How to lower your own prices in just 50 minutes. And be happy about it!mar 13 2023
By Marcos Chiquetto
One day, a few years ago, at our Brazilian translation agency. I am talking with my partner about our client Tech Gigant (the name is fictitious).
−The Tech Gigant reverse auction is next Thursday.
– What time is it scheduled for?
– Nine in the morning. It will last for 50 minutes and only three suppliers will be approved for each language.
− It`s going to be super tense!
Thursday, eight-thirty in the morning in Rio de Janeiro. I’m already logged in to the Tech Gigant global event. Dozens of other companies from all over the world are also logged in, each one in its own time zone. My partner, in São Paulo, connects with me and is also viewing my screen remotely.
It`s about to start.
− Our current price is in third place.
− Great. We’re in the game.
− Shoot. Now there are 5 ahead of us. We`ve fallen to sixth place. What a drag.
− How about lowering our price by 5%?
− I agree. … We’ve moved up to second place. Cool.
We get to the 30-minute mark of the auction and we’re still in second. It looks like it’s going to be okay.
− Man. We’ve fallen to fourth place. … We’ve fallen to sixth place!!!!
− There are only 4 minutes left. Cut it another 5%.
− We move up to third. … We fall back to fifth!!
− Time is almost up. Let`s take off another 5%?
− Let’s. … We move up to second. … We fall to third. … Time is running out.
− Boom. It`s over!!! We ended up in third.
We will continue to be suppliers for Tech Gigant.
With a price that’s 15% lower than it was yesterday.
You’ve just learned about one of the most stressful activities for a service provider in the global market: a reverse auction for price adjustment. Following the story, you noticed that our price went down 15% in 50 minutes. Now begins the long and painful process of reengineering to adjust costs to this new price.
But, where does this come from?
Well. I’ll tell the story. Tech Gigant is the translation division of a global technology company. It is headquartered in the United States with operational units spread across the globe, the largest of them being in China. We have partnered with them for over 30 years.
Here is a typical job sent to us by that client:
The work consists of the translation of a small piece of a software interface from English into 40 different languages. Our part of the project is the translation into Brazilian Portuguese and Spanish.
To perform this type of multilingual service, Tech Gigant has suppliers spread across the globe. In addition to our company, located in Brazil, they have suppliers in Greece, to translate into Greek, in Turkey, for Turkish, in China, for traditional Chinese and simplified Chinese, in Russia, in Italy, in Hungary, in Bulgaria, in Estonia, in Slovakia, in Latvia, in Romania, in Croatia. etc.
For each language, the agency wants to have at least 3 suppliers. They work with 40 or 50 languages, which results in roughly two hundred suppliers in different countries. Each one has to be technically qualified and reliable with deadlines and confidentiality, in addition to being adept at continually updating its processes with the latest software tools, which change every five to ten years. So, establishing a partnership with a supplier is a difficult and lengthy process.
Imagine the difficulties involved in managing hundreds of suppliers working with dozens of languages!
− It must be quite complicated. But once you’ve found good suppliers for a certain language the problem is solved. You don´t have to worry about that language anymore. Right?
Well, not exactly. Even with good suppliers, there is still the problem of managing prices. The price for each supplier depends on the cost of living in its country and fluctuates in accordance with a variety of factors, such as the exchange rate and the software tools that are available. To stay competitive, the company has to adjust its prices in each language from time to time, or it won’t be able to attract new jobs.
To deal with this problem, Tech Gigant adopted the reverse auction process. Every three or four years, they carry out a new approval process for their vendors, for which they invite some of the incumbent vendors (like us) and other prospective candidates. The first step is the filling out of forms with the company’s information, which is evaluated according to standardized criteria. The companies approved in this phase are then invited to participate in the reverse auction, where they will compete amongst themselves based solely on price, without being aware of who they are competing against. The idea is that the prices will be automatically adjusted to the lowest feasible levels without an individual negotiation with each vendor.
The auction lasts 50 minutes, as you saw in the beginning of this article. In this short period of time, the price you charged for years is subject to a competitive attack, in a battle in which the final price is invariably lower than where it started. From there, you have to reevaluate your methods and cut your costs in order to continue operating, without sacrificing your quality.
We`ve worked with this client since the 1980s, having survived all of the auctions until the present.
The post-modern world isn’t for amateurs.
Marcos Chiquetto is an engineer, Physics teacher, translator, and writer. He is the director of LatinLanguages, a Brazilian translation agency specialized in providing multilingual companies with translation into Portuguese and Spanish.