Report written by Hannah Leske.
We like to say that the language services industry is impervious to crises. There is always a need for language services, which is why our industry tends to outpace the global economy. At the same time, there is no denying the fact that individual businesses will nonetheless have ups and downs.
Recent shocks to the global economy have triggered a mass reshuffling of the labor market, and we are currently experiencing inflation, currency fluctuations, an energy crisis, and mass layoffs in the tech industry.
This report is the first in an ongoing Business Confidence Study series that Nimdzi is kicking off to keep a pulse on the industry. Intended to run at a regular cadence, the study will allow us, over time, to generate trend lines and compare past projections with current experiences to analyze changes and look at long-term trends.
Our methodology follows the handbook for business tendency surveys, established by the OECD.
For anyone interested in joining the panel of companies completing this survey on a regular basis, please reach out to [email protected].
This first edition of our Business Confidence Survey yielded valid responses from 68 language service providers (LSPs) and 13 language service buyers (LSBs).
While we do hope to expand this study to include LSBs in the future, participation from these companies was not high enough to draw statistically significant conclusions, so all LSB responses were disqualified. As such, this release of the Business Confidence Study only represents data from participating LSPs.
Participating LSPs hailed from 28 different countries. Almost two-thirds of companies are headquartered in Europe (64.7%), 16.2% are based in North America, and 10.3% are in Asia. South America and Africa are also represented.
The data represent primarily small- and medium-sized companies. The total number of employees as reported by participants ranged from one to 1,500. However, just 20% of respondents reported having more than 50 employees. Most companies (42.6%) have between 10 and 25 employees, and the median company size is 18.
Respondents were asked what role they serve in their companies. Responses were then sorted into the following categories:
Almost three-quarters of respondents were executives (73.8%), with the vast majority of those being CEOs and owners. Another quarter were managers, and just 1.5% were professionals.
The overall business situation was reported to be satisfactory for about just under half of all survey participants (48.5%) and good for another 38.2%. Participants are also generally optimistic about the beginning of 2023, with 57.4% expecting business to improve in the first quarter of the year. Another 35.3% expect their business situation to stay the same in early 2023, and just 7.4% (all of which are companies headquartered in Europe) anticipate their situation worsening.
More than half of survey participants (54.4%) report that the number of people on their payrolls stayed consistent from Q3 to Q4 in 2022. Close to one-third (27.9%) of companies increased their staff, while 17.6% decreased staff.
If our survey participants’ sentiments reflect the reality at their companies, employees of LSPs can rest easy for the coming months: just 4.4% of companies report planning to decrease their staff in the first quarter of 2023. Even better, 32.4% expect to hire more staff, while 63.2% of respondents anticipate there will be no change to staffing levels.
An impressive 90% of companies report that their financial situation at the end of 2022 was either good or satisfactory. Results are even more optimistic for Q1 of 2023: 47.1% of companies expect their financial situation to improve and 48.5% predict it to stay the same, leaving just 4.4% that expect their financial situation to worsen in the first quarter of 2023.
Responses are split almost equally when it comes to changes in demand in Q4 of 2022. Looking ahead, however, almost two-thirds (58.7%) of companies expect demand to increase in the coming quarter. Just 17.5% expect demand to decrease, and the remaining quarter of participants predict that demand will stay the same.
Sentiments about revenue figures are also evenly spread across the board. Exactly one-third of companies reported that their revenue stayed the same across Q3 and Q4 in 2022, while 38.1% reported that their revenue increased in this period, and a small minority (28.6%) reported that revenue figures dropped.
On the other hand, predictions for Q1 2023 are overwhelmingly optimistic. Almost two-thirds (59.4%) of companies expect to see their revenue increase from the most recent quarter, and only 9.4% predict that revenues will decrease.
Buyers of language services be warned: 38.1% of companies increased their prices in Q4 of 2022, and almost two-thirds (59.4%) expect that their company will raise prices in the coming months. Only 4.7% believe that prices will be reduced in Q1 of 2023.
We asked survey participants to identify their company’s top three operational and overall business challenges for the coming quarter. More than half of all respondents named inflation and economic pressure, as well as price pressure, as their top two key challenges right now (62.5% and 53.1%, respectively). Given the current state of the global economy, this does not come as much of a surprise. The third-ranked challenge is expanding into new markets, as reported by 39.1% of companies.
The perceived business challenges vary quite significantly across different geographical areas, and no two regions reported the same top two challenges. The following table shows the challenges that were identified by more than half of participants in each respective region.
|Europe||Inflation and economic pressure (68.3%); Price pressure (51.2%)|
|North America||Price pressure (81.8%); Expanding into new markets (54.5%)|
|South America||Inflation and economic pressure (100%)|
|Asia||Expanding into new markets (83.3%); Inflation and economic pressure (66.7%)|
It’s easy to identify the most popular strategies for companies seeking to offset rising inflation and economic pressures in Q1 of 2023. Almost half of all respondents plan to increase salaries to compensate for the higher cost of living (47.6%), raise prices with clients (44.4%), and increase the use of machine translation (42.9%). The approaches are consistent regardless of company size or headquarters.
Overall, the data show that Q4 2022 was an outstanding quarter. Roughly 40% of companies reported good business and financial situations, as well as increased demand and revenue.
Even more promising is the optimism around the coming quarter: almost 60% of companies predict that their business situation, demand, and revenue will improve, and a still-noteworthy 47.1% predict their financial situation will improve. Equally, fewer companies predicted the situation would worsen in Q1 2023 than reported negatively about Q4 2022.
While it’s possible that this is due to misplaced optimism, we expect that it’s indicative of a successful upcoming quarter for most LSPs.
We can’t draw definitive conclusions about any geo-regions other than Europe this time around (due to the unavailability of statistically significant responses for these other regions). However, it is interesting to observe the distinctions between European and global respondents. Most notably, European-based companies were much more likely to predict negative outcomes in Q1 2022 than other companies: all of the companies expecting lower revenues and worsened business situations in Q1 2023 are headquartered in Europe, 91% of the companies predicting a decrease in demand are European, and 89% of companies that reported a bad financial performance in Q4 or foresee this worsening in Q1 are based in Europe, too.
This certainly doesn’t mean that the majority of European-based companies expect the situation to worsen, but it shows that the companies which reported pessimistically are typically from this area.
The data is clear about pricing trends: while roughly half of respondents expect prices to stay the same, an almost equal number expect them to rise. We are confident in predicting that prices will rise, on average, across the board. Inflation and economic pressures appear to be the primary trigger for this trend, as well as many companies' purported desire to increase salaries for their own staff to compensate for increased living costs.
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