The Language Services Market in Northern Europe: 2017

This summary from “The Language Services Market: 2017” (Jun17) is subject to Common Sense Advisory’s standard terms of use. Unauthorized reproduction and distribution are strictly prohibited. It reflects updates and corrections made as of this August 1st, 2017.

Annual Review of the Services and Technology Industry That Supports Translation, Localization, and Interpreting

By Donald A. DePalma, Hélène Pielmeier, Arle Lommel, and Robert G. Stewart

August 2017

The Language Services Market in Northern Europe: 2017 By Donald A. DePalma, Hélène Pielmeier, Arle Lommel, and Robert G. Stewart August 2017

Published by: Common Sense Advisory, Inc. 100 Cambridgepark Drive Cambridge, MA 02140 USA +1.978.275.0500 [email protected] www.commonsenseadvisory.com

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher.

Permission requests should be addressed to the Permissions Department, Common Sense Advisory, Inc., 100 Cambridgepark Drive, Cambridge, MA 02140, +1.978.275.0500, E-Mail: [email protected]. See www.commonsenseadvisory.com/en/citationpolicy.html for usage guidelines.

Trademarks: Common Sense Advisory, Global Watchtower, Global DataSet, DataPoint, Globa Vista, LSP Metrix, MarketFlex, Quick Take, Technical Take, and TMS Live are trademarks of Common Sense Advisory, Inc. All other trademarks, product names, logos, and brands are the property of their respective owners.

Information is based on the best available resources at the time of analysis. Opinions reflect the best judgment of Common Sense Advisory’s analysts at the time, and are subject to change.

The Language Services Market in Northern Europe: 2017 i

Table of Contents

Topic ...... 1 The Year in Review ...... 2 The Size and Shape of the Language Market in 2017 ...... 2 The Rankings of the Largest Commercial Suppliers ...... 3 Performance of the Largest Companies Opens a Window to the Sector ...... 5 An Overview of the 100 Largest Language Companies ...... 6 The 100 Largest Suppliers and the Overall Market ...... 7 Business in the Inner Circle of the Top 20...... 11 The Impact of Acquisitions on the Rankings ...... 12 Investment and Cash Flow: Money Makes the Industry Go Round ...... 14 Exclusions and Missing from the Lists – Where Did “That Company” Go? ...... 16 The Impact of Foreign Exchange Rates on the Rankings and Market Size ...... 17 Methodology ...... 20 Definition of Language Service Provider ...... 20 Overview of the Survey and Respondents ...... 20 Four Frequently Asked Questions about the Rankings ...... 21 When and How We Conduct the Survey ...... 22 Cleansing and Normalizing the Database and Data ...... 24 How We Size the Global Language Services Market ...... 25 Limitations of Our Efforts to Rank the Largest LSPs ...... 26 Related Research...... 28 About Common Sense Advisory ...... 29 Future Research ...... 29 Applied Research and Advisory Services ...... 29

Figures

Figure 1: Language Services and Technology Market, 2009 to 2017 ...... 3 Figure 2: Average Growth among Largest Providers ...... 8 Figure 3: Rankings of the Largest Industry Providers, 2007 to 2017 ...... 13 Figure 4: Exchange Rates Caused Apparent Revenue Decreases in 2016 ...... 18 Figure 5: How CSA Research Sizes the Market...... 23

Tables

Table 1: The 100 Largest Language Providers (Short Form of Company Names) ...... 4 Table 2: The 25 Largest LSPs in Northern Europe ...... 5 Table 3: Companies Missing from and Added to This Year's List ...... 9

This page is intentionally blank.



Topic

Tens of thousands of providers around the globe work with hundreds of thousands of professional linguists to deliver services such as translation, interpreting, and localization to organizations and individuals. This active and growing global industry accounts for US$43 billion in revenue.

Language service providers (LSPs) eagerly wait for the annual release of CSA Research’s lists of top ranked companies. They rely on the rankings and results to benchmark performance against their competitors and to earn recognition among buyers of language services who otherwise may not know they exist. We have seen many buyers issue RFPs that specify they will consider only those companies ranked on these lists.

To produce these rankings, CSA Research conducted its 13th consecutive study of the market for outsourced language services and technology. It is based on a comprehensive survey of industry providers. This report analyzes the market from January 2016 through June 2017, and covers:

• The Year in Review – an overview of 2016 and the first half of 2017, focused on activity among the 100 largest suppliers. It includes the global ranking of the 100 largest providers and the regional leaders for Northern Europe.

• Methodology – a description of the process that CSA Research follows to produce this report.

• Related Research – recommended reading to complement this report.

The Year in Review

This chapter focuses on findings from this year’s survey. It discusses: 1) the size and shape of the language market; 2) the performance of companies on our top 100 list; 3) important investment and funding happenings; and 4) companies missing from the rankings.

The Size and Shape of the Language Market in 2017

CSA Research calculates that the outsourced language services and technology market will turn over US$43.08 billion this year. To derive this estimate, we measure actual financial data for the calendar year 2016 from survey respondents and public company filings. We extrapolate that information over our database of providers, and calculate the overall market size. Based on 2015-to-2016 changes in revenue and expected earnings reported by the LSPs we surveyed and public companies that we harvested, we find:

The market for outsourced language services and supporting technology grew 6.97% to US$43.08 billion from 2016 to 2017. It will grow an average of 2.45%

over the next four years, at a conservative cumulative growth rate of 9.82%. Regions will grow at different rates, affected by local conditions.

As we did last year, we factored in data from the IMF and World Bank to provide a macroeconomic component to our market forecasts. Their perspectives reflect political and economic change around the globe (see “Subdued Demand, Diminished Prospects,” Jan16). Challenges include events such as Brexit, the 2016 elections in the United States, concerns about the popular vote in a variety of European countries, and interest and foreign exchange rates.

The World Bank data complements our analysis of the impact of industry- specific issues such as global competition, continuing client-side pressure on translation and interpreting rates, increased productivity from process and automation improvements, competitive displacement, and disruption from new technologies and business models.

The language market continues to grow in both the amount of content translated or interpreted and total revenue (see Figure 1). However, the percentage increase in revenue will always trail the rise in content volume due to automation, price pressure, and external factors such as those noted above.

Figure 1: Language Services and Technology Market, 2009 to 2017 Source: Common Sense Advisory, Inc.

Northern Europe makes up 12.06% of the global population of language service providers. LSPs in the region account for 24.51% of the global market in 2017. This is an increase from 2016, when it constituted 20.17% of the total. The region is projected to grow by 2.4% in 2018. Each year we observe regional fluctuations in global market share – some minor, others substantial – that we attribute to a variety of industry and macroeconomic factors.

The Rankings of the Largest Commercial Suppliers

Table 1 lists the 100 largest companies globally (actually 102 due to two ties), and Table 2 shows the biggest companies in the region. The lists contain only companies that participated in our survey or publicly traded firms.

# Company # Company # Company 1 Lionbridge 36 xplanation 70 American Sign Language Services 2 TransPerfect 37 Certified Languages 71 Geneva Worldwide International 3 LanguageLine Solutions 38 Sajan 72 Sandberg Translation Partners 4 HPE ACG (DXC ACG) 39 LanguageWire 73 EGO Translating 5 SDL 40 TELELINGUA 74 TranslateMedia 6 Hogarth Worldwide 41 FBC GLOBAL 75 Language Connect 7 Welocalize 42 Skrivanek Holding 76 American Language Services 8 STAR Group 43 CTS LanguageLink 77 EasyTranslate 9 Moravia IT 44 24translate 78 Neotech 10 RWS Group 45 Rozetta 79 Iota Localisation Services 11 Amplexor International 46 Amesto Translations 80 tolingo 12 CyraCom International 47 MasterWord Services 81 e2f 13 Keywords Studios 48 AAC Global 82 MediaLocate 14 Honyaku Center 49 Janus 83 Tetras 15 Semantix 50 Translate Plus 84 Kaleidoscope 16 Donnelley Financial 51 EC Innovations 85 Propio Language Services Solutions 17 appen 52 Hero Tolk 86 Celer Pawlowsky 18 Pactera 53 Angel Translation 87 Transatlantic Translations 19 United Language Group 54 Transline Gruppe 88 Linguitronics 20 thebigword 55 Lan-bridge 89 Media Movers Communications 21 Ubiqus 56 WordTech International 90 TRANSLINK 22 Spräkservice Sverige AB 57 HL TRAD 91 Wordbank 23 LOGOS GROUP 58 TRSB 92 Powerling 24 ManpowerGroup - 59 nlg 93 CETRA Language Solutions Language Service 25 Capita 60 Lingo24 94 Linguaserve 26 CSOFT International 61 HansemEUG 95 Master Translation Services 27 KERN Global Language 61 Interpreting Services 96 Shanghai YGYM Translation Services International Service 28 Verztec consulting 62 mt-g medical translation 97 ITC Translations 29 CRESTEC 63 Lingsoft Group 98 Leinhäuser 30 AKORBI 64 Interpreters Unlimited 99 Fidel Softech 31 Technicis Group 65 beo 100 text&form 32 Concorde Group 66 Dynamic Language 100 Logrus IT 33 Transvoice Sweden 67 Snelvertaler (Fasttranslator) 34 SeproTec 68 Arancho Doc 35 Alpha CRC 69 WIENERS+WIENERS

Table 1: The 100 Largest Language Providers (Short Form of Company Names) Source: Common Sense Advisory, Inc.

These lists contain information that reflects the state of the companies as of December 31, 2016. Since then, some have changed their corporate status, been  acquired, acquired others, or increased or decreased the number of employees or offices. Next year’s report will reflect any updates that happen through the course of 2017.

2016 HQ Northern European LSPs Revenue Employees Offices Status Country in US$M 1 SDL UK $285.78 3,600 55 Public Division/ 2 Hogarth Worldwide UK $270.07 2,500 25 Subsidiary 3 RWS Group UK $151.44 792 19 Public 4 Keywords Studios IE $106.95 1,820 14 Public 5 Semantix SE $91.06 286 12 Private 6 thebigword UK $74.89 550 9 Private 7 Språkservice Sverige AB SE $59.13 150 3 Private Capita Translation and Division/ 8 UK $47.30 158 5 interpreting Subsidiary Division/ 9 Transvoice Sweden AB SE $32.55 160 4 Subsidiary 10 Alpha CRC UK $30.52 532 20 Private 11 LanguageWire A/S DK $28.55 154 9 Private 12 Amesto Translations NO $16.95 80 6 Private 13 AAC Global Oy FI $16.83 125 9 Private 14 Translate Plus Limited UK $15.20 133 11 Private 15 Hero Tolk NO $14.54 33 5 Private 16 Lingo24 Ltd UK $11.66 182 6 Private 17 Lingsoft Group FI $10.74 80 3 Private 18 Sandberg Translation Partners UK $9.83 119 4 Private 19 TranslateMedia UK $8.98 75 5 Private 20 Language Connect UK $8.78 60 6 Private 21 EasyTranslate DK $8.18 37 2 Private 22 Iota Localisation Services IE $7.66 18 2 Private 23 Wordbank UK $6.50 48 2 Private 24 World Translation A/S DK $4.13 32 1 Private 25 Translation.ie IE $2.70 30 3 Private

Table 2: The 25 Largest LSPs in Northern Europe Source: Common Sense Advisory, Inc.

Performance of the Largest Companies Opens a Window to the Sector

The language market continues its upward climb (refer to “The Language Services Market: 2017”). To give a better understanding of the impact of the top 100 providers on the sector, this section reviews their activity over the past year (see Table 1). Due to ties, our global ranking includes 102 companies.

The 2016 rankings include only revenue earned in 2016 and does not incorporate income from companies that were acquired after December 31, 2016. Revenue  from any 2017 acquisitions will be reflected in next year’s report.

This year’s respondents reported their revenue in dozens of currencies. We convert their results into U.S. dollars so that we can estimate the market size and rank them by their turnover. We recognize that this conversion distorts the results of firms that don’t report their financial results in dollars, in some cases changing an increase in turnover to a loss. We compensate for this FOREX challenge by highlighting their financial performance in terms of the currency in which they gave us their revenue. We also produce an annual report on the fastest-growing companies.

An Overview of the 100 Largest Language Companies Our annual survey asks for a variety of business, financial, and operational datapoints. When a company qualifies for ranking, we verify their data for inclusion following the process outlined in the Methodology chapter.

• The 102 largest language firms span a half-billion dollars in revenue. Nearly US$500 million separates the biggest and smallest companies on our list. Lionbridge, the largest, reported US$550.00 million in revenue. At the other end of the list, the tied-for-100th companies, Logrus IT and text&form, turned over US$5.20 million. This compares to US$5.32 million for the 100th position last year.

• Ownership takes one of several forms. All but a few of the thousands of companies in our database are privately held. Just 10 on our various lists are traded on stock exchanges. Twelve companies of the ranked companies are subsidiaries of publicly owned corporations. Another nine have known private equity backing. There are also government-owned LSPs, one of which appears in this year’s regional ranking for Oceania. Our lists exclude consortia of LSPs, collectives of linguists, and freelancers, although there are cases where they earn more revenue than some of the smaller firms that appear on the regional rankings.

• Dozens of companies changed their ownership status in the last 18 months. Most were purchased by other LSPs or language technology vendors as part of intra-industry mergers and acquisitions (see “M&A in the Language Sector,” Sep16). Some shifted to other corporate owners – Donnelley Financial Solutions, HPE ACG, and LanguageLine Solutions. Barring any IPOs, the number of public companies will shrink by two in 2017 with the acquisitions of Lionbridge and Sajan by private equity groups.

• Language companies have vastly different staffing levels. The smallest LSP on this list has 33 people on the payroll, the largest has 9,800. This disparity

leads to a frequent question: “How can a company with so little revenue have so many employees?” Reasons include the number and type of services offered, degree of subcontracting, the business model, and geographic location. Because a dollar is worth a lot more or less depending on where you spend it, the headquarters location is a critical factor. We calculate revenue per employee in “Benchmarks for Language Service Providers: 2017”(Jun17).

• Which services a company offers determines other business facts. Some firms on our list work out of a single location, while others boast 50 or more. They may offer just interpreting or a broad array of services. They might specialize in a single language or support hundreds of language pairs. They might avoid technology, actively embrace it, develop it, or even sell it. They could work only for other LSPs, end-clients, or both. The suppliers on our list illustrate this wide range of company types.

The 100 Largest Suppliers and the Overall Market We calculated the growth rates for the ranked firms and found that:

• The 100 biggest suppliers outperformed the overall market. We calculated growth for several tranches – the top 10, 11 to 20, 21 to 50, and 51 to 100 companies – using their reporting currency (see Figure 2). The top 100 overall averaged 11.46% growth from 2015 to 2016 in their reporting currency. The average conversion to U.S. dollars obscures this rise when compared to local- currency revenue.

What it means: The largest players grow faster than the overall market. They tend to have stronger differentiation, positioning, and sales channels than smaller LSPs. The biggest of them can benefit from their ability to meet more of their customers’ needs with a full service and technology offering – and thus take business from smaller, less capable players. They may also offer consulting and help in identifying new markets and languages. At the very top of the list, they may also benefit from introductions to prospects by their investors. Of course, acquisitions accelerated growth for LSPs across the list.

Figure 2: Average Growth among Largest Providers Source: Common Sense Advisory, Inc.

• Some companies grew at incredible rates. We saw extraordinary growth among companies further down the list, including ITC Translations (#97) with a 130.13% over 2016. Other firms exceeding a 50% increase were Linguaserve (#94) at 70.82%, Keywords (#6) at 69.22%, Fidel Softech (#99) at 68.91%, HansemEUG (#61) with 58.56%, and xplanation (#36) at 52.46%. Some of these increases are due to acquisitions. Among the top 25, Hogarth’s (#6) 40.43% increase led the top 10, with strong growth shown by Honyaku (#14) at 24.69%, Språkservice (#22) at 23.94%, and Welocalize (#7) at 20.16%.

What it means: We discuss why language firms grow in our annual analysis of the fastest-growing companies. Across our sample, we identify three factors related to existing clients (more sales from major accounts, up-selling, and referrals) as a driver for growth. Changes to the sales organization or model and new business initiatives were the next biggest reasons.

• Movement at the top of the list signals more disruptions. Lionbridge was almost unseated from the #1 spot by TransPerfect. Hogarth ascended to #6 on the strength of extraordinary revenue growth. Last year and this, the combination of mergers and acquisitions (M&A), lost business, and currency conversions squeezed one company of the top 10 and several out of the top 100 list. A few further down the list chose not to participate for various reasons. We added several more publicly traded firms, several that had participated in the past but had dropped off, and a few firms whose revenue grew enough to make the list (see Table 3).

What it means: Companies at the top tend to have stable revenue streams supported by professional marketing and sales. Larger firms also tend to spread their risk over many more clients and geographic markets rather than just a few make-or-break accounts. However, they are not immune to faster moving, more innovative competitors.

Rank Rank Name HQ Name HQ 2016 2017 40 Sunyu CN 17 appen AU 42 Global Language Solutions US 20 thebigword UK 50 ABBYY LS RU 45 Rozetta JP 51 Mother Tongue Writers UK 52 Hero Tolk NO 52 Apostroph Group CH 61 Interpreting Services US International, Inc. 54 itl Institut für technische DE 77 EasyTranslate DK Literatur AG 56 Straker Translations NZ 94 Linguaserve ES Internacionalización de Servicios S. A. 58 TextMinded A/S DK 95 Master Translation Services CN 62 ISI Translation Services US 96 Shanghai YGYM Translation CN Service Co., Ltd. 65 Human Science Co., Ltd. JP 97 ITC Translations FR 79 IIntertext US 98 Leinhäuser Language DE Fremdsprachendienst e.G. Services GmbH 86 LIS Solutions (Legal US 99 Fidel Softech Pvt Ltd IN Interpreting Solutions, Inc.) 93 Logrus International* RU 100 Logrus IT* US 94 Enveritas Group, Inc. US * Logrus International split into Logrus IT and Logrus Global (number 8 in the Eastern 97 Salita TT AS NO European list)

Table 3: Companies Missing from and Added to This Year's List Source: Common Sense Advisory, Inc.

• Big doesn’t always mean more efficient. Big LSPs aren’t big because they are more productive. They are big simply because they have larger salesforces, more marketing, or more production capacity.

What it means: CSA Research sees two classes of LSP when it comes to headcount: 1) The staff-heavy mainstream LSPs: They have problems expanding and contracting to respond efficiently to demand and struggle to achieve good profitability numbers due to the high wage load. 2) super- efficient startups driven by technology, in particular artificial intelligence

(AI): These companies operate with a lean model that dismisses the “throw more warm bodies” approach of their mainstream counterparts. This enables them to achieve high revenue per employee but can dampen their growth as they struggle to break past the startup mode.

• Larger companies don’t always grow more quickly. We’ve long observed the “growth over zero” phenomenon – that is, making the next million in revenue for a small company is a lot easier than it is for a large firm to make its next 100 million.

What it means: The good news is that growth opportunities exist at all sizes. It also tells us that we probably aren’t seeing consolidation at statistically significant levels. Otherwise, there would be more growth concentrated among a few LSPs that would then emerge as clear leaders and frontrunners.

• Performance of publicly traded companies varied. Several language sector companies in the top 100 trade on public stock exchanges. In addition to the already discussed Honyaku (#14), Keywords (#13) grew at 69.22%, largely due to acquisitions. RWS (#10) slowed down, Lionbridge (#1) receded prior to its acquisition, and Sajan (#38) was flat prior to its purchase by Amplexor.

What it means: The public companies answer to their shareholders, so their decisions are tested daily – and very visible. They must report their actions to their shareholders and government agencies – and the business media take note of their actions. Some public companies decide to escape this scrutiny by leaving the public markets.

• Subsidiaries had mixed results. Another small group operates as divisions of bigger corporate entities. Of these, most grew – Hogarth (#6) had extraordinary growth. Donnelley (#16) was up 9.40%, ManpowerGroup (#24) grew 16.78% and Capita Translation and Interpreting (#25) grew a scant 0.42%. HPE ACG (#3), now part of DXC, shrank 3.57%.

What it means: These are subsidiaries of publicly traded firms. The plans of their corporate parents remain opaque to observers. With performance such as Hogarth’s, there is little question that the parent company sees benefit. On the other hand, the conglomerate owning the other language divisions must decide whether to carve out these units – as did HPE – or double down and transform their LSPs into a full-service, business process outsourcer (BPO).

• Interpreting-centric companies continue strong growth. LanguageLine Solutions moved into #3 position as much on the basis of its 6.96% revenue as HPE ACG ‘s (#4) slide. Most of the larger interpreting specialists grew as well. Språkservice (#22) revenue rose 23.45%, Concorde (#32) was up 23.32%, CTS LanguageLink (#43) 19.21%, CyraCom (#12) 16.70%, Certified Languages (#37) 12.73%, and Semantix (#15) 11.94%. Thebigword (#20) returned to the rankings after sitting out our 2016 survey – its May 2016 win of a U.K. Ministry of Justice tender formerly managed by Capita (#25). Capita, in turn, dropped 0.42%.

What it means: The growth of these major providers of interpreting services underscores the importance of legal requirements for interpretation in health care, courts, and public safety (see “The State of the Interpreting Market,” Jan15). Developments in interpreting technology also propel the offering and open new markets which previously did without interpreting services (see “Developing the IDP Market,” Sep16).

Business in the Inner Circle of the Top 20 The 10 biggest providers – the same as last year, but with some re-ordering of their rankings – mostly grew at a healthy rate despite self-inflicted problems and general market pressures:

• With one exception, last year’s uncertainty at the top has abated. Five firms last year underwent company-changing experiences. Lionbridge (#1) ended the year waiting for its sale to a private equity group to close. TransPerfect (#2) still wrestles with a U.S. court verdict to sell itself. HPE ACG (#3) stood by for integration into a new company formed by the merger of its parent HPE Enterprise Services Division with Computer Sciences Corporation to become DXC Technology Company. LanguageLine Solutions was acquired by a France-based call-center company. Finally, SDL overhauled its management suite, began divesting itself of non-core business units, and re- positioned itself.

What it means: It was unusual to have the five largest firms in a transitional state, but that situation attested to the dynamic nature of the sector and the interest of mainstream businesses and investors. The wildcard continues to be TransPerfect. With the company estimated to be worth as much as US$1 billion, prospective buyers will be limited to anyone who could pull that much cash together – private equity firms already in the market or new arrivals operating on their own, private investors partnering with one of the principals, another company with great cash flow or access to capital like an Adobe, Nielsen, or Donnelley Financial Solutions. However, Amazon’s

arrival in the MT business could have the same chilling effect that its purchase of Whole Foods had on the grocery business.

• Most of the 10 biggest suppliers grew, some more quickly than others. Nine of them posted more revenue in their reporting currency than they did in the previous year. Of the top 10, Moravia (#10) grew the most with its increase of 18.45% in organic growth. SDL had a substantial bump of 11.19%. RWS rose just 4.08%, with little visible impact from its 2015 acquisition of Corporate Translations. LanguageLine had a solid 11.49% of organic growth First-ranked Lionbridge dropped 1.78%, with a bit more than one million dollars separating it from TransPerfect (#2) which realized another 8.56% in growth despite courtroom challenges

What it means: High organic growth for firms turning over multiple hundred million dollars or more per year – such as LanguageLine and TransPerfect – is an impressive feat. Another driver is the tendency of some large buyers to reduce the number of suppliers, in some cases single-sourcing that benefits large providers when they feel there is too much risk entrusting work to smaller players (see “Insights on Enterprise Buying Behaviors,” Dec14).

• The top 10 continued its annual shuffle. CSA Research began its annual study and rankings in June 2005. Since then, 22 firms have qualified to be on our list of the 10 largest LSPs as the market for outsourced services grew to US$43.08 billion (see Figure 3). They appeared in various positions in the ranking as they moved up, down, and off our list of largest suppliers. Hogarth’s (#7) rapid move up the charts re-arranged the order of the top 10.

What it means: These companies benefit from long-term investment in their marketing, sales, and operations – and the visibility and consideration that those have earned them in the market. Three companies have appeared on the top 10 every year since 2005: Lionbridge (#1), TransPerfect (#2), and SDL (#5). Hogarth’s (#6) big jump in revenue pushed long-time top 10 company AMPLEXOR (#11) off the list. For more details about the top 10 over time, see “Language Services Faces a Perfect Storm” (Dec15).

The Impact of Acquisitions on the Rankings

CSA Research has characterized the changing dynamics of the industry in two reports over the last 18 months: “Language Services Face a Perfect Storm” (Dec15) and “M&A in the Language Sector” (Sep16). They describe a market driven by technological disruption, changing business models, competitive

pressures, and consolidation. M&A – merger and acquisition – is a major factor in this business.

Figure 3: Rankings of the Largest Industry Providers, 2007 to 2017 Source: Common Sense Advisory, Inc.

Acquisitions take several forms: 1) outright purchase of a company – this is the most common type of M&A activity; 2) the carving-out of a specific business unit that has more value to another company than the one in which it’s currently located; and 3) “acquihires” focused more on gaining people or intellectual capital. The last year has also seen companies divest themselves of divisions and face sale due to legal decisions.

• M&A powerhouses in 2016. Keywords Studios (#13) was the volume purchaser, with acquisitions of Ankama Asia, Mindwalk, Player Research, and Synthesis. Welocalize (#7) acquired Global Language solutions (#46 in our 2015 list) and Nova. Private-equity-backed United Language Group entered the fray with some core acquisitions.

• Cross-border activity. Many 2016 takeovers took place across international borders as LSPs in Europe sought American sales and production, and vice versa (see “M&A in the Language Sector,” Sep16). Appen and Straker, both in Oceania, reached around the world to buy Mendip Media Group in the United Kingdom and Eurotext in Ireland. Fidel (#99) in Japan bought LinguaSol in India. We also saw cross-border partnerships that could lead to

substantive relationships: Summa Linguae in Poland exchanged shares with Mayflower in India, gaining a foothold on each other’s continents.

• Smaller companies bulked up with strategic partnerships. Xplanation (#36) grew 52.45% with the purchase of Matrix Communications plus organic growth. Transline (#54) sold off its Spanish subsidiary, but purchased KE Communication, another German LSP, to grow an aggregate 25.97%.

• M&A continues into 2017. Activity rings the planet. Amplexor (#11) in Luxembourg purchased U.S.-based Sajan (#30). Wieners & Wieners (#69) in Germany purchased Apostroph Group (#52 on our 2016 list) in Switzerland. Straker (#56 in 2016) in New Zealand acquired Elanex (#88 in 2015) in the United States. Sweden-based Semantix (#15) purchased TextMinded (#58 in 2016 list). U.K.-based RWS took a breather in 2016, but resumed its M&A activity with the purchase LUZ in the U.S. These are just a few examples of what has been announced this year.

Investment and Cash Flow: Money Makes the Industry Go Round

Cash is important to any business. Companies use it to pay off debt, enter markets, hire extraordinary talent, create innovative technologies or processes, or acquire other LSPs. With it they differentiate from, disrupt, or displace competitors. This capital for language services and technology mostly comes from public markets (that is, stock exchanges), private equity groups (PEGs), and venture capitalists (VC). Meanwhile, publicly traded companies outside the language sector lurk at the threshold with offers of language technology.

• Public companies have better access to cash than most private ones. They may be able to get bank loans more easily than a private company, draw on their free cash flow, or sell shares to raise money. Similarly, the language units of publicly-traded corporations such as Donnelley Financial Solutions (until last year, RR Donnelley Translation and Localization Solutions), DXC ACG (until this April, HPE Applications and Content Globalization), and LanguageLine Solutions (now part of Teleperformance) could benefit from their parent corporations’ access to capital and customer bases.

What it means: Access to capital gives public companies more flexibility than their privately-held rivals. Of course, they’re also subject to more disclosure, restrictions, and governance.

• Private equity expanded its role in the market. In November Lionbridge announced that H.I.G. Capital would acquire it, thus joining the ranks of top 50 LSPs owned by PEG firms: AAC Global (Korona Invest), Moravia (Clarion), SDI Media (a consortium), Semantix (Segulah), Stratus (Kinderhook), United Language Group (Northern Pacific Group), and Welocalize (Norwest Equity Partners). Abry Partners exited the sector with its sale of Language Line Solutions to Teleperformance, a call-center company. Blackstone Group sold Pactera Technology to HNA Group. Meanwhile, PEGs have been active observers and potential funders for a court-ordered sale of TransPerfect. Moravia remains on the M&A sidelines.

What it means: The business plan for PEGs in this sector is to buy established firms, optimize their operations, sometimes combine them with others, and grow the business for a public offering or acquisition. Many plan to roll-up compatible LSPs and technology companies. This consolidation has led to several sizeable acquisitions of LSPs with revenue between US$25 and 50 million (see “The Changing Landscape of the Language Industry,” May15). In 2015 and 2016 they focused on acquiring the more profitable, visible life sciences companies. With the biggest targets gone, we expect them to focus on acquiring firms in the financial, legal, and manufacturing verticals.

• Globalization opportunities attracted fewer venture capitalists this year. VC invested in several language technology companies over the course of 2014 and 2015, but there was little activity in 2016.

What it means: Like PEGs, venture funds seek outsize returns. We expect to see more VC investment in the language technology market, especially as the sector adds support for interpreting, mainstream content management and marketing solutions, machine translation integration, content enrichment, and other natural language processing (NLP) solutions that enable information access across languages and devices. For example, we’ve seen a great deal of innovation in technology to support interpreting (see “The Unstoppable Wave of Development in Interpreting Technology,” Feb17). And mainstream markets love the idea of Star Trek-like communicators now flooding the market (see “When Language Technology Promises Vacation Romances – But You Better Have a Backup Plan,” Apr17).

• Content-centric players will partner, acquire, and displace. Publicly traded LSPs and VC/PEG-backed companies will find coopetition in rivals such as Google, IBM, and Microsoft. However, they should expect strong competition from Amazon with its recently revealed AWS MT. Amazon’s take-no-prisoners style could dramatically change the language landscape.

What it means: Last year Alibaba joined the fray with its acquisition of a translation platform. Even before Amazon’s entry into the market, potentially disruptive machine translation and natural language processing (NLP) investments by Google, IBM, and Microsoft dominated discussions with LSPs and investors about the future of the language services and technology market. Smart LSPs will that don’t want to be left behind will spend a lot of time thinking about their futures. CSA Research proposes a path forward in the form of global content service providers for a discussion of what that move means (see “The Language Services Market: 2017,” Jul17).

Exclusions and Missing from the Lists – Where Did “That Company” Go?

Some companies that participated in previous year’s surveys are absent this year for any of several reasons that we catalog below. Nonetheless, our market sizing algorithm provides for the absence of these firms from the survey data by incorporating known facts and extrapolating other data. We consistently see flux from year to year in four categories:

• Some providers suffer from a “one egg, one basket” strategy. When companies fail to diversify their client portfolio, their reliance on a single industry or customer can have disastrous effects. We’ve seen smaller LSPs decide to not reveal financial data in our rankings after losing a big client.

• Some companies were acquired. Once purchased, their operations were rolled up into those of their new owner. Their revenue doesn’t disappear, but it does merge indistinguishably with that of the acquiring company – and remains part of the total market turnover.

• Others consider themselves to be in other markets. Some providers whose revenue would likely qualify for inclusion have told us that they: 1) do not want to be associated with the language services market because of lower valuations; 2) consider themselves disruptive and thus not part of the language status quo; or 3) see themselves only as a tangential part of a sub- group of the market such as interpreting or language technology.

• Others simply don’t participate or miss the deadline. Companies that compete in the mainstream of the language industry tell us that they: 1) lost a big client or contract; 2) missed revenue targets; 3) followed an executive decision to remain “below the radar”; 4) had reporting difficulties due to public filings – for example, some publicly traded firms choose not to break out the financial details of their language units; 5) had a reputation greater

than their actual revenue; 6) had to answer to VC or PEG requirements or objections about such surveys; 7) had a disruptive corporate re-organization; or 8) “whoops – we missed the deadline.”

• Suppliers to defense and intelligence agencies. Until 2012, several outsourcers to various governments participated in our annual survey. The largest of these focused on the U.S., but there are major suppliers to the British, Chinese, and Russians as well. These companies tend to be tight- lipped. While such firms do not take part in our survey, their operations cast a big shadow over the market through purchasing agents such as INSCOM, the U.S. Army Intelligence and Security Command. The most recent contracts amounted to US$10 billion over 10 years – winners include companies such as Global Linguist Solutions, Mission Essential Personnel, and SOS International, former participants in CSA Research’s annual market survey.

• Winners of big interpreting contracts. Many companies involved in interpreting often don’t identify as closely with the language service industry in general and don’t respond to our survey. Some of these companies win sizeable contracts and their absence deflates the size of the interpreting market and leaves gaps in our Rankings, especially our rankings of top telephone and on-site interpreting companies (see “The Top 10 Telephone Interpreting Companies: 2016” (Aug16) and “The Top 20 On-Site Interpreting Companies: 2016” (Aug16).

The Impact of Foreign Exchange Rates on the Rankings and Market Size

Because the language industry serves a wide variety of customers around the globe, it is exposed to a broad array of macroeconomic forces. Currency has a particularly significant impact on the perceived performance of companies and on the size of the market. The U.S. dollar continues a multi-year appreciation against most currencies (see Figure 4).

Figure 4: Exchange Rates Caused Apparent Revenue Decreases in 2016 Source: OANDA average rates from January 1 to December 31, 2016

Foreign exchange (FOREX) rates can be good or bad news depending on an LSP’s accounts receivable and payable. For example, if it sells services across borders, receives payment in rubles but pays linguists in dollars, FOREX conversions will affect the company badly in both transactions. This reality affects our analysis, because we convert revenue reported in other currencies into U.S. dollars. It poses two challenges that we address in our methodology for producing this report:

1. Conversion into a strong dollar shrinks apparent revenue. Comparing results year over year, some firms appear to earn less money when they’re actually holding their own or even growing. For example, an LSP in the United Kingdom that turned over £10 million in 2015 shows up with US$15.29 million using that year’s exchange rate. However, its 2016 revenue growth of 10% to £11 million appears as US$14.91 million at the lower course. It seems to have made less because each pound was worth 17.95% less than 12 months prior, which in turn was 5.21% below its 2014 revenue.

Solution: We report revenue using LSPs’ reporting currency to balance the dollar-denominated lists. This approach reflects actual business growth or declines rather than the FOREX-affected performance.

2. Currency fluctuations obscure actual growth or declines in the market. Because a large percentage of market activity takes place in non-dollar economies, declining or appreciating currencies on the overall market size exert an unavoidable effect. If either the U.S. dollar or euro is down, it affects the overall amount of revenue and thus, of the market.

Solution: We created a constant-currency model in which we averaged two years of exchange rates for comparisons to compensate for some of the FOREX effect. In the past, we investigated other approaches, including: 1) using another currency such as the euro for ranking and market sizing, but that would simply mirror the dollar problem; and 2) establishing our own unit based on the currency basket such as the pre-euro European Currency Unit (ECU) and the IMF’s special drawing rights (SDR). However, we decided to stick to our U.S. dollar based model for the sake of year-over-year continuity in our data analysis.

Methodology

At CSA Research, we strive for transparency and integrity in all of our research. This chapter explains our methodology and answers the most frequently asked questions (FAQs) about our global market sizing estimates and our rankings of the largest language service providers. This year, we analyzed the data in three reports: “The Language Services Market: 2017,” “Who’s Who in Language Services and Technology: 2017 Rankings,” and “Benchmarks for Language Service Providers: 2017.”

Definition of Language Service Provider

We define a “language service provider” (LSP) as a company that offers services and/or technology related to the transfer of spoken or written information from one language into another. To qualify as an LSP under our definition, companies must have two or more full-time employees, a minimum level of revenue that varies by country, and visible market activity. These three filters combine to yield more than 18,500 qualifying LSPs in our database. Many of those that we exclude are more properly categorized as freelancers, contractors, or less than full-time businesses.

In addition to LSPs, we also survey independent software vendors (ISVs) that sell technology that supports language industry clients. Their products include translation memory and terminology tools, machine translation, and interpreting management systems. Language-centric ISVs that respond to our survey meet the same minimum-size criteria as LSPs.

Overview of the Survey and Respondents

CSA Research confidentially surveys suppliers for their financial and business data that we aggregate and analyze for the annual research report. Both the general survey and rankings are voluntary for privately-held firms. Because more than 99% of LSPs and ISVs are privately owned, few publish this information unless required to do so by their local tax or business registration authorities. We do not use these national business filings in our research. However, we did include several public companies that did not complete the survey, using their public filings to rank them.

Beyond contributing their data for the market sizing assessment, survey respondents can also apply for inclusion in our annual rankings of the largest suppliers in the world or in one of nine geographic regions.

Four Frequently Asked Questions about the Rankings

The same four questions come up every year:

• Where does the information come from? Companies voluntarily provide the data in response to our annual survey. We verify the responses with each supplier, confirming both the information that it provided and its agreement to have these numbers published in this report. Providers confirm the accuracy of the information in writing and grant us permission to publish it. We also check the revenue data against the declared number of full-time employees and see whether it’s in line with our benchmarks for the region. We derive these measures from our years of systematic review of the market.

• Why are companies missing? Every year, some choose not to participate. Start-ups may not have much revenue, or their business plans mandate stealth while growing. Some firms, especially subsidiaries of larger enterprises, have corporate policies against disclosure. Others decline for marketing reasons, having positioned themselves as being bigger than they actually are. Others experienced a drop or major increase in revenue and don’t want to call attention to it. Still others with very specialized services don’t want to alert potential competitors to their market. Companies in some countries don’t have a tradition of sharing such information, so they abstain. And finally, some providers simply miss the deadlines.

We know of many companies in other market sectors – printing, digital publishing, copywriting, content creation and management, marketing, and

customer experience among them – that offer some language-related services as part of their service package. However, because they don’t consider themselves to be language service or technology providers, they do not position themselves in this market and consequently do not respond to our survey. Just a small percentage of their revenue comes from their language offerings.

• Is revenue a good metric for ranking providers? We follow the example of annual studies such as the Fortune 1,000 or Inc. 500 that list companies by how big they are or how fast they are growing. CSA Research views the size of an LSP as a proxy for many of the criteria that are important to buyers –

the capability to do the job, the production expertise to do it, or the technology knowledge to compete. A more complete picture would entail analyzing 70 such evaluation factors in our capability and competency model for the language services sector, “LSP Metrix” (Aug15).

• Why do the lists mix service and technology providers? Language services were originally a human-delivered function, complemented over the years by increasing levels of translation automation. Many providers offer both language services and software, thereby blurring the lines between the two.

When and How We Conduct the Survey

We annually conduct an online English-language survey with a series of questions regarding company size, revenue, service mix, and other characteristics. Our research team and statistician collaborated to design and test the survey, with two objectives in mind: 1) to obtain financial and other company data from a valid representative sample of companies so that we could compare it against the total population; and 2) to identify the largest providers in each geographic region.

All direct data collection from LSPs took place through our web-based survey or through direct phone and e-mail communications (see Figure 5). We have guidelines for handling questions, problems, data security and privacy concerns, and duplicate entries throughout the survey period.

• Collection period. We conducted our survey from late January through early June 2017. This period allows companies with fiscal years ending on March 31st to participate in the survey with up-to-date financial data from the previous year.

• Acceptable responses. We required participants to electronically confirm that they had permission to share financial information before entering it into our survey, and to confirm that the data they were providing was accurate.

• Correction policy. In the case of a mistake, we manually deleted the incorrect record. We then directed such companies to start with a fresh survey response. Our research team also made numerous requests for clarifications, especially in cases when an individual LSP provided conflicting responses about its operations.

• Rejected responses. Each year we reject or disqualify hundreds of respondents that do not fit our criteria, duplicate data already provided by their company, or do not finish the survey.

Figure 5: How CSA Research Sizes the Market Source: Common Sense Advisory, Inc.

As in prior years, our efforts to capture the required number of valid responses from the total LSP population consisted of the following main activities:

• Incentives. All respondents received personalized benchmarking data which compared their company’s performance on 10 key business metrics with those of other firms of their size, in their region, and across the globe.

• Mailings and phone calls. We sent and made multiple calls for participation to all the LSPs and ISVs in our database.

• Web announcements. We posted links to the call for participation on LinkedIn, Twitter, the CSA Research home page, our company blog, and other online sources of information.

• Conference mentions. We spoke at various events during the recruitment period and mentioned the survey at all speaking engagements.

Cleansing and Normalizing the Database and Data

The value of the data we collect and the aggregated information and analysis that we produce from it depends on two important elements: 1) the quality of our supplier database and 2) the quality of the survey data.

Over the course of our global market study, CSA Research has expanded its database to develop the most comprehensive listing of language service providers in the world. Thanks to a dedicated internal resource, we update this supplier database on an ongoing basis with LSPs as they come into being, evolve, are absorbed by other companies, or simply go out of business. Over the last few years, we extended this database by harvesting LSPs from a variety of sources, including in-depth searches by service and location.

In order to ensure accurate metrics and market sizing, we proceed through a variety of datapoint verifications. This involves evaluating case-by-case any duplicate, outlier, or significant changes in LSP data over their data from previous years. The entire research team is involved in data verification on information related to each analyst’s area of expertise.

When we rank the 100 largest LSPs and those on the nine regional lists, we carry out several additional quality checks:

• Revenue range compared with actual revenue. We ask each company to first select a revenue size range in U.S. dollars and later the actual revenue in the local currency. In the case of discrepancies, we contact the company for clarification.

• Number of employees compared with actual revenue. We check the number of employees against the actual revenue and revenue range to ensure that the

revenue does not fall outside industry norms. This check helps us identify companies that make data entry errors.

• Growth over previous years. We calculate LSP growth rates over previous years to identify potential data entry errors. We contact the company in case of atypical growth rates.

• Final validation. Once we tabulate the results, we assemble the ranking and then e-mail each company contact the record for its entry – without revealing its position in the ranking. This step gives respondents who provide financial data an opportunity to correct any mistakes.

LSPs that participate in our survey are required to provide us with truthful and accurate information. The top company executives or their surrogates typically respond to the survey.

When we identify an issue, we reach out to the LSP for clarification. Our research team completed hundreds of data verification calls for this year’s report. Any suspicious element that has not been verified is eliminated from data processing.

Of course, a company may inadvertently provide inaccurate data, with a few deliberate instances. None of these have affected the market sizing and segmentation. If we do find an error in a published ranking – whatever the cause − we post a correction notice at http://www.commonsenseadvisory.com/Corrections.aspx.

How We Size the Global Language Services Market

In 2010, CSA Research introduced a proprietary sizing algorithm that includes multiple calculation areas. Within each area, we custom-programmed statistical software to carry out numerous computations within each category.

• Input. We feed our algorithm three sets of data: 1) our directory of LSPs containing information about employee size ranges, country of origin, and other demographic details; 2) data from companies that provide revenue information in our survey; and 3) a subset of the survey responses that include exact revenue data for 2014, 2015, and 2016, from LSPs that agreed to have this information made public. We also incorporate data from publicly traded companies that do not participate in the survey but that do publish their financial results.

• Currency conversions. We convert all financial results into U.S. dollars so that we can forecast the global market size, characterize its component parts, and produce our rankings. Thus, for each firm reporting revenue in other currencies, we convert its revenue into dollars using the average daily exchange rate for its fiscal year. Recognizing that many currencies have dropped against the dollar over the last several years, we discuss the impact of fluctuating currencies and present revenue data for companies in their reporting currency.

• Company size. Our estimate of the size of the global market begins with a categorization of our LSP database by company size. Using the financial data from the survey, we calculate the average revenue for firms in each size range to determine the total estimated revenue for all companies in that group. Then, we compute the percentage of sales to other suppliers in each size category, and finally reduce the total in each size range by the amounts sold to other LSPs. This last step avoids double-counting revenue.

• Market growth. To calculate the rate at which the underlying market grew from 2015 to 2016, we measured the exact change in revenue for all companies that provided us with actual figures. For LSPs that did not list their exact revenue, our statistician used revenue range midpoints. To determine the anticipated market growth rate for the next five years, we factored in 2015-2016 revenue ranges, the 2016-2017 expected growth rate, and World Bank projections. To account for the fact that LSPs frequently re- sell their services to others, we ask about this re-sale activity and our algorithm excludes that revenue from the total.

• Regional share. We calculated the estimated market share by region by computing the total LSP revenue contributed by each region as a percentage of total market size. This calculation presents a challenge in some regions due to lower response rates that we attribute to language issues (the survey is in English) or country-specific concerns about sharing such data. Again this year, we incorporated World Bank data to estimate growth in each region. Our algorithm accounts for the language service supply chain.

Limitations of Our Efforts to Rank the Largest LSPs

While we make every attempt to identify the biggest suppliers in the world and within each region, we highlight several important caveats:

• Some companies don’t want to share their data. As the results of our survey show, the overwhelming majority of translation and interpreting businesses are privately held. As such, they may be reluctant to disclose their financial information. In some cases, the fact that our rankings are widely cited and referenced is sufficient to make them change their minds. However, some LSPs still prefer to remain invisible.

• Some firms participate inconsistently. When a provider performs poorly in a given year, it may decide not to broadcast this information to the world, even if it appeared on previous rankings. Or, if the company changes its management or reports its revenue differently from one year to the next, it may choose to reconsider its decision to participate in our study.

• Even public companies don’t share everything. In the past, we published estimates for some publicly traded companies, based on their officially disclosed information. However, even public filing statements do not always provide the level of information that we require. For example, a firm may divulge revenue information for a single service or business unit, but this figure may not represent the total volume of language services provided across the entire organization

• The survey is in English. The survey language appears to be a particular problem for Asian companies. However, the number of countries represented in the survey stands in the way of translating it into the dozens of tongues that would be required to give respondents an experience in their mother tongue.

Related Research

CSA Research has been writing about the language services market since 2002. Throughout this document, we referenced previous research that explains or expands on issues being discussed. We recommend the following CSA Research reports and briefs derived from our previous annual market studies.

• “The Language Services Market: 2017” (Jun17) – This report provides detailed information and analysis on the size, shape, and trends in the market. The listings of leading suppliers are in “Who’s Who in Language Services and Technology: 2017 Rankings.” Competitive benchmarking data vey can be found in “Benchmarks for Language Service Providers: 2017.”

• CSA Research “Sales Cookbook” (Jun17) – This series of 12 modules provides guidance for language service providers on how to systematize their growth efforts to achieve repeatable sales success.

• “The State of the Interpreting Market” (Jan15) – This report provides in-depth information on buyer demand for spoken language services.

• “Tech-Savvy Providers Nail the LSP Matrix” (May17) – This report aligns CSA Research’s models for technology investment and company maturity, offering guidance and insight on where automation fits in an LSP’s strategy.

• “M&A in the Language Sector” (Sep16) – This brief discusses the M&A landscape and LSP’s attitudes toward mergers and acquisitions, reviews recent activity, follows the money, and analyzes what it means to the market.

• “LSP Metrix” (Aug15) – This report describes CSA Research’s maturity model for LSPs and how companies behave at each of the six stages of the model. It constitutes an important tool to benchmark providers.

• “The Fastest-Growing LSPs: 2016” (Jul16) and “Why Language Service Providers Fail to Grow” (Aug15) – These briefs analyze the data for companies with the largest growth rates.

• “When LSPs Seek Revenue beyond Their Own Borders” (Dec15) – This brief analyzes the origin of LSPs revenue and how it affects the landscape of the language services market.

About Common Sense Advisory

Common Sense Advisory, Inc. is an independent research firm committed to objective research and analysis of the business practices, services, and technology for translation, localization, and interpreting. With its research for both Global Leaders and Industry Providers, Common Sense Advisory endeavors to improve the quality and practice of international business, and the efficiency of the online and offline operations that support it. To find out more about our research and how to become a member:

• E-mail us [email protected].

• Visit www.commonsenseadvisory.com.

• Call +1.978.275.0500.

Future Research

Common Sense Advisory seeks interviewees from the community of people involved in building business applications for international use. If you would like to be interviewed or have clients who would like to share their experiences, please e-mail us at [email protected]. We anonymize participants and hold all information in the strictest confidence.

Applied Research and Advisory Services

This report and other Common Sense Advisory research into the best practices of business globalization serve as the foundation for our Applied Research and Advisory Services including International Customer Experience Assessments, Vendor Selection, Localization Business Process Audits, Globalization Excellence and Optimization Assessments, and Globalization Roadmaps. E-mail us at [email protected] for more information.

