Currency Exchange Fluctuation in Localization

Exchange rates have always been a concern in our language services industry, but with the unprecedented changes in exchange rates globally throughout much of 2008, many Language Services Providers (LSPs) have probably been checking the daily rates of their local currencies more eagerly than ever.

Translation and localization are arguably among the most international of services. Ultimately our industry is here to help release products and provide services internationally. The dominant production model is to source translators and translation in-country, regardless of the country of origin of the service provider.

This means LSPs are heavily influenced by the strength of local currencies (with which they buy the translated words) vis-à-vis the selling currency, and the effects can be positive as well as negative. Another factor that determines the influence of currency fluctuation in our industry is the location of production offices for any non-translation activities.

Currency Facts and Figures

When currency fluctuations are considered, it is the exchange rate between the US dollar and the euro that gets the most attention. This not only reflects the size of the respective economies using these two currencies, but also the fact that the US dollar is the most widely traded currency today.

That's because it effectively serves multiple roles: as an investment currency; as a reserve currency for many central banks; as a transaction currency in many international commodity markets such as oil and foodstuffs; and as an invoice currency in many contracts.

According to IFSL research conducted in April 2007, the US dollar was involved in 86% of foreign exchange transactions, followed by the euro (37%), Japanese yen (17%), pound sterling (15%), Swiss franc (7%) and Australian dollar (7%). And the US dollar/euro was the most widely-traded currency pair in April 2007 accounting for 27% of overall trades. US dollar/yen was the next most traded currency pair, generating 13% of trades, followed by US dollar/pound sterling with 12% and US dollar/Swiss franc with 5%.

For our translation and localization industry, the typical situation is that services are sold either in US dollars or in euro for nearly all languages and types of services. In other words, invoicing in the currency of the target language/country is the exception rather than the rule. This reflects clients' corporate policies but is also due to the impracticability of maintaining rates across a range of local currencies, say for 50+ languages.

To continue reading, please go to the full online version of this article, published in the Q3 2008 issue of the GALAxy (GALA Newsletter).

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