Selling in Tongues

By Daren Fonda

It's easy for U.S. executives to think that English is the global language. Of the world's 6 billion people, 2 billion speak at least pidgin English, more than double the number two decades ago. Americans traveling abroad find English speakers at almost every airport, hotel and restaurant, and foreign executives are often impressively fluent. Even the French, after decades of trying to muzzle phrases like le weekend, seem weary of the fight. In a poll conducted by the European Commission, 66% of French respondents said oui when asked if all continentals should speak what's dubbed la langue du Coca-Cola.

That's great for monolingual Americans. But chatting with headwaiters is one thing; selling overseas is another. With the global economy slumping, firms are looking for cost-effective ways to grow revenue anywhere they can. To reach customers in far-flung parts of the world, they've increasingly outsourced the translation of everything from computer-software programs to stock reports. Translation-services firms, as a result, are booming even as most U.S. service industries contract.

Some of the largest companies in the field--Bowne Global Solutions, Lionbridge Technologies and Berlitz GlobalNET (a sister company of the language school)--say they expect a surge in U.S. government contracts involving Arabic, Dari, Pashtu, Uzbek and other languages useful in the war against terrorism. But that's a small part of the business. More broadly, the industry is thriving because American companies are learning--after years of denial--that to profit in the global economy, it's critical to speak the customer's native tongue. "An American company expanding abroad is competing with merchants who speak the local language," says Donald Plumley, chief marketing officer of Bowne Global Solutions, based in Parsippany, N.J. "You may have a better product, but if your customers don't understand your product, you lose. You have to speak their language."

Native English speakers are, in fact, fast becoming a minority in the marketplace. In the U.S. alone, 18% of the population speaks a language other than English at home, according to the 2000 Census. In California, the world's sixth largest economy, the figure is nearly 40%. And on the Internet, it's a Tower of Babel. Only 48% of the world's Web users are native English speakers, down from 77% in 1997. By the end of 2003, the figure will drop to 32%, according to the Aberdeen Group, a tech-research company in Boston.

Consumers are four times as likely to buy a product online if the website is in their preferred language, according to IDC, a research firm in Framingham, Mass. Some of the big dotcoms--Amazon, eBay and Yahoo--figured out this trend earlier than most, and report fast-growing revenues from overseas divisions, which generate indigenous content. But most U.S. firms have not yet done a great job of marketing to non-English speakers online. Last year just 37 of the large companies in the FORTUNE 100 operated non-English sites, according to Forrester Research, based in Cambridge, Mass.

Helping firms leverage their brands to non-English-speaking customers is where translation-services firms step in. By 2006 the industry is expected to reach $12 billion in revenues, according to Allied Business Intelligence, a research firm in Oyster Bay, N.Y. And many companies are logging growth rates upwards of 30% a year. The big drivers of the business are the Internet and info-tech services. Firms with work forces dispersed worldwide--Accenture, Cisco, Oracle--translate their certification and training materials, placing them on globally accessible "corporate university" websites. Buyers of software expect help sites and manuals in their language.

Companies like GE run multilingual trading sites, such as gepolymerland.com courting customers in 11 languages, including Portuguese and Chinese. Life-sciences and finance companies are also bolstering demand. When California-based ADAC Laboratories needed a quick Italian version of technical documents for a positron emission tomography scanner, it turned to Berlitz GlobalNET, which finished the job in 10 days. When Morgan Stanley and Prudential need translations of research reports and marketing materials into Japanese, German and other languages, they often turn to Lionbridge.

"It's a multibillion-dollar opportunity," says Lionbridge CEO Rory Cowan, whose firm, based in Waltham, Mass., is growing at a 30% annual clip. IBM, he points out, runs tech-support websites for laptop users in 22 languages, and much of the translation is done by Lionbridge. The cost benefit to Big Blue: reduced staffing at call centers. "They're probably saving $20 million to $30 million a year," he says.

Yet the big money isn't in the translating--a labor-intensive commodity enterprise with slim margins. The profits are in the value-added services: managing the logistic and engineering headache of converting software, websites and other products for users from Seoul to Santiago. The process, in industry jargon, is called localization, and as more American companies market in disparate parts of the world, it's become an increasingly complex task outside their core competency. "Two-thirds of American companies now handle their own localization," says Robert Johnson, head of BGS's parent, Bowne & Co., the large financial printing firm. "That's about to change."

On a typical localization job, workers are spread worldwide. The translator may be in Kazakhstan, the project manager in Dublin, an engineer outside Paris and the client's top manager at corporate headquarters in San Diego.

Lionbridge, BGS and others offer software and services teams to coordinate the translation of, say, monthly updates to a website and provide assurance that the results will not inadvertently offend. They also provide "content management," maintaining databases of clients' translated material so that only the updates are sent out for conversion. That saves clients money. And, says BGS CMO Plumley, "it's what provides consistency and speed."

For software, the process is more complex. While a Sony Discman will work anywhere in the world, the software for a Motorola browser-enabled cell phone won't. The user interface has to be rewritten to support the local language, and layers of underlying applications have to be re-engineered. The problem is especially tough when converting to and from Asian languages, whose characters require double-byte configurations. (Roman letters need only single-byte specs.) For Palm, one of BGS's largest clients, localizing the software for Japanese users took 50,000 hours of work.

Like other translation-services firms, BGS is weathering the global economic slowdown in the aftermath of September's terror attacks. With the exception of some new government projects (which BGS won't discuss), clients are postponing projects until 2002. New business isn't coming in at the pace it did earlier in the year, although, as Plumley says, "the need for global trade didn't go away." And he adds, "We're now seeing a heightened sensitivity that a global portfolio is more important than ever."

BGS is betting that its size and diversified structure will enable it to emerge from the temporary downturn stronger than its less well-capitalized competitors. Created as a subsidiary of publicly traded Bowne & Co. in 1996, BGS built its global presence with 11 acquisitions. Last summer it made its largest purchase yet: $45 million for Brussels-based Mendez S.A., one of Europe's oldest localization and translation shops, which was sold at auction by the bankrupt multinational Lernout & Hauspie. With offices in 20 countries and 1,600 employees worldwide, the combined company projects revenues of $150 million this year, making it the industry's top player.

By purchasing Mendez, BGS boosted its position outside its core clientele in the American IT sector; the largest of its 150 clients are tech firms like Microsoft, Novell, Oracle and Palm. Mendez's portfolio adds breadth: the profitable firm generates solid revenues from Europe's automotive, health-care and aerospace industries. The company's head, Florita Mendez, is also respected as a shrewd dealmaker. "It should be a good complement to Bowne's business," says Alex Motsenigos, a senior analyst with IDC.

One of BGS's largest clients, Microsoft, earns $25 billion in revenues from non-U.S. sales and is thought to be the world's largest buyer of localization services. Virtually all its software products, websites and help documents, as well as its online encyclopedia (with 33,000 articles and 10 million words), are available in dozens of tongues. Windows XP will eventually be marketed in 25 languages. While Microsoft translates the user interface in-house, it outsources the help manuals in Spanish, Finnish, Portuguese and Swedish to Bowne and Mendez, and it uses dozens of smaller vendors for other languages. Microsoft's annual tab for localization is about $350 million, according to an industry insider. And for BGS, the company is a critical client; before its merger with Mendez, 40% of BGS's revenues were generated by translating Encarta into German, Spanish and Portuguese and rendering Windows, Office and MSN Communities websites into 45 languages, including Japanese, Korean and Chinese.

Despite its fast-growing business, BGS was, until recently, a money-losing venture. "They're pushing a growth strategy," says Michael Anobile, president of the Localisation Industry Standard Association in Geneva. "But they have a management nightmare. The business requires a lot of specialists around the world, and you need a complex management structure to integrate them." Bowne CEO Robert Johnson acknowledges the challenge. "We underestimated the difficulty of getting the disparate companies we acquired to work together in a cooperative fashion," he says. "It took us three years of pain and significant losses." But, he says, that phase is ending. The BGS unit, which now includes Mendez, posted a $2 million profit in the third quarter of this year. And the division expects to deliver profits of $10 million for all of 2001.

But the industry's margins, overall, make it tough to book stellar profits. Experienced technical translators in Western Europe and the U.S. earn upwards of $80,000 a year, and project managers with strong linguistic skills command even higher pay. Despite a recent wave of consolidation, dozens of small companies still duke it out; the business remains a buyer's market. "Microsoft has the money and dictates prices," says industry association chief Anobile. "Clients rule."

So far, the most successful companies have been small-cap players operating in niche markets or regions. Lionbridge boasts a strong reputation in certifying and testing software for non-English users. Berlitz GlobalNET, based in New York City, is adept at consumer marketing. SDL International, based outside London, and Logos, based in Modena, Italy, cater to a wide range of European clients. In Asia, firms like Tokyo's Toin Corp. and Hong Kong's Real Idea have established fast-growing enterprises for clients such as Kyocera and Sony, respectively. "No vendor can cover all languages," says Ric Ginsberg, a vice president at Oracle, which translates its software into 28 tongues, outsourcing much of the work. "One vendor might be good for our database product but wouldn't have the knowledge for our financial and human-resources products."

Full-service companies like BGS also face a threat from upstart software firms that are providing clients with content-management tools to go it alone. Hewlett-Packard, for instance, licenses software from GlobalSight, based in San Jose, Calif., to manage translation for its hp.com websites in 72 countries. And for its multilingual tech-support sites itrc.hp.com) HP uses software from Uniscape, based in Sunnyvale, Calif. HP hires its own free-lance translators for both sites. It retains control of its "translation memory," the database of proprietary language that has already been translated. "Leaving it in the hands of a vendor is a big risk," says Alison Toon, an HP localization manager. "Then it's harder to shift from one translation company to another."

Whichever solution companies choose, the goal is to get a translation that's linguistically accurate, culturally savvy and consistent with the client's global brand image. The latter element is key for American retailers tapping foreign markets. Berlitz's staff includes some of the industry's top consumer-marketing translators--a big selling point when Lands' End, based in Dodgeville, Wis., chose the firm to create French and Italian versions of its American website last year. Says Sam Taylor, vice president of Lands' End international operations: "There's a feeling we want to come through in the copywriting when it's translated." For a women's gingham-check swimsuit, marketed to French customers, Berlitz modified the catalog copy to read, "L'effet B.B. assure!" (the B.B. look guaranteed!), a reference to Brigitte Bardot, who made gingham fashionable in the '50s.

Within a decade, Lands' End forecasts, 35% to 45% of revenues will be generated abroad. Many of the new orders will come through the company's European call centers, staffed by native-language speakers. But by setting up Web operations rather than in-country divisions, the firm made a "minimal" investment in reaching the French and Italian markets, says Taylor. Berlitz, for its part, earned a boost to its reputation. The Sharper Image pays the firm to localize content for its German and British sites, which it launched this year. "Global branding," says Berlitz GlobalNET CEO Jim Lewis, "is the fastest-growing part of our business."

Of course, not all the industry's growth revolves around the Internet. The cruise line Royal Caribbean has hired New York City-based Translations.com to set up a 24-hour help desk so that crew members can update translated newsletters during a cruise--alerting, say, Japanese passengers to a dance-class schedule change. And converting things as prosaic as store signs and training materials is now part of Translations.com's business for Home Depot. Before consolidating the work with Translations.com Home Depot outsourced jobs to several vendors--a system that became increasingly inefficient as the firm expanded in Latin America and its translation needs expanded to 2 million words a year. "By centralizing with one company, we reduced the price per word 30% to 40%," says Rob Hallam, a Home Depot spokesman.

As the industry matures, the goal for companies like Berlitz, BGS and others will be to convince clients that they have the management expertise to handle ever larger jobs. But given the industry's fractured nature, it's doubtful that any company will soon dominate, a point that Bowne's Johnson concedes. "Even at $250 million in revenues, we'll not be able to be all things to all people," he says. He is confident, though, that the company will translate its way to more profits.

TIME.com For more about the global-translation business, please visit our website at time.com/global