How to Be Much Smarter Than Your Dumbest Competitor: Warren Buffett, Commodities, and Translation

On two occasions in which this blog has expanded on Chris Durban’s thesis that translation is not a commodity product, readers have chipped in with analogies from commodity markets. One reader, Rob, brought up the example of chocolate in one comment. Another frequent reader, Gueibor, contributed to the comments by discussing the example of Kobe beef on the meat market. As my readers point out, even these markets tend to break down along relatively complex spectrums. However, to be more precise, when the commodity analogy is invoked, economists generally assume that within the different niches in an overall commodity market, differences within the niche itself are not decisive and the product is undifferentiated. For example, Saudi and Texan crude is much lighter than Venezuelan crude, but within the reduced “light sweet crude” category, a refiner doesn’t care whether he is processing Texan or Saudi crude. And after light and heavy crudes are refined to make, say, diesel, the purchasing manager for a chain of gas stations doesn’t care whether the final product comes from this company or that company. He will only care about the price, since the different products will pretty much function just as well.

The problem with the chocolate or meat analogies is that they take for granted the proposition that is being critiqued. Chiefly, that translation is a commodity. The interesting thing is that even in businesses that are pretty ostensibly commodity businesses, value resides in differentiation.

In general, any player who resigns himself to the idea that he produces a commodity is condemned to compete solely on price. And he will also be condemned to charging very low prices and generating very thin margins. When very unimaginative people run across this criticism, they generally reply with the world-weary wisdom of the businessman that this is how “capitalism” or “reality” works and that anyone who believes the contrary is a doped-up hippie.

Now, I think we can pretty much agree that Warren Buffett is a successful capitalist, perhaps the most successful capitalist of all time. He tends to trade places with Bill Gates and Carlos Slim every year in the competition to see who the richest man in the world is. I think he is far more interesting that the other two. Buffett outshines the other two because he is an interesting thinker and also an excellent writer. He is also a lower-case “t” tech skeptic. All throughout the nineties Internet bubble, Buffett was making little jibes about Pets.com and everybody dismissed him as an anachronism of the “Old Economy.” Yet the successive investment bubbles of the past fifteen years have popped and Berkshire Hathaway is still there, making money for its shareholders while a lot of very bad online investment ideas fell by the wayside.

Buffett has devoted a lot of thinking to the task of identifying a good business. Listen to this little nugget of wisdom from the Sage of Omaha, from a recent compilation of his writings on business: “In a business selling a commodity-type product, it’s impossible to be a lot smarter than your dumbest competitor.”

Buffett, as many know, did not build a fortune by creating businesses from scratch. He made it by buying already successful businesses and making them even more successful. One of the tenets of his philosophy is to shy away from businesses that manufacture commodity products and have low barriers to entry. The previous two characteristics also mean that these industries are subject to fierce competition. What would Buffett say if he heard David Grunwald, the owner of a machine translation company, state the following?:

But I still maintain that translation is a commodity. If there are 10,000 professional English to Spanish translators in the world that are native Spanish speakers, that have a CAT tool, and are subject-matter experts, then one translator is easily replaceable with another. The price for this service is set and is within a specific, well-defined range. And that makes it a commodity. Commodities, like pork bellies, gold and corn are traded in the same manner. And just like in translation, prices go up or down based on availability and demand.

(I once took a course on Saint Thomas Aquinas in which the lecturer discussed a two-paragraph quaestio for several months. I could blog for several months just on this paragraph alone.) Note how Grunwald unconsciously conflates the entire English-Spanish market to the profiles on ProZ. That in itself is very telling. The problem is that his pool of potential translators is not really the 10,000 Spanish profiles on ProZ. It is actually much, much smaller. Grunwald’s pool of potential collaborators is actually people who have profiles on ProZ and look for work by bidding on ProZ projects. If I were Grunwald, I would find it hard to sleep at night. From his constant bitching about translators recruited over ProZ, I suspect he does suffer from a touch of insomnia. Listen to this:

One of the bad things about ProZ is that since basic membership is free, and since no credentials of any kind are required to join, it attracts many incompetent and unreliable translators. An outsourcer can easily get burned on ProZ.

And this:

Any person (or animal for that matter, if they can work the Internet) can sign up to Proz.com and claim they are an expert translator or translation vendor. This means that the job poster needs to perform extensive due diligence before selecting the translator/vendor; and even then I can tell you from my own experience that you can get burned with poor quality and/or missed deadlines. And what recourse do you have? Zilch. You may get an apology from Proz.com but nothing more.

All in all, Grunwald’s tone is pretty critical. (I have nothing personal against him and I hope he doesn’t take any of this personally. He has said very generous things about my blog and I confess I find his blog interesting, albeit in the same way you find those Fox shows about animals attacking human beings impossible to not watch.)

Translators who accept a project and never turn in anything? Really? How frequent is that? If that happened to me even once, I would seriously seek another way to recruit my translators, preferably offline. Why would an entrepreneur persist in using this unreliable channel? Answer: because he targets the low-rate area of the industry. Why not pay translators more? Or at least invest in a more careful method of recruitment that requires a higher investment in terms of time and money than the ProZ membership fee? The answer, I suspect, is that the “market” is too competitive and that snooty translators who demand higher rates are living in Cloud Cuckoo Land. To which my response would be: live by the sword, get ready to have your ribcage tickled by a sword once in a while.

Buffett would say that the business philosophy condensed in the quotes above would be rational if the product is indeed a commodity. However, he would also 1) not invest in a business like this, or, 2) if forced to invest in it, he would try to find some avenue for differentiation. (He would also, perhaps, express some surprise that a service is being described as a commodity.) If it isn’t a commodity but you are treating it as if it is a commodity, you are mistakenly condemning yourself to being little more than a roach motel landlord.

In response, the MT Crowd would slap a thick layer of l10n mumbo-jumbo on Buffett, crammed with catchphrases like “crowdsourcing” and “disruptiveness.” I imagine he would chuckle his little Buffett chuckle and go about his business while the cheap providers fight over the meager scraps of the multilingual Web 2.0. And he would be right. Because if technology-driven translation is a commodity service, then you are wasting your time by going to l10n conferences and making polite little comments insinuating to your competitors that they are idiots barking up the wrong engineering tree.

Because if you want to be the King of Cheap Translation, the only road for you is monopoly with a capital “M.” Your only strategy is to get big fast, charge as little as possible, and then buy out all your competitors or drive them out of business by any means, fair or foul. You basically have a to buy a biography of John J. Rockefeller and then hire some mean-looking guys from the ´hood to leave boiling rabbits in your holdouts’ kitchens or hide in bowls of rice in case Butch goes to Indochina. (Incidentally, in commodity markets, technological superiority is irrelevant. Size matters, big time. The biggest competitor, even using worse technology, ends up winning, so it won't be the quality of your R&D and your engineering nerds that will help you win that race.)

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 Spain. To 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.

In a Market Storm, Don’t Do Something, Just Stand There

Some of the best investment wisdom is the hardest to follow. I once heard the best investor alive, Warren Buffett, say in an interview that in times of crisis the best thing is to sit still. Everyone’s instinct is to scream “don’t just sit there, do something.” But the appropriate thing to do is to let the madness wash over you like a wave. Overtrading has been proven over and over again to be the main factor explaining poor investment performance. Retail investors should minimize the amount of times they jump in and out of stocks.