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How a Pandemic Shapes the Language Services Industry

Paul O’Mara

Paul O’Mara is the director of data products at independent market research firm CSA Research. He focuses on system integration and data validation, analysis, and visualization.

Paul OMara

How a Pandemic Shapes the Language Services Industry

Paul OMara

Paul O’Mara

Paul O’Mara is the director of data products at independent market research firm CSA Research. He focuses on system integration and data validation, analysis, and visualization.

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mployment rates have dropped all over the world. Stocks have experienced great flux. Countries struggled to contain the recession. In this context, how are language service providers (LSPS) doing? Based on the impact of COVID-19 on the overall economy, CSA Research has closely tracked how LSPs have been affected, compiling in-depth analysis of their perceptions. For example, changes in LSP’s overall business, and whether the impacts are viewed as temporary or permanent. Data is presented from three different periods: March, May, and July.

Revenue Losses in All Regions and All Sizes

Figure 1 synthesizes the perceptions of LSPs in three consecutive surveys of top providers and two surveys of Chinese LSPs. Since COVID-19 hit China first, the perceptions of these Chinese LSPs provide a useful comparison to the rest of the world.

  • Decreases are prevalent. Over one-half of respondents (55%) said in July that they experienced a reduction in their turnover versus last year. Only 20% said business is up.
  • The average revenue change is -6%. The responses ranged from a 99% decrease all the way to an increase of more than 100%, for a relatively modest average of -6%. While that number may seem small enough, consider that the first quarter of the year was relatively normal for LSPs. In addition, the compounding power of even a 6% loss as the pandemic lingers will amount to large yearly losses for LSPs.

The pressure wasn’t felt quite the same way around the world. Eastern Europe respondents reported the largest drop in revenue for the first half of the year (13%), while North American and Northern European LSPs reported the lowest drop at less than one-half that rate (6%) (Figure 2).

 

LSPs Worldwide Chinese LSPs Only
March May July May August
How has COVID-19 affected your business as of today?
Overall business has decreased 51% 66% 55% 61% 59%
Overall business is the same 23% 18% 17% 33% 20%
Overall business has increased 7% 10% 20% 6% 10%
Too soon to tell 19% 6% 8% -* 11%
Quantify the change in your revenue from January to June 2020 compared to the same period in 2019.
Average change in revenue, January to June, compared to prior year -6% -10%
N=124 N=115 N=121 N=137 N=115

Figure 1: Overview of COVID-19 Effects on LSPs. Source: CSA Research.
* In the May survay to Chinese LSPs, “Too soon to tell” was not provided as an option.

Bar Graph displaying Estimated revenue from language services, worldwide

Figure 2: Average revenue loss by region, January to June. Copyright CSA Research.

Mid-sized LSPs hit hardest

Figure 3 displays the average revenue loss by company size and Figure 4 the percentage of responding companies that reported a decrease in revenue over the last year. Some patterns emerged.

  • Mid-sized LSPs ($5 million to $19.9 million) have taken the brunt of the decline. They experienced an average 13% decrease in revenue from January to June, and 80% of them say overall business is down, the largest percentage yet that shares this viewpoint. This group is also the most likely to feel that the market changes are permanent, showing a pattern of struggles they must overcome to rebound (Figure 9).
  • Small and large companies’ performance mirrors each other. Their drop in revenue is smaller: -3% for small LSPs and -4% for large ones. This indicates a story of at least partial recovery.
Bar Graph displaying Estimated revenue from language services, worldwide

Figure 3: Average revenue loss by size, January to June. Copyright CSA Research.

Annual Revenue LSPs Reporting Decreases in Revenue
March May July
$1 to $4.99 million 39% 57% 53%
$5 million to $19.99 million 51% 66% 80%
$20+ million 59% 58% 44%
N = 114 N = 79 N = 97

Figure 4: LSPs reporting decreases in revenue, March to July, by size. Data copyright CSA Research.

Recovery signs appear

Focusing on the percentage of respondents that experienced a decrease in revenue, two patterns emerge (Figure 5):

  • Business outlook is improving. When comparing May to July results by region, Asia-Pacific (APAC) is the only region where LSPs showed a rise in the percentage of LSPs that experienced a decrease in revenue. In CSA Research’s similar survey solely for Chinese LSPs, in July 59% of the 115 respondents experienced a decrease — almost the exact same percentage as the APAC sample. This may be tied to an earlier resurgence of the virus or broader understanding of the longer-term impact in the APAC market.
  • Progression is uneven. North America was the hardest hit in the first two surveys (65% in March and 78% in April), but experienced the biggest improvement in the July analysis. Western Europe now overtakes the position of most companies in a downward spiral (65% of respondents).
Annual Revenue LSPs Reporting Decreases in Revenue
March May July
Asia-Pacific 50% 53% 60%
Eastern Europe 45% 71% 58%
Northern Europe 42% 50% 45%
Southern Europe 58% 69% 50%
Western Europe 50% 74% 65%
North America 65% 78% 54%
N = 124 N = 115 N = 121

Figure 5: LSPs reporting decreases in revenue, March to July, by region. Data copyright CSA Research.

Success begets success, even in a pandemic

We tested whether companies’ performance over the prior three years (2017-2019) was predictive of how well they weathered COVID-19 and found it was (Figure 6). Those whose overall business had increased even in the midst of the pandemic have a compound average growth rate of 37% over the prior three years. However, those that said business was flat or decreased have growth rates not even one-third of that. Based on prior experience with and observation of LSPs, we assume that such strong past sustained growth meant they had the systems and processes in place to react to the vicissitudes of the market and possibly emerge stronger.

Bar Graph of Top 10 verticals Chinese LSPs are active in

Figure 6: Compound average growth rate and effect of COVID-19 on business. Copyright CSA Research 2020.

Perceptions differ on permanence of changes

Only 2% of the LSPs surveyed believe that COVID-19 has not changed the language services and technology market, either temporarily or permanently (Figure 7). Therefore, 98% of respondents thought otherwise: 42% see the market as changed forever, and 56% view the pandemic’s effects as more transitory. What does that mean? The answer will vary based on providers, but it’s a blend of reduction in demand, a different balance of services, changes in production models, increased use of technology, and revisited staffing models (“COVID-19’s Impact on Staffing and Offices at LSPs”).

Perception LSPs Worldwide Chinese LSPs Only
July August
(COVID-19 pandemic) has permanently changed the market 42% 24%
(COVID-19 pandemic) has temporarily changed the market 56% 71%
(COVID-19 pandemic) has not changed the market at all 2% 5%
N = 121 N = 115

Figure 7: Overview of COVID-19 effects on LSPs. Source: CSA Research.

These results were analyzed by region, too, revealing different perspectives on COVID-19’s impact on the market (Figure 8).

  • A conflicted North America. The region led the world with the highest percentage both seeing the changes as permanent (64%) and as having not changed at all (7%). Why? One reason for their belief in the permanence of the changes is that LSPs in this region tend to be more specialized and have achieved greater market segmentation. They know their markets intimately and thus can better gauge whether these new conditions will last.
  • APAC is overwhelmingly optimistic. LSPs in the Asia-Pacific region overwhelmingly see the changes in the market as temporary (80%), again aligning with the response received from the survey of 115 Chinese LSPs (71%).
Pie Chart of MT usage by Chinese LSPs

Figure 8: Perception of effects on LSP market by region. Copyright CSA Research 2020.

Small LSPs view the changes as transitory

Small LSPs are most likely to believe the changes are temporary (63%) (Figure 9). Conversely, a majority of mid-sized LSPs ($5 million to $19.9 million) view them as permanent (55%). As the data in Figure 4 shows, the percentage in this latter group that has reported decreases in business keeps going up — the only revenue group exhibiting this trend.

Pie Chart of MT usage by Chinese LSPs

Figure 9: Perception of effects on LSP market by size. Copyright CSA Research.

Results during pandemic affect market perception

Those that think COVID-19 hasn’t changed the market in any way have seen the least change in revenue — on average, this group has seen a minimal 4% increase in the first half of the year (Figure 10). However, those who view market changes as permanent have experienced a 4% decrease. Perhaps trying to remain optimistic in the face of strong market headwinds, companies that believe the market’s changes are temporary reported the largest average drop in revenue (-8%).

Pie Chart of MT usage by Chinese LSPs

Figure 10: Perception of effects on LSP market by average revenue loss. Copyright CSA Research 2020.

Recommendations

Based on analysis of five surveys of LSPs, three worldwide and two solely for Chinese LSPs, here are some recommendations:

  • Compare your situation to your peers. Have you fared better, worse, or in line with companies in your geography or company-size bracket? Think about why that may be. You may have more work in a vertical or service type where clients are operating with minimal work. Likewise, you may benefit from the verticals or services that support the needs of the pandemic.
  • Prepare for the long haul. Early optimism about a quick return to normal has shifted over the past six months. LSPs are expecting the pandemic’s effects to last longer and many (41%) think the changes it has wrought will be permanent. Waiting it out or treading water until things go back to normal isn’t an option; your business may not be able to remain solvent that long, and some or even most things will never return to how they were.
  • Apply market segmentation. Identify which markets are performing best for you and focus on those. There are shifts in industry demand due to COVID-19, so see where demand is growing and either increase your footprint there or try to enter these markets if it’s feasible to do so.

Keep in mind, the data in this article is based on CSA Research’s July survey of 121 of the world’s largest LSPs. Additional information is derived from two similar surveys previously conducted, in March and May 2020, for a total of 360 responses, as well as two surveys of China-based LSPs in May and August, resulting in 252 responses. Analysis is based on conditions at time of writing the article.