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Is the Glass Half Empty or Half Full? Business Confidence in the Language Services Industry

By: Donald DePalma (Common Sense Advisory)


12 March 2010

For the last five years, Common Sense Advisory has conducted quarterly surveys of business confidence in the language services and technology sectors. These demand-side and supply-side surveys provide insight into the behavior, both historical and predictive, of buyers and suppliers. This article outlines the motivation and history for the surveys, and provides several data points from the last five years“ and the current mood of the industry.

If you run a business or own a budget, you face countless options about how to spend your money.  Should you buy that new equipment, upgrade to the next version of the software that runs your business, hire more staff, improve benefits for your current employees, or sock away money for a rainy day? As you work through your decision matrix, you will calculate factors such as the current and anticipated market demand for your products or services, the cost of doing business, what labor costs, the consequences of deferred maintenance, tax rates, and a host of other concerns.  However, I would wager that the variable with the biggest impact will probably be a bit less objective than these quantifiable concerns; namely, how optimistic do you feel about your business?

It was this question of optimism versus pessimism that led our research team to undertake a project to gauge business confidence in the market for translation and localization. We began with a prototype survey in 2004 of buyers and suppliers. In 2005, we began quarterly polls of both the demand and supply sides of the language services and technology industries.  Rather than reinvent the wheel, we based the Common Sense Advisory Global Business Confidence Survey on a template from the Organization for Economic Co-Operation and Development (OECD) for such polls.i

A Quick Review of Data from Past Surveys

How about looking at some actual results? Here are excerpts from several of our briefs about the business confidence survey, each demonstrating the historical or predictive value of this data in tracking industry phenomena and even their relationship to general macro-economic trends.ii

  • The surveys track general market trends.In our analysis of the data from the last quarter of 2004, we compared the drop in demand for translation and localization with the U.S.  Department of Commerce’s reports of a declining economyiii. This concurrence of results was our first datapoint indicating that the language market tracked the general economy. Future statistical analysis will make such comparisons over our dataset’s five-year (and expanding) lifespan.
  • Confidence sometimes drops. In early 2009, we compared the results of our fourth-quarter 2007 and 2008 surveys, and measured the differences between those two end-of-year periods. What we found was a marked decline for both buyers and suppliers, playing out in increments in each of calendar 2008’s quarters. Our statistician performed tests that showed the drops to be at the 99-percent confidence level, meaning that chance alone cannot explain the results that we observed. Of course, the period that we analyzed included the aftermath of the September 2008 meltdown of the stock markets and the recession that accompanied it.iv

Was 2009 a Good Year? How Will 2010 Stack Up?

For the quarter ending 2009, we remarked on the continuing recovery and gradual reversal of 2008’s incremental declines.  The data points to a continuing recovery in the language services market (see Table 1 – the symbol “++” indicates a statistically significant change).  While suppliers saw increased demand from the preceding quarter and expected even more in the first quarter of 2010, buyers were less sanguine; they generated more demand for language services in the final quarter of the year, but forecast a drop for January to March 2010.  This anticipated decrease may be a function of seasonal behavior, a phenomenon we will explore in future analysis. 

Projecting their perspective over the next six months, 58.9 percent of the service and technology providers expected the business situation of their company to be better, 37.1 percent said it would be the same, and just four percent felt it would be worse.  This was on par with their expectations when we asked last quarter, when the percentages were 56.6 percent, 38.6 percent, and 4.8 percent, respectively.

Supply-Side

Q4-08 vs.  Q1-09

Q1-09 vs.  Q2-09

Q2-09 vs.  Q3-09

Q3-09 vs.  Q4-09

Volume of demand for past 3 months

Decrease ++

Increase

Increase

Increase ++

Volume of demand for next 3 months

Increase ++

Increase

Increase

Increase

Present business situation

Decrease

Decrease

Increase

Increase ++

Present financial situation

Decrease

Increase

Decrease

Increase

Business expected for next 6 months

Increase

Increase

Increase

Increase

Employment for next 3 months

Decrease

Increase

Increase

Increase

Employment for past 3 months

Decrease

Increase

Increase

Increase

Table 1: Significant Changes in Supply-Side Confidence Factors for 2009
Statistical Test with 99% Confidence Level in Results)
Source: Common Sense Advisory, Inc.

Are language service providers justified in their optimism for the coming half-year? Our surveys historically show that they are far more bullish than the buyers of their services, especially over the last year. Time will tell. Of course, it’s impossible to discuss the language services sector without accounting for the unsettled world economy. In our briefings and interviews with people on both sides of the buyer-supplier equation, we saw companies invoking the recession to tighten up their operations, reduce costs, pressure suppliers, and focus resources on where they stand to gain the greatest benefit.v

The recovery thus far is jobless, although there are some signs of hiring. Credit remains tight, especially for small businesses, and many traditionally large companies of language services began to rein in or rationalize their purchases last year. Concerns about troubled euro-zone countries – Portugal, Italy, Greece, and Spain (the so-called PIGS, or PIIGS if you include Ireland) – contribute to the unease. These phenomena will continue to affect business globalization and the services and technology that support it.

There is some counter-balancing good news. After a couple of tough years, replacement cycles are out of whack, a propitious indicator for the IT sector and ultimately for the automotive segment. A quick review of the financial releases for large companies attests to the continuing importance of the global economy to their business plans. For example, McDonald’s kicked off 2010 with a press releasevi trumpeting a 15 percent increase in global sales (4.3 percent when adjusted for constant currency), and companies like Caterpillarvii see light at the end of the tunnel, thanks to improving markets in China and most developing countries. And our research shows language service providers actively searching for new revenue in new sectors,viii markets,ix and regions.x

As the world’s economy recovers its equilibrium, we contend that global markets will remain a critical part of companies’ business plans. They know that both business buyersxi and consumersxii want to see information tailored to their expectations. Business globalization and supporting language services are here to stay.

If you would like to participate in these surveys, please contact us at [email protected]. We’ll add you to the invitation list and give you a working link to the most recent brief explaining the results.

Don DePalma is the founder and chief research officer of the research and consulting firm Common Sense Advisory, and author of the premier book on business globalization “Business Without Borders: A Strategic Guide to Global Marketing.” He can be reached at [email protected].


i For information about the OECD model, see http://stats.oecd.org/mei/default.asp?lang=e&subject=6.

ii DePalma and Stewart, “Global Business Confidence Survey” (Common Sense Advisory, February 2010).

iii DePalma and Kustanowitz, “Language Service Demand Dips in Q4-04” (Common Sense Advisory, January 2005)

iv DePalma, “Business Confidence Wanes in Language Sector” (Common Sense Advisory, March 2009).

v DePalma and Kelly, “Ten Ways to Recession-Proof Your Business” (Common Sense Advisory, October 2008).

vi “McDonald’s Reports Global Comparable Sales Increase for January,” http://phx.corporate-ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1385373

xii “Caterpillar Expects Higher Sales and Revenue and Profit in 2010,” http://phx.corporate-ir.net/phoenix.zhtml?c=92466&p=irol-newsArticle&ID=1379479

viii Kelly, “U.S. Policy Initiatives Forecast Growth in Language Services Market,”(Common Sense Advisory: February 2009).

ix Kelly, DePalma, and Stewart, “Language Services and the U.S. Federal Government” (Common Sense Advisory: December 2009).

x Txabarriaga, Kelly, and Stewart, “The European Translation Market” (Common Sense Advisory: November 2009).

xi DePalma, Kustanowitz, Sargent, and Kelly, “Localization Matters,”(Common Sense Advisory: November 2008).

xii DePalma, Sargent, and Beninatto, “Can’t Read, Won’t Buy: Why Language Matters on Global Websites” (Common Sense Advisory: September 2006).