The Joys and Pains of Having a Localization Business in Latin America

If you decide to be there...Here’s how I did it

Luigi RiboldiLogoscript Translation & Software Localization

Where to start?

• Latin America spans from Mexico to the South Cone. Each country is very idiosyncratic and diverse.

• Which country should an European or a North American translation company pick for a direct investment?

Followed Steps1. Model your strategy

2. Model your tactics

3. Proceed with country prospection

4. Adjust your models, finalize your cash flow projection and proceed with simulation scenarios

5. Start the undertaking

6. Human considerations

7. Did it work?

Step 1. Strategy

Identify which country best fits the company’s strategy!

Step 1. Strategy: Company

• Fit to corporate culture of the company

• To what extent would a local branch reinforce the network of strengths, which make the company competitive?

• Would such investment give you an edge over your competitors?

• How long would such competitive advantage endure; can one measure it?

Step 1. Strategy: Suppliers

• To what extent would a local branch give you a competitive advantage as far as suppliers are concerned?

• Suppliers = employees & third party vendors!

• Could you get better rates, can you attract more local valuable resources as a local?

• Do we have a clue of the cultural differences?

Step 1. Strategy: Customers

• To what extent would a local branch give you a competitive advantage as far as customers are concerned?

• Customers = local & multinational

• Make sure you can measure in hard dollars the additional sales derived from your local presence in your business plan!

Step 2. Tactics

Tactics = factors impacting your strategy

Step 2. Tactics: Place

• What is the best place to attract local resources at an optimal cost?

• Is the location optimal for customer proximity?

• How is the state of the art of basic infrastructures, i.e. Internet, phone, facilities…

Step 2. Tactics: Pricing

• To what extent does the selected location allow you a sales pricing better than that of your competitors?

• Does the alternative location allow for a premium price?

Step 2. Tactics: Service

• How does the selected place contribute to and influence your service positioning (e.g. high end or low end)?

• Does the location selected open new customer segments or niches (e.g. local businesses or local government)?

Step 2. Tactics: Promotion

• What media are relevant for the promotion of your services locally?

• How should you adapt the message to be attractive locally

• What’s the profile of local sales reps?

Step 2. Tactics: Government & Regulation

• Government may impact positively or negatively any organization by imposing costs or favoring a given business.

• Rule of Law is fundamental, while its absence adds risks to the outcome of any undertaking.

• Free markets (for services, but also the labor market) are key. Its absence imposes a tax to any investor.

Example of Material used for evaluating Governance

BRAZIL’s TEN ECONOMIC FREEDOMS

• Business Freedom 54.5

• Trade Freedom 69.2

• Fiscal Freedom 68.4

• Government Spending 50.3

• Monetary Freedom 75.8

• Investment Freedom 45.0

• Financial Freedom 50.0

• Property Rights 50.0

• Fdm. from Corruption 35.0

• Labor Freedom 57.5

0 = least free, 50 = world average

• BUSINESS FREEDOM — 54.5

LABOR FREEDOM — 57.5

• Inflexible labor regulations hinder employment and productivity growth.• The non-salary cost of employing a worker is high, and dismissing a redundant employee can be costly. • Mandated benefits amplify overall labor costs.

Different sources: The Economist, World Bank

Example of Material used for evaluating Public Education

Argentina climbs three places to 85th place, a still disappointing result given the country’s many competitive strengths. The country benefits from a fairly educated labor force (59th and 55th on the health and primary education and higher education and training pillars, respectively) and a large market size (23rd). On the other hand, serious flaws continue to affect the country’s competitiveness landscape, representing enduring vulnerabilities in the current difficult economic outlook and going forward. In particular, the expansionary fiscal and monetary policies of recent years have caused the economy to overheat, resulting in high inflation levels (8.59 percent in 2008).The still-high public debt (48.5 percent of GDP in 2008), despite debt restructuring, coupled with the reduction in tax revenues brought about by decreased commodities prices, are particularly worrisome features in the face of the current global economic downturn.

Source: World Economic Forum 2009

Step 3. Country Prospection

Logoscript has conducted a prospection in Brazil, Argentina, Mexico and in minor degree in Chile.

For simplicity I am exposing the case of Brazil, where in the end Logoscript decided to incorporate.

Step 3. Country Prospection Meet with translators Meet with local vendors Meet with local and central government Meet with banks Meet with local subsidiaries of main publishers Meet with corporate lawyers Meet with tax consultants Meet with labor lawyers Meet IT engineers Meet insurance brokers Meet with real estate agents

Step 4. Adjust Models, Cash Flow Projections, Simulations

• Treat assumptions asymmetrically, i.e. be conservative with revenues, while being tough with costs

• If you see a competitive advantage, make sure you can translate it in numbers. Wishful thinking does not generate profits.

• Competitive advantages are eroded in max. 2 years. Your competitors are not idiots!

• Let colleagues, friends and consultants stress test your model and get feedback.

• Which discount rate to apply in an emerging market?

Step 5. Start the Undertaking

• Start from the very beginning fostering the independence of the Brazilian subsidiary.

• Spend substantial time at the subsidiary.• Work a lot together with the local leader.• Challenge of sharing corporate culture

at 11,000Km• The new employees come from different

companies with different expectations.

Step 6. Human Considerations

• Even though I speak and understand Portuguese… not all messages are verbal.

• Cultural understanding is fundamental.• Invest in team building.• Promote exchanges between

subsidiary and headquarter.• It is key that all employees, regardless

of the location, feel equal.

Step 7. Did it work?

Logoscript Brazil was profitable in 2009.

The Brazilian team delivers excellent work and customers are satisfied.

The collaboration between Rio and Barcelona occurs smoothly.

Rio is self reliant.

THANK YOU!

Luigi [email protected]