/blog/223538

Expanding opportunities for human translators? A bigger slice or, well… just pie in the sky?

In a previous post I suggested that the share of the global translation pie available to professional translators is not shrinking in favour of machines or crowdsourced amateurs,  but rather the whole pie is expanding – potentially to everyone’s ultimate benefit.

As the overall demand for translation continues to increase, the need for “quality human translation” is predicted to outstrip the supply of available language specialists and prices will ultimately rise. Maybe this will signal the final evolutionary step of our industry from its “cottage industry” beginnings to a fully fledged and well-rewarded profession.

Understanding the evolving role of the “other” emerging translation sectors,  crowdsourcing and machine translation, and how they might affect professional translators is not easy, however. Here’s a case in point…

Now, this is Susanna…

She’s one of the most enthusiastic linguists you’re ever likely to come across… and she has a translation problem.

Her family emigrated to the United States from the former Soviet Union when she was three years old. With Russian and English giving her a kickstart, she continued to acquire languages (French, Spanish, Italian, Portuguese and Serbo-Croatian) and has even had a go at learning Hebrew, Arabic and Hungarian.

Susanna is an unabashed proselytizer of second language learning. She has her own TV segment in Spanish on San Francisco’s Univision where she gives tips on learning English via songs. Just type “Susanna Zaraysky” into YouTube, and you’ll find dozens of interviews with her including with the BBC [1].

Her experiences in learning foreign languages have led to a book Language Is Music [2] which was also published in Spanish. In her book, she enthusiastically promotes the use of music, TV, radio, movies and other media to enhance second language acquisition in the interests of linguistic diversity.

Linguistic diversity?

But things aren’t going very well for linguistic diversity these days it seems. In a world which seems hell-bent on adopting a single international language, voices like Susanna’s which promote the joy and value of multilingualism and the preservation of our linguistic diversity don’t always get heard.

… and then the other day I received an email from her:

I am considering opening up my Language is Music book to be available online for free in languages besides English under Creative Commons.

She explained that she had come to the conclusion that selling her book for profit had a lower priority than furthering her dream:

As my greater goal is to create a movement to get people speaking foreign languages, the book is just a business card to show that I know my stuff. By having the book available for free, I can circumvent the publishing world which is restrictive, complicated and rarely financially profitable for a small book such as my own.

Susanna is on a not-for-profit crusade for a worthy cause. But making her book available in multiple languages is going to require a lot of work from a lot of people. Translating a book is no simple task – and she knows it. She gained some insight into the complexities of translation when she took on the role of reviser of the Spanish version of her own book:

Even though I was working with a professional Spanish translator, it was still A LOT of work for me to ensure it flowed as I wished.

So what are the options she has to make her book available in multiple languages? Unless she can raise a lot of cash from some philanthropically inspired benefactor to engage a whole team of professional translators she doesn’t have a lot of choices. The lure of crowdsourcing beckons…

Is this a rational approach for Susanna to take?

Her linguistic intuitions and her experience producing the Spanish version of her book has alerted her to the dilemmas, difficulties and ambiguities of “translation quality”:

How would I manage a crowd sourced translation and quality control, especially for languages I don’t know? How could I trust the quality?

Oh Susanna! If you could find a simple answer to this question it would fundamentally change the nature of the translation industry!

The translation blogosphere is full of worthy advice on how to select translators who will deliver that elusive quality called “translation quality” [3]. But ultimately, you face the same sort of dilemma as most other translation buyers: if you don’t know the language yourself there is no realistic way for you to make your own independent judgement. It’s a brutal fact of life. In the final analysis – the best you can do is to do the homework – find out as much as you can about the translators, their experience, their reputation and how they approach the task… and then trust.

Instead of crowdsourcing, how about crowdfunding?

Now, if it’s a good cause, perhaps the “crowd” could be leveraged in a different way. Sites like indiegogo.com raise huge sums to fund creative projects – documentaries, books and films etc. The money is raised from people just like you and me – people who are enthusiastic about the project and who want to see it happen. They contribute small sums often as small as $5 and $10 a shot. Tens of thousands of dollars are raised this way  – perhaps enough could be raised to fund a bunch of professional translators and revisers to do the job!

If there’s no money – then there’s always love…

But when there are no funds to pay professionals with good reputations and demonstrated subject expertise, then there is one especially important characteristic which is worth seeking out… love!

Enthusiastic amateur translators who love your subject are likely to have a better chance of doing a great job than amateurs who are willing to pick up a bit of translation work on the side at cheap rates. And then there could be some professionals around who might assist with some “pro bono” work if they think the project is one they can believe in.

If amateur, crowdsourced translators become involved, it might be worth looking at the approach TED has taken to crowdsource translations of its videos (devoted to “ideas worth spreading”) [4]. They recruit translators and amateur linguists who are prepared to do the work – not for pay, but because they are enthusiastic about the topic and are likely to have the right sort of subject knowledge. When looking for translators who will work for love, it’s probably worth looking at TED’s guidelines which require a collaborative approach via “a second pair of eyes on each translation” [5].

There seem to be many approaches to crowdsourced translation – some which clearly have been designed to avoid engaging professionals who expect to be paid. But Susanna’s proposed project seems to me to be a legitimate use of unpaid, crowdsourced translation which doesn’t threaten the livelihoods of professional translators. Unless adequate funds can be raised, it’s the sort of translation project which might not proceed otherwise.

The dilemma of managing the quality of the output, however, remains…

Susanna is looking for specific advice from readers on how she might complete her project:

• The best approach to take to get the job done – is some variety of “crowdsourcing” the way to go?
• Idea on managing the translation process, including quality assurance and control;
• If using volunteer translators and editors is the way to go – how does one find them?
• What crowdsourcing platforms are available which could be used to manage the work?

If you have any suggestions for Susanna, you are welcome to leave comments here or contact her directly through her webpage www.createyourworldbook.com.

Notes:

[1] BBC: polyglot explains how to learn languages, foreign languages http://www.youtube.com/watch?v=AyEV7SkbZ_k

[2] Customer reviews on Amazon are here: http://www.amazon.com/Language-Music-Susanna-Zaraysky/dp/0982018991

[3] Donnie and Trixie have a serious talk about translation quality: http://bit.ly/AnH2E6

[4] TED – Ideas worth spreading http://www.ted.com/pages/about

[5] Becoming a TED translator http://www.ted.com/pages/293

Politecnico di Milano

In 2004, I remember picking up a magazine from a street kiosk in Milan because it had an article which predicted that within 10 years or so, Italians would be speaking English at work and the local language would only be used socially and at home. I found the idea somewhat amusing but dismissed it as preposterous.

Then a few days ago, one of Italy’s most prestigious universities, the Politecnico di Milano announced that from 2014 most of its degree courses will be taught and assessed entirely in English rather than in Italian. The BBC’s comment was that

[t]he waters of globalisation are rising around higher education – and the university believes that if it remains Italian-speaking it risks isolation and will be unable to compete as an international institution. [1]

A few days after that announcement, CNN.com greeted me with the headline “Workers told, ditch local languages for English” [2]. This article documents how growing numbers of multinational companies, outside the English-speaking territories from Denmark to Japan, are insisting that their employees should communicate only in English at work.

Are we facing a catastrophic collapse of linguistic diversity?

It is estimated that our planet is losing human languages at an accelerating rate currently at about 2 languages per month. CSA writes:

From a probable peak of 20,000 we are already down to only 6 or 7 thousand extant languages. Experts estimate that of these, 3,000 more will become extinct in the next 30 years… [3]

The continuing advance of English as a global lingua franca adds to the fears of many professional translators, already appalled at the rapid rise of crowdsourcing and machine translation, that these sorts of global changes will ultimately impact on their livelihood.

Although it may appear to be somewhat counterintuitive, there is much informed opinion that the prospects for human translators are brighter now than ever they have been. In a recent blog, CSA writes:

Given the US$31.4 billion in language service revenue booked in 2011, it may seem counterintuitive to state that high-quality human translation may soon become a scarce, if not more expensive, offering. However, in our recent report on translation providers, we saw a coming shortage caused by burgeoning demand for translation, a chronic shortfall of qualified language specialists… [4]

The current growth in the volume of material requiring translation is unprecedented and according to CSA has already outstripped the ability of human translators to meet the demand [5].

Earlier this year, 6 years after Google Translate was unleashed, Google’s official blog claimed:

In a given day we translate roughly as much text as you’d find in 1 million books. To put it another way: what all the professional human translators in the world produce in a year, our system translates in roughly a single day. [6]

Translating the equivalent of a million books a day! Whew!

A statement like this is hard to fully comprehend. Irrespective of what we might think about the output of Google Translate, there has never been such a demand for translation in human history. But this is clearly not translation work that you and I would otherwise have done - we simply do not have the capacity! Something else is going on here…

Rather than seeing machine translation and crowdsourcing by amateur translators as a threat, human translators might well see these developments as legitimate responses to new demands which lie outside or parallel to their professional field. Irrespective of what human translators may think about it, machine translation is here to stay and will undoubtedly continue to develop, evolve… and thrive. It’s not that it can really compete with what we humans are able to do (depth of understanding) – but on the other hand, we humans cannot compete with the undeniable benefits machine translation offers to its users – volume and speed. It’s my view that there is little real antagonistic competition here - what we are we are witnessing is a paradigm shift in what customers need, want or are prepared to accept.

A recent news report describes how an Italian economist, a top forecaster of Italy’s most-watched economic indicator, routinely reads Germany’s Bundesbank research in German via Google Translate [7]. Presumably this level of gisting provides useful information that would not otherwise be available in a timely manner or at an acceptable cost from human translators. [See 8 for a contrary view].

As for crowdsourced translations by amateur linguists, they appear to fill an important gap by providing useful information to underserved linguistic communities. The foreign language captions for the TED videos [9] would seem to be a great example of translation that serves a socially useful purpose which just would not be done except for amateur involvement.

The optimistic view of the rapid expansion of machine translation and crowdsourcing is that these developments are not really at the expense of human translators trying to make a living at all. In fact it has been argued by some that these very developments are opening up exciting new opportunities for human professionals. The unprecedented expansion in the demand for translation means that the need for high-quality professional human translation is likely to grow (not shrink) in parallel with crowdsourcing and MT.

Will Google preserve linguistic diversity?

We might even speculate that the likes of Google Translate will contribute to the preservation of the profession of the human translator well into the future. Given that global business demands rapid, real-time communications, we either need a technological solution to handle the massive volumes of translation (that humans simply do not have the capacity to process), or we adopt the wholesale use of a lingua franca like “international English” and accept an inevitable withering of linguistic diversity. Will technology such as efficient, real-time machine translation interrupt this apparent evolutionary path? If machines are able to take care of routine information transfer between languages, and stem the tide towards a less linguistically diverse planet, then this leaves human translators free to do the more difficult, creative work that they are so good at.

As demand continues to exceed the supply of human intelligence to do the work, we may at last see the unique and rare skills possessed by translators recognised and rewarded in a manner that is long overdue.

Notes:

[1] BBC: Italian university switches to English http://www.bbc.co.uk/news/business-17958520

[2] CNN: Workers told, ditch local languages for English http://edition.cnn.com/2012/05/18/business/english-language-business/index.html

[3] Language Death and Why It Matters, Benjamin B. Sargent, Common Sense Advisory Blogs http://bit.ly/JJNvns

[4] Translation Demand-Supply Mismatch, Donald A. DePalma, Common Sense Advisory Blogs, http://bit.ly/MshvUg

[5] The Business Case for Machine Translation, by Donald A. DePalma and Nataly Kelly, Common Sense Advisory, Inc, http://bit.ly/LvYUHP

[6] Breaking down the language barrier—six years in http://bit.ly/IpSVT0

[7] Top German economy forecaster uses Google Translate http://bit.ly/K3lsvo

[8] You can find a compelling critique of Google Translate on economic matters by Miguel Llorens M.  here: http://traductor-financiero.blogspot.co.uk/2012/02/machine-translation-shining-and-my.html

[9] TED – Ideas worth spreading http://www.ted.com/pages/about