Friday, July 22, 2011

Lionbridge Circles the Drain: Are Cheap Translations a Road to Riches?

This sucker could go down.
George W. Bush (Sep. 2008)

De una vieja de Egipto relata Felino que dormia con un crocodilo al lado, imitando
á los pueblos de la America Septentrional, que hazen gargantillas de serpientes, y
á los Vruvayos pinta el Historico sin cabeça; desta suerte de monstruos se me
representan essos accionistas, pues no teniendo cabeça algunos para governarse,
duermen al lado de los crocodilos con descanso, formando galas de los aspides y
adornos de los venenos.
Joseph Penso de la Vega, Confusión de confusiones (1688)

Is cheapo translation a quick path to getting rich? Not for LIOX shareholders, apparently. For these unfortunate souls, owning stock in the largest player in the McLocalization sector has been more akin to jogging along with the Bataan Death March. Their investment plummeted -2.11% in today’s session and shed -6.88% of its value over three months, -32.7% over the past year, and -38% over the past five years. Yuck. Just look at the chart (if there are any children in the room, please send them away; if you are very squeamish, avert your eyes).

Look out below!

Why is this the case? One (potentially useful) observation: Equity analysts seem to have a hard time selling large translation companies to wary investors. One recurrent trope in their reports, bulletins and white papers is this argument about the fragmentation of the language services industry: "The global translation market is worth $X billion and is highly fragmented. That means there is ample opportunity for 1) growing market share and 2) consolidation." That is fallacious reasoning. It is putting the cart before the horse. The analyst tells us: “Because the market is A or B, therefore there is scope for C or D.” No. It is really the other way around, you can’t do C or D because the market is A or B. It may be a cottage industry where the juiciest bits of profit may be being made by very small companies. That might be where the real wealth lies. In such a market, scale might actually be a crippling handicap. In this game, the shareholders are the chumps (and top McLocalization executives are the sharks; they are the ones who actually make any money, albeit it not on their stock options, which turn to water).

Think about it this way: how many dentistry multinationals have you ever heard of?

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in SpainTo contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.


Riccardo said...

I predict yet another round of steep discount requests/demands from Lionbridge, which translators unlucky (or unwise) enough to depend heavily on lionbridge for work will reluctantly accept, with predictable consequences on the quality of Lionbridge translations. said...

Anybody who knows anything about the translation business will also know that all large scale translation agencies that translate all languages and all subject produce low quality.

Customers who need quality will eventually migrate from large agencies to smaller operations that specialize, which is the only way how to achieve quality.

IMHO, this is the reason why their stock is down. Their business model does not work because it is based on a false premise.