The largest public localization company, Lionbridge, reported last week below expectations net earnings and recently lost a third of its market capitalization.
In a drive to become the number one localization vendor, Lionbridge grew since its IPO by buying companies like Bowne Global Solutions, International Communications, Mentorix and Data Dimensions. They financed their expansions with public money.
To retain their newly bought clients and aggressive revenue growth projections, Lionbridge consistently spent millions of dollars every year on sales and marketing. This was incremented by the significant administrative costs required to operate a public company, heavily dependent on public financing. The combined costs (26% of revenue) cut deep into profit margins and return to investors. New business continues to stream in but at the expense of profitability.
Looking at their financial performance over eight years in public life, one cannot avoid detecting so far a failed struggle to streamline divisions, create efficiencies and reduce costs– tasks not easily accomplished in a service industry heavily dependent on a global labor force costing 65 cents for each earned dollar.
This leaves them with 9 cents on the dollar to cover R&D, depreciation & amortization, interest, restructuring costs, employee stock compensation and yes, the elusive profit as well.
While this Wall Street company enjoyed fast revenue growth, Main Street companies labored for long term viability and healthy margins. Without access to public funds, they cannot spend liberally on administrative expenditures, marketing, sales or acquisitions. They focus instead on building solid business processes generating sustainable margins permitting them to invest in organic growth, thus ensuring their clients’ long term success and retention.
Chasing market share is a virtue and remains at the heart of our capitalistic society. But successful businesses must work toward sustainable profitability, not just sustainable market growth.
Next time you need a localization partner, take a stroll down Main Street; the gems you stumble on will surprise you!
3 Comments
An excellent point often lost on mid- to larger companies that are seeking to expand their international communication efforts and minimize cost. The blind pursuit for continual cost reductions year on year by large corporations drives them to seek out larger, oftentimes, publicly funded service providers, assuming that economies of scale will make translation cheap and easy.* This is a myth; one you’ve taken head on!
*By the way, translation can be easy and costs well-controlled and managed over time as long as you partner with a smart Main Street translation service provider!
I can’t agree with you more as a project manager with 6 years experience in a big localization company. Choosing a main street localization company or even a small company will surprise you a lot. You can try small localization companies, they always have good service with lower prices.
Very interesting article! Maybe it’s just schadenfreude, but I’m glad to see Lionbridge suffer. Who’s going to be next in our industry? SDL perhaps? SDL must be burning a lot of cash in marketing and sales-related costs. Whether it’s webinars or discount offers to buy the latest SDLX/Trados upgrade, one (as a translator) has to wonder what’s going on.
@Scott: translation is never easy or inexpensive.