1

L-3 Communications¹

US

 622.0

8,496

50

Public

2

Lionbridge Technologies

US

 419.0

4,200

48

Public

3

SDL International

UK

 174.5

1,500

50

Public

4

Language Line Holdings

US

 163.3

n/a

12

Private

5

TransPerfect/Translations

US

 112.8

647

46

Private

6

SDI Media Group

US

 95.0

500

25

Private

7

RWS Group²

UK

 73.4

346

8

Public

8

Xerox Global Services³

UK

 68.0

350

7

Public

9

euroscript International S.A.

LU

 62.8

755

16

Private

10

Moravia Worldwide

CZ

 43.5

502

12

Private

11

Logos Group

IT

 43.3

169

13

Private

12

CLS Communication

CH

 40.7

280

13

Private

13

Honyaku Centre⁴

JP

 32.6

128

5

Public

14

LCJ EEIG

DE/ IT/ BE/ ES

 32.1

214

12

Private

15

Semantix

SE

 31.2

140

6

Private

16

Merrill Brink International⁵

US

 29.8

150

4

Private

17

Welocalize, Inc.

US

 28.2

254

7

Private

18

Skrivanek Group

CZ

 23.6

370

51

Private

19

Hewlett-Packard ACG

FR

 22.0

90

8

Private

20

thebigword Group

UK

 21.0

155

8

Private

Since 2005 we have published an annual list of the largest language service providers (LSP). The guiding principle for which LSPs we consider for this year’s Top 20 is simple – companies or divisions of companies that make most of their revenue by providing language services, be it in written or verbal form, on paper, over the web, in person, on video, inside software applications, on any continent.

In the past we limited our consideration to LSPs that derive most of their revenue from translation. This year we decided to track providers by the type of work they do, so we asked candidates about the percentage of their revenue that derives from translation, software localization, and over-the-phone interpreting (OPI).

We were surprised to learn that most companies do not track revenue at that level of detail. Likewise, you can forget about categories like internationalization, localization engineering, desktop publishing, and project management. Therefore, we decided to include companies practicing every form of “-ization” related to language. We think this information would provide valuable insight into the layers of revenue within the industry and how this will change over time. However, the fact that most LSPs don’t break out this detail reflects the level of industry business maturity and service fragmentation. In the next year or two, we expect to break out software revenue from companies like SDL as they reinvent themselves into technology companies.

Finally, previous lists picked from just language service firms doing business in North America and Europe. In the last few months we’ve expanded our research of companies in Asia, so our candidates included several LSPs in China and Japan. One Japanese company made the final cut. Looking forward, we expect to find companies in east and south Asia making the shortlist in future years.

Who will you buy language services from in 2010? Your shortlist will likely be a different one than what you might pick today. Consider the history: The five largest LSPs in 2000 were Berlitz, Bowne Global, Lernout & Hauspie (L&H), Lionbridge, and Alpnet. In 2006 they were Lionbridge, L-3, SDL, TransPerfect, and RWS. Bowne absorbed some of L&H, Lionbridge swallowed some bits of L&H on its own and then Bowne in its entirety. SDL acquired Alpnet.

Who's at the top of the heap in 2007? L-3 leapt into first place based on its work for the U.S. Army in Iraq. Lionbridge consolidated revenue from its acquisition of Bowne, reaching US$419M. SDL grew to US$174.5M, and TransPerfect vaulted to US$112.8M. Looking forward to next year, we expect more changes due to market consolidation, growth in rapidly developing countries, the economic pressures of outsourcing, business reversals, and contract losses. Other companies have moved up and down the list since we started keeping track in 2004 (see Figure 1). Looking ahead we see several major changes in the offing for next year’s lineup:

• The U.S. Army voted L-3 off the Top 20. In late December 2006 the U.S. Army awarded DynCorp International and McNeil Technologies a five-year contract worth up to US$4.6 billion to provide linguists to the U.S. military in Iraq. L-3 (number 1) was the Army’s incumbent provider. The company could drop out of the Top 20 altogether if it loses its protest, while McNeil – on last year’s list, off this year – could be at the top of the heap next year. L-3 violated a cardinal rule of business by putting all of its wars in one basket.
• The race to number four continues. Every other firm wants to be number four on our list.⁶ Merger and acquisition activity continues. For example, Euroscript revealed in May 2007 that it would merge with eurodoc to create an €85 million provider. In March 2007, Welocalize (number 17) announced its intention to be number three within three years. Of course, the Welocalize plan hinges on the unlikely scenario that all other participants in this market will stand still, neither growing organically nor acquiring anyone.
• SDL will try for a different list. With its April 2007 announcement that it would buy CMS supplier Tridion, SDL signaled its intention to move up the food chain. Equity markets value software firms higher than service providers, so SDL will aim to push its software income to be an increasing percentage of revenue. Sooner or later, SDL may follow our longstanding recommendation to split its technology and language services into separate businesses.
• Private equity lurks at the threshold. In our predictions for 2007 we speculated about private equity buy-outs of the largest firms in the space. This thought echoed our 2004 musing about Indian business processing outsourcing (BPO) firms leveraging their huge capitalizations to buy out even Lionbridge. Just do the math: Infosys and Wipro have market caps of US$31 billion and $24 billion, respectively. Both are very profitable (27% and 19%). In comparison, Lionbridge has a market value of less than its annual revenue ($337.8 million) and a negative profit margin. In today’s atmosphere of large corporations being taken private, this sector could be the next target for outside money.

Figure 1: Movements in the Ranking of the Top 20 from 2004 to 2006 Source: Common Sense Advisory, Inc.

In the final analysis, most of these companies are still tiny enterprises subject to the vagaries of the marketplace. They are all small enough – Lionbridge not excepted – to be rolled up by publicly traded firms and private equity deals. Finally, as L-3’s experience shows, the loss of a big client can change the situation overnight.

The language service providers in our Top 20 averaged 24.5 percent growth over the previous year. Some grew by acquisition, others organically, and some others by virtue of foreign exchange. Five LSPs dramatically exceeded the average, with the top two – Moravia and L-3 – growing organically (see Table 2). Logos heads the list in revenue per employee (see Table 4).

Figure 2: Top 20 Aggregate Revenue and Growth Rate from 2004 to 2006 Source: Common Sense Advisory, Inc.

The total revenue accounted for by the Top 20 language service providers has grown steadily since 2004 (see Figure 2). From 2004 to 2005 these leading LSPs grew slightly faster than our estimate of 7.5 percent (see “Ranking of Top 20 Translation Companies,” Mar06). However, they leapt 36.7 percent from 2005 to 2006 – fully 4.8 times the sector growth rate. We attribute some of that increase to revenue consolidation and the big jump in language-related activities for Iraq, Afghanistan, Guantanamo, and other defense and intelligence needs.

Last year Common Sense Advisory estimated that the market for outsourced language services would hit US$9.5 billion in 2006 and grow to over US$10 billion this year (see Table 5). Our estimate was predicated on a growth rate of 7.5 percent, line with the World Trade Organization’s estimate for general commercial services.

Figure 3: Top 20 Aggregate Revenue and Growth Rate from 2004 to 2006 Source: Common Sense Advisory, Inc.

Across the market we see demand growing at 15 to 20 percent per year, driven by national regulations, website and product localization (see “Developing Products for Global Markets,” Jun06), and consumer need for more information in their own language (see “Can’t Read, Won’t Buy,” Aug06). But at the same time, we see industry growth holding steady at below 10 percent.

Why this discrepancy? In this highly competitive market, most productivity gains benefit the customer, not the LSP. We do not find price erosion in core metrics like price per new word, but we do see the impact of translation automation and reduced publishing costs from XML conversion. LSPs are literally doing more for less but for less effort. The 15-20 percent growth in overall demand translates into a blended 7.5 percent increase in revenue.

What does the future hold? We have highlighted opportunities for LSPs to get involved in a potential US$50 billion market of the global content life cycle (see “Beyond Global Websites,” Mar05). By helping clients improve source content and quality, they could build up revenue while they improve their standing in the value chain (see “Beggars at the Globalization Banquet,” Nov02).