Business Confidence Survey for Language Industry Providers

Donald A. DePalma, Ph.D., Common Sense Advisory, Inc.

Don DePalma provides an overview of the past six quarters of gathering data on industry marketplace trends and encourages participation in Common Sense Advisory, Inc.'s future Global Business Confidence Surveys.

Nearly 18 months ago Common Sense Advisory systematically began collecting information about the business confidence of companies providing language services and tools. We based our poll of industry executives on the Organisation of Economic Cooperation and Development's (OECD) approach to conducting harmonized business tendency surveys, which means that we focused on trends rather than on precise information about levels of output, sales, investment, or employment that might characterize government studies. Earlier this year we began executing a parallel survey of buy-side executives.

Our quarterly pulse-taking of the supply side of the industry has now been through six iterations and has begun providing some insight into the cycle of demand and supply. Now it’s time for a brief return to your long-forgotten class in statistical analysis. We compare numbers quarter over quarter using what statisticians call the “balance” or “net-balance” approach. To get the balance, we have to simplify variables and convert the responses into percentages that can be compared:

 

• Simplified variables. Most of the questions in the survey have just three reply options; the OECD characterizes them as “up, same, down” or “above normal, normal, below normal.” For convenience we denote up/above normal by (+), same/normal by (=), and down/below normal by (-).

 

• Percentages of the simplified variables. We convert the answers to each of the possible replies into percentages. Let’s use round numbers as an example: if 20 of 100 respondents replied in the positive (+), 30 said it was the same (=) and 50 told us things were down (–), those responses translate into 20, 30, and 50 percent, respectively, in our calculations. We then compute the net balance by subtracting the (–) percentage from the (+) percentage. Thus, 20 – 50 = –30.

 

So what have we uncovered in the preceding 18 months? Let’s review two questions from our business confidence survey for suppliers.

We asked service and tool providers what market demand they had seen in the preceding three months. Figure 1 shows the percentages of up responses by quarter, with a corresponding change in the balance. Values decreased in January 2005, but then started growing as the year progressed. Extrapolating this across the year, we see a behavior that should be familiar to anyone who’s ever talked to a salesperson – the year starts out slow and builds momentum with successive quarters. Note that the percentage of down responses varies little from quarter to quarter, with the constant movement of these values between 10 and 20 in all quarters.




 

	Up	Unchanged	Down	Balance
July-04	56.8	25.9	17.3	39.5
October-04	62.2	23.3	14.4	47.8
January-05	52.1	30.6	17.4	34.7
April-05	61.8	24.2	13.9	47.9
July-05	65.3	22.2	12.5	52.8
October-05	63.6	21.8	14.5	49.1

 

Figure 1: Volume of Demand in Preceding Quarter
Source: Common Sense Advisory, Inc.

Each quarter we also ask what demand language service and tool suppliers expect to see in the coming three months. This expectation of demand is a leading indicator of how the market should perform in the coming months. Figure 2 charts the history of responses over the last year and a half of surveys. Here we can see that the percentage of up responses and the balance also track each other, with values decreasing in October 2004 and then growing again. The percentage of executives saying that they expected downward movement in the coming quarter had a constant movement, with down values between three and nine across all periods.




 

	Up	Unchanged	Down	Balance
July-04	73.5	20.5	5.9	67.6
October-05	63.3	28.3	8.3	55
January-05	67.8	28.9	3.3	64.5
April-05	66.1	27.3	6.7	59.4
July-05	63.2	31.3	5.6	57.6
October-05	68.5	26.7	4.8	63.7

 

Figure 2: Expected Volume of Demand in Upcoming Quarter
Source: Common Sense Advisory, Inc.

These two questions track market demand, real and expected. There are several other questions that ask about employment, access to credit, and the overall business situation. All this data helps draw a picture of how the industry is performing. As the number of quarters in our dataset increase, the survey should become more powerful in its predictive capability.

How should you interpret these findings? Remember that we did not conduct a strict quantitative survey with statistical validity measurable to plus or minus n percentage points. Rather, in keeping with the OECD methodology that underlies the Common Sense Advisory Global Business Confidence Survey, we track industry behaviors, trends, and performance. It is to this end that we have been working with GALA to extend the survey to include a more systematic, detailed collection of vendor metrics, but that’s another story (see call for participation).

The next time you receive a Business Confidence Survey invitation from us, we ask you to click through to our survey site. Each participant receives a copy of the previous quarter’s report plus the report for the survey in which he or she participated. But more importantly, you can contribute valuable knowledge to our growing, shared database of spending patterns, likelihood to invest, and how suppliers and buyers behave in their daily lives.

 

Don DePalma is president and chief research officer at Common Sense Advisory. He was a member of the GALA Board of Directors in 2003 and 2004. You can reach him at don@commonsenseadvisory.com.