Business Checklist Book - Marta Stelmaszak

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Apple devices. The greater the power of complementors, the more businesses will become dependent on them. Application of
Business Checklist Book For Translators

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Marta Stelmaszak [email protected] http://www.wantwords.co.uk Twitter: @mstelmaszak LinkedIn: Marta Stelmaszak

8. Porter’s five forces Introduction to Porter’s five forces The SWOT analysis that I introduced earlier on wasn’t satisfactory to all researchers, academics and practitioners at the time. The main argument against it stated that it wasn’t possible to assess your business within an industry by putting it at the centre of analysis, an approach which, as it happens, was not conducted thoroughly. Perhaps the main opponent to SWOT analysis, Michael Porter, professor of strategy at the Harvard University Business School, authored his own model in 1979 and since then the Porter’s five forces model has become the foundation of management education. Let’s see what the fuss was all about, shall we?

By looking at these factors, businesses can assess the strength of their competitors. Based on the results, businesses can then introduce appropriate steps and strategies to minimise factors acting against them and maximise factors acting in their favour.

• Power of suppliers In many industries, companies rely on suppliers to produce and sell their products. For example, for me to be able to deliver this book to you, I have to rely on my editor, typesetter, payment processing company, printer, shipping company, and I don’t even want to think about whom else. The greater the power of suppliers, the more dependent a company is on them. Suppliers can use this power to their advantage, for example by raising prices. Some of the factors that need to be taken into account when analysing the The five forces model looks at the micro- power of suppliers are: Switching costs environment of a business and analyses - Presence of other suppliers which forces influence its competitiveness, - - Size of suppliers strategy and profit. The forces that Michael Uniqueness of service. Porter identified are: competitive rivalry - within an industry, bargaining power of suppliers, bargaining power of consumers, • Power of consumers threat of new entrants and threat of The power of consumers (buyers) is often substitute products. Of course, the more described as the ability of consumers to put impact the forces have on a company, the a business under pressure. The power of consumers is higher when there are many greater the threat. sellers and consumers can switch easily from one supplier to another. Some of the • Competitive rivalry within an factors that need to be taken into account industry when analysing the power of buyers are: Most free market industries are - Number of customers characterised by competitive rivalry. The - Size of customers greater the rivalry, the more competitive - Differences between services markets there are and the more difficult it provided is to survive. Some of the factors that need - Price sensitivity to be taken into account are: - Ability to substitute - Number of competitors - Information availability. - Differences in quality - Other differences in products or services provided - Costs of leaving the industry.

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• Threat of new entrants The more attractive an industry is, the more new firms will try to join it. And of course, the more businesses join an industry, the greater the competitive rivalry and the more difficult it is to maintain profitability. Threat of new entrants is greatest when it is easy for new businesses to join the market. Some of the factors that need to be taken into account when analysing the threat of new entrants are: - Time and cost of entry - Specialist knowledge - Barriers to entry - Capital requirements. • Threat of substitute products The last force in the Porter’s model concentrates on the threat of substitute products (or services, of course). A substitute product is not a competitive product, but an alternative, a different choice overall. To give you an example, Skype is a substitute product for a telephone. The greater the threat of substitute products, the more difficult it is for businesses to maintain profitability. Some of the factors that need to be taken into account when analysing the threat of substitutes are: - Likelihood to substitute - Relative performance of substitute - Buyer switching costs.

Application of Porter’s five forces to the languages industry Now that I have taken you through the model beloved of management and strategy consultants, we need to figure out how to make sense of it for ourselves and see how it applies to freelancing in the languages industry. Personally, I found this model very useful, and it provided answers to some questions about the state of the industry as we know it. Let’s agree that we are talking about freelancers in the languages industry here. • Competitive rivalry within an industry There is much to be said about competitive rivalry in the languages industry.

Number of competitors Our industry has an enormous number of competitors, here understood as other players in the market providing similar services. I am sure that if you look at your own language combination you will agree with this statement. What can you do about this factor? It is not possible for us to limit the number of existing competitors. Part of the solution is accepting that they are out there. However, there is also another very interesting finding from this analysis. The results show The sixth force: complementors that if you want to limit the power of your It is sometimes argued that complementary competitors, you need to add elements to products have an increasing power over your offer that will make your services more businesses. Complementors are products or specific. This is often done by specialisation services that directly complement another and working in niche markets. company’s products or services to add value to mutual customers. A good example of this is the addition of Google Maps to Apple devices. The greater the power of complementors, the more businesses will become dependent on them.

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Differences in quality I am sure we all agree that one of the biggest problems in our industry is the enormous fluctuation of quality from translator to translator. In a collective effort, the industry is trying to introduce a variety of quality signals, such as examinations, membership of professional bodies or quality certifications. What can you do about this factor? Use it to your advantage. Strive to improve the quality of your work and communicate it via a range of signals. If you manage to raise the quality of your services, you will limit the impact of lower-quality suppliers on your business.

Other differences in products or services provided It is often perceived, even by translators themselves, that there are not that many differences between translation providers in the same language pair apart from quality. Essentially, this has led to the assumption that all translators compete with each other to provide almost identical services, a notion that I inherently disagree with. What can you do about this factor? One of the ways to limit competitive rivalry in our industry is to accept that all translators provide translation services that are different (individual style, audience, purpose, etc.). If you would like to reduce the impact of this factor, think about differentiating the services you provide from those of others. Costs of leaving the industry You have probably invested quite a bit of time, money and energy in becoming a translator or interpreter. As a result, your costs of leaving the industry and doing something else would be high. This is the worst-case scenario, where you can’t cope with competition and have to look for a different job, or perhaps add other streams of income to your language services.

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What can you do about this factor? One of the ways you can minimise the costs of leaving the industry is by developing a portfolio of services. For example, interpreters often offer translation services to stay profitable and some translators branch out into copywriting to complement their income.

• Power of suppliers When you first think about it, as translators or interpreters, we don’t have many suppliers apart from accountants, web designers and printing companies. The situation is a bit different if you outsource work to others. Nevertheless, it is interesting to analyse the power we have as suppliers to our clients, which are very often translation agencies. Switching costs Translation agencies usually have limited costs related to switching from one supplier to another. This manifests itself in mass emails sent to groups of providers on their lists, as well as mass recruitment. In fact, the larger an agency’s database, the lower the switching costs they have. One of the reasons why you are often asked to fill out your bank details on the application form is that the agency will have them all ready and set up in case they decide to switch to you from a provider who is playing up, meaning no cost and lost time to them. What can you do about this factor? Increase the costs that are related with switching from you to another supplier, for example by ‘locking-in’ your client to glossaries or translation memories that only you have. If you are able to translate a document cheaper and quicker because you know the particular field and have a translation memory (TM) for this client, they will have to pay more money to somebody else out there.

Marta Stelmaszak www.wantwords.co.uk

Presence of other suppliers The more suppliers available, the less power each of them will each wield. Think about translators who work in very rare language combinations, for example English to Latin. There are so few of them that they become quite powerful in respect of their clients and can often ask for any rates and conditions they want (this is called the supplier market). However, if there are many translators providing the same language pair, same specialisation, etc., their buyers are much more powerful. What can you do about this factor? The solution is similar to that of ‘Other differences in products and services provided’. It is important to differentiate from other suppliers by providing unique services. Don’t worry if you are not quite sure how to do that yet. We will find out more about this later on in the book. Size of suppliers Smaller suppliers usually have less power than bigger suppliers. It is easier to ignore one freelance translator handling around 10,000 words per month for a certain client when they oppose a rate drop rather than a specialised translation agency or a co-op of translators working on 100,000 words. What can you do about this factor? Talk to your colleagues, join professional associations, and show that even though you are an independent provider you have the same principles as your colleagues. Have you heard what happened in the UK when court interpreters joined forces to oppose changes in the system?

Uniqueness of service If you provide unique services, your power as a supplier will increase. We are covering uniqueness in many places in this book, but for now just consider that your expertise, experience, portfolio of services can all contribute to making your offering more unique.

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What can you do about this factor? Try to increase the uniqueness of your language services to maximise the power you wield as a supplier.

• Power of consumers When analysing the power of consumers in the languages industry, we have to consider who is buying from us: agencies, direct clients, individuals, etc. Number of customers In this factor, we can look either at the number of customers you have or at the overall number of customers for translation or interpreting services. Speaking of the latter, all of the signs seem to say that there are more and more customers for language services. Recent research from KPMG indicates that in the English to Polish language pair alone there is increasing demand for translation to support the growing luxury goods market in Poland. Meanwhile, in terms of your customer base, the general principle is that if you only work with a small number of customers, you are giving them a lot of power over your business. If you have just three regular clients and one of them decides to slash their rates, you can’t afford to lose this client. The result is that you end up accepting detrimental conditions, which are bad for your business. What can you do about this factor? Ensure that you have many customers and that they all provide you with more or less the same level of work. Size of customers Very often, large-scale customers display bully-like behaviour because they realise that they are sending you lots of work. Big companies also often have complicated processes and many departments, and it may be difficult to work with them.

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What can you do about this factor? to be price-sensitive or -insensitive. Make sure that you are not solely dependent Ability to substitute on working with large-scale customers, be If your customers are not able to switch it translation agencies or direct clients. to another supplier (for example because it would be too expensive for them to Differences between services provided train another translator in specialist Yet again Porter’s five forces model tells us terminology), they wield less power. that you are safer if you provide services What can you do about this factor? that are different from those of your Do all you can to limit your clients’ or competitors. Consequently, if you can ‘lock- potential clients’ ability to switch to another in’ your customers to the specific services translator or interpreter by ‘locking-in’, i.e. you provide because no other translator has creating an offer they can’t refuse or find the same knowledge, skills or expertise, you elsewhere. will be lowering the power of consumers, i.e. your agencies or direct clients. Information availability What can you do about this factor? Generally speaking, if your customers have Differentiate from other translators, explore access to limited information about our what makes you different and play on these industry, the business relationship is likely strengths. to work in your favour. If they found you through Google and don’t know where to Price sensitivity look for another supplier who may prove If your customers are sensitive to changes cheaper, you are limiting their power. in your rates and are unlikely to accept However, if you are trying to compete an increase, it means that they are price- on an online marketplace for translation sensitive. If, on the other hand, they are jobs, it is very easy for your client to find attached to your services to the extent a cheaper provider because there is a lot that they can’t even dream of changing of information available and it is even to another supplier, they will be price- provided in the same format. insensitive and accept your increase. The What can you do about this factor? more price-insensitive your clients are, Try to find clients in places where the better the situation will be for you. information is scarce and by using Broadly speaking, translation clients seem techniques that allow you to limit the to be price-sensitive, which confirms that availability of information. For example, by accepting a lower rate at the beginning of a reaching out to a new client yourself with a business relationship with the intention of well-written brochure and sales letter, you trying to increase it at a later date may be a are providing them with narrow access to dangerous strategy. information about our industry and thereby What can you do about this factor? increasing your power over them. Try to ‘lock-in’ your clients to your services before increasing your prices. Of course, • Threat of new entrants as we have discussed above, this does not The languages industry is less regulated automatically mean that you should start than other industries, also in terms of the by offering a low rate. Instead, you should subject knowledge required. We are not make sure you have a unique offer and that as well positioned as lawyers, doctors or your customers are aware of this. Do some accountants. research to find out if your clients are likely

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Time and cost of entry It is relatively easy, cheap and quick to ‘become a translator’. (We are not talking about professional translators, hence the inverted commas.) That is not a good sign for our profession. What can you do about this factor? Yet again, providing differentiated services, increasing specialisation and working in niche markets, as well as building an expert position will make it much more timeconsuming and costly for new entrants to get to where you are now. Specialist knowledge The more specialist knowledge that is required to provide services, the less power new entrants will have. If you were ever wondering why it makes sense to specialise in certain fields, there is your answer. What can you do about this factor? Ensure that the translation or interpreting services you provide are tightly bound with your specialist knowledge and never stop developing it.

dictionaries. Again, this is not something that works in the profession’s favour. Some colleagues who specialise in audiovisual translation are in a slightly better position because in order to work, newcomers are faced with a significant upfront investment in subtitling software. What can you do about this factor? It would seem that there is not much we can do individually, but collectively increasing the requirements for becoming a translator - for example in the form of examinations or continuing professional development (CPD) points - could work.

• Threat of substitute products There are a number of substitute services we can name, ranging from machine translation (MT), through using students, to translation carried out by untrained inhouse staff.

Likelihood to substitute The threat of substitute services is greater if your customers are more likely to substitute. If you are translating texts that Barriers to entry could in the future be translated using MT, Some professions, like the legal profession, it is more likely that one of the machine require new entrants to pass certain translation vendors will try and succeed in examinations or gain certification. Without convincing your client to substitute your them they can’t do their job. It is not the services with MT. same in translation, where even formal What can you do about this factor? university education is not required. Make sure that the sectors you work in are What can you do about this factor? not likely to want to substitute good, highCollectively, as a profession, we should be quality translation with anything else. striving for more regulation in our industry and introducing some barriers to entry. On Relative performance of substitute an individual level, you can try to educate One of the reasons why MT has not picked your clients about the continuous training up yet is because, compared with human and investment that is required to provide translation, the results it produces are far high-quality work. from perfect. The same applies to using unqualified people to translate – as long Capital requirements as the relative performance is reduced, the It doesn’t take much capital to start working threat remains limited. as a translator. Essentially, you need your computer, Internet connection and

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What can you do about this factor? Invitation to act Make sure you work on your skills and continue to increase the quality and Now that we have talked about the Porter’s performance of your work. five forces model, I would like you to analyse your own business within this framework. Buyer switching costs Tick off each task once you have completed If it requires a lot of time or money for a it: buyer to switch to a substitute, the influence • I printed out the worksheet (next of this factor remains limited. As long as page). it costs companies a lot of money to buy working MT engines, they are less likely • I filled in the fields with factors under to want to switch to machine translation each force. (unless vendors are able to prove that long- • I marked the impact of each force on term savings can be made). my business from - - (very negative What can you do about this factor? for me), - (negative for me), 0 (no Again, try to ‘lock-in’ your clients to your knowledge and expertise: become impact), + (beneficial for me), + + irreplaceable for their business. (very beneficial for me). • For each negative factor, I thought of what I could do to minimise its The sixth force: complementors Looking to complementary products or influence. services to add value to your translation • For each positive factor, I considered or interpreting clients is a good idea. Team how I could maximise it in my up with other freelancers or businesses business. in order to deliver these to your clients. For example, working with a colleague • I added the factors I identified to a providing services in the reversed language shared board (click on image below). pair direction may prove beneficial to your customers.

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Porter’s Five Forces Worksheet

Power of suppliers Power of consumers Factors: Factors:

Competitive rivalry Factors:

Threat of substitute products Threat of new entrants Factors: Factors:

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Marta Stelmaszak www.wantwords.co.uk