Focus
Demystifying the Chinese Language Market
Gabriel Karandyšovský
Gabriel Karandyšovský is the managing editor of Nimdzi Insights.
Demystifying the Chinese Language Market
Gabriel Karandyšovský
Gabriel Karandyšovský is the managing editor of Nimdzi Insights.
hina is a country of tremendous business opportunity, spurred by the sheer size of the domestic Chinese market and by the continuous economic growth displayed by the world’s most populous nation.
The Chinese economic reform, kickstarted in 1978 by Communist Party leader Deng Xiaoping, was a watershed moment for the country’s language services market. The decades that followed have helped Chinese language services providers (LSPs) develop in both number and value. According to the Translators Association of China (TAC), there are over 369,000 companies that list language services among their fields of activity today, and the total revenue value of Chinese companies active in language services represents $5.29 billion.
The reasons for this are twofold. First of all, this growth has been achieved thanks to increased international demand. Perhaps more importantly, however, it is aided by a growing domestic demand of Chinese companies wanting to translate from Chinese into other foreign languages, as their activities expand across the borders.
No less crucial to the development of language services in China has been the Party’s emphasis on the importance of language in projecting the image of China to the world. Externally, this has manifested itself by the creation of the TAC. International, high-profile events such as the 2008 Beijing Olympics have further supported the growth of domestic LSPs.
Foreign companies looking to develop their business in China should be aware that, given the heavy influence of the Communist Party in all aspects of social and economic life, they will always have a starting handi-cap compared to domestic businesses.
Looking at how Chinese LSPs perform internationally puts available market size information in much needed context — Chinese LSPs are still a way off from competing with the biggest players on an international level.
This does not necessarily mean they haven’t been enjoying excellent growth — Lan-bridge (+32.4%), Sunyu (23%), and Pactera Technologies (20.5%) enjoyed very strong organic growth between 2018 and 2019, for example. Pactera is an interesting case, however, since it was the biggest Chinese LSP in 2019, but has since undergone a rebrand as Pactera EDGE. It’s currently being listed as a US company.
Figure 1: Estimated revenue from language services, worldwide. Source: Nimdzi Insights and TAC.
A large portion of the growth of Chinese LSPs is spurred by domestic clientele — Chinese businesses developing their affairs overseas, as well as government-supported projects. 50% of language services buyers have in-house translators on staff.
Chinese to English remains the main language combination (together with English to Chinese for inbound business opportunities), although domestic LSPs are increasingly tasked to support operations in emerging markets, for instance in EMEA or African regions. In terms of volume translated from Chinese into other foreign languages, the top five languages are English, French, Japanese, German and Russian.
The next wave of languages in high demand by domestic Chinese language buyers are Italian, Arabic, Portuguese, Spanish, Thai, Vietnamese, and Polish.
If we compare the figures offered by the TAC with data available from other territories in the world, China would earn the second spot worldwide in total estimated revenue from language services, ahead of the United States and only behind the cumulated revenue of countries forming the European Union.
If considered as individual countries, based on these estimations China would earn the top spot (Figure 1).
Beyond the fact that the numbers for China are difficult to verify, there is one important takeaway when you contrast information from China with data obtained independently: yes, the overall size of the Chinese language market is reportedly larger than any other country, but the top ten biggest Chinese LSPs account only for 4% of the total revenue tied to language services. The Chinese market is even more fragmented than the more established Western language markets.
Figure 2: Chinese LSPs are concentrated in a few major cities.
Also, as with any market size information related to translation and interpreting services, it is important to keep in mind a portion of the revenue may be counted twice, once by the bigger LSPs and secondly by the freelancers and small- and medium-sized enterprises selling to them.
LSPs are present in all provinces/autonomous regions and municipalities, but mainly concentrated in Beijing, Shanghai, Guangdong, Jiangsu, and Shan-dong (Figure 2). Beijing, Shanghai, and Guangdong have the highest concentration of LSPs — 55.62% are concentrated in these three cities.
Challenges of Chinese LSPs
Chinese LSPs are active in many different verticals (Figure 3), but that doesn’t come without challenges. A few select Chinese LSPs offered insight into what the challenges are for them selling to foreign clientele. Their answers were interesting:
- Geopolitical context may be perceived as a blocker when developing relations with foreign language buyers.
- Certifications required to export their services overseas (how easy/difficult they are to obtain) can be a hindrance.
- Promoting their brand locally in Western markets is challenging.
- The time zone difference is a challenge for Chinese companies to solve. Coupled with a difficulty to physically expand operations in Western countries, Chinese LSPs may not be very flexible when scaling up, which is something a lot of language service buyers are looking for.
Marketing, especially, is a pain point for Chinese companies looking to sell overseas. The challenges from a communication and marketing standpoint include the fact that language skills are often below. expectation — the level of English proficiency of Chinese personnel is lacking.
Figure 3: Top 10 verticals Chinese LSPs are active in. Source: TAC.
Also, for many buyers, the “Made in China” label is still synonymous with low cost and low quality. Additionally, China-centered decision-making is seen as a barrier for growth.
In multiple interviews with buyers, we heard a differentiator for Chinese LSPs is “competitive pricing” or “being cheaper than their competitors.” While the answers may be biased, they are grounded in truth — Chinese LSPs are typically very price sensitive, trying to service the lower end of the language services market, aggressively selling to other LSPs.
Interestingly, the challenges perceived by Chinese companies wanting to develop their operations abroad closely mirror those of foreign businesses looking to gain a foothold in China. Both face the same set of issues.
Overall, it is easier for Chinese companies to do business in China, where they may benefit from local administrative and government support, while exporting out of China may be hindered, depending on where they want to export.
Technology
While Chinese LSPs have yet to make investments in foreign companies and assets, they are already building proprietary technology that will set them apart. China is a hotbed for technology development. IT giants such as Alibaba, Baidu and Tencent have all invested in language technology. Additionally, technology is seen as a key differentiator in the face of increased domestic and international competition.
Machine translation (MT) and AI respectively are key pieces of technology — there is a multitude of MT providers in China, and the development of both is supported by the Chinese government, which in 2017 issued “A Next Generation Artificial Intelligence Development Plan.” Most of these pro-viders focus on the economic, financial, patent, and legal sectors.
Another byproduct of intense technology develop-ment are wearable translation devices — somewhat of a specialty in Asia. GTCOM and Sogou sell such devices commercially.
Figure 4: MT usage by Chinese LSPs. Source: TAC.
The technological buy-in rates both on the LSP and buyer sides are high (Figure 4). According to figures put forth by the TAC, it is high among individual translators too — 91% have already used or been asked to use MT technology.
Not only is language technology seen as a key competitive advantage, the adoption rates of technology among Chinese LSPs and buyers are high also.
Geocultural intelligence
China remains a difficult country to do business in, especially for foreign organizations, not the least due to the tight handle the Chinese government is exerting on all aspects of social and economic life in the country. Problems typically arise from issues of territorial sovereignty and trade policy, which can have lasting economic impact for foreign businesses. For example, consider the backlash the NBA and ESPN faced over support of the Hong Kong protesters and mishandling of geographical information.
While such cases may be of limited importance depending on the nature of the business you aim to develop in China, their consequences can be equally impactful and, at the very least, constitute a lesson to be learned and avoided. This is often the price of doing business in China.
Technology providers especially should be mindful of the approach to take when seeking to develop partner-ships with local distributors and resellers — the threat of theft of intellectual property is real, and they ought to take necessary precautions to safeguard their source code.
China remains an appealing country for foreign businesses to invest in due to the size of the market. However, it remains a country difficult to navigate, given the ever-shifting geopolitical landscape and the still opaque nature of how things are done.
Foreign companies are required to partner with local resellers for their product — such is the case for the TMS provider MemoQ, for example. This allows them to minimize investment to deploy operations in-country and allows businesses to retain a degree of control over their IP, in theory. In practice, however, this is difficult to ensure, as the Chinese partner often retains 51% control of the business operation, resulting in loss of control for the foreign company — and potentially a loss of assets too, if they are not properly safeguarded. 