"Language fever" is how Linda Brandt of Gamma Productions describes the frenzy of multitudes of developers authoring multilingual software - there are over 800 packages available now. And, unlike five years ago when mostly FIGs products (and then mostly from English into FIGS) were available, you can now find everything from Syriac (a Syrian Christian dialect) to Latvian.

Similarly, documents authored in the main software packages are being localized into just as many languages. As a Latvian, I am amazed at how much is being localized into Latvian, a language spoken by perhaps two million people in a country which eight years ago had a Mac Users’ club in Riga with just three members! The worldwide localization market is estimated by some to be worth US$ 1.5 billion, but more impressive is that its growth is put at 30% annually.

Translations have become a commodity

Several trends have been shaping the language business and bringing more developer interest and venture capital to it. Developers have discovered all the things you can do with a computer, and the Internet and corporate intranets have accelerated the need for more translation and localization on the part of international companies. In addition the translation business, which used to be in the hands of linguists who operated little language boutiques, has become increasingly hi-tech, and, has the capital requirements to match. Microsoft has stated it will not give business to a vendor who does not have machine translation capability. Vendors’ capability statements now place more emphasis on their computer tools than on the biographies of their translators. Cents per word has the same brand appeal as miles per gallon.

Ten years ago you could win a translation contract with a Fortune 500 firm by telling the funniest cross-cultural story, but today the first questions you get are whether you can handle double-byte enabling and what platforms can you work on. You are also asked to discuss your experience in dealing with mnemonic uniqueness, hypertext links, and text extraction. I have been to meetings with localization managers where translations were not discussed — it was assumed you could handle the language matters.

In addition, multinationals with multilingual documentation and localization needs are now looking not just for language help, but also for solutions. It was no surprise that after AT&T divested itself of what is now Lucent Technologies and of its translation arm, the name of AT&T Business Translations re-emerged as ILT Solutions.

Vendors have to be able to get involved in the document authoring process itself to make a real difference in how translations and localization turn out. Sophisticated companies no longer demand just a test translation to judge a language firm's competence but a description of its response to a specific challenge: we have a 3,000 page web site which we want in six languages — how would you localize and maintain it? This overall approach has become the value added in the localization business; the translation itself has become a commodity item. The brand identity that the modern localization firms now try to project is how (and with what) they will manage the relationship with their clients.

Companies that handled language translations in-house when the demands of translation were not so sophisticated, realized that in order to be more efficient, they needed to have a specialized hi-tech vendor handle the business. Thus, from huge Microsoft down to smaller firms like Beckman Instruments, companies have abandoned their in-house efforts and handed over their language business to outside vendors, while IBM is slowly dismantling its in house "language enabling" efforts, which have a budget of an estimated $150 million a year. This in turn has added more business volume to the marketplace. Outsourcing is a management trend that will stay with us.

Caterpillar Company's efforts to develop a machine translation system based on Caterpillar controlled English increased the interest in outsourcing. Caterpillar realized that the technical expertise needed to develop a state-of-the-art system was something more than could be developed in-house. And while the system that Caterpillar is developing with the Carnegie Group has not yet fulfilled its promise, it demonstrated to the language marketplace the resources that were going to be needed to keep pace.

Despite the high finance involved in Caterpillar's effort, however, the major flow of translation work has shifted from heavy metal manufacturing to hi-tech. The constant flow of new products and updates, the desire of the computer industry to launch new products globally at the same time, and the need to cut the time to market, have all placed ground zero for the language business in Silicon Valley, and not in New York or Washington D.C. where the language industry used to be centered.

Show me the money!

These trends have meant that there is more money to be made in localization, with larger sized contracts and bigger capital requirements. Let's face it: most firms in the language business were started by linguists who then tried to be managers, but could not make their companies grow past a certain point. Few language entrepreneurs or, for that matter, aggressive corporations existed in the language business. It was like those little towns in Germany where butchers’ shops are lined up row after row, all offering the same cuts of meat at the same prices with the same hours of operation. In the US and Europe, these small-scale operators would gather and make vague proclamations that they were somehow cooperating. No one dared to think of buying the other person out or getting additional investors.

That all has changed as the language business is undergoing an era of rapid consolidation and segmentation with a great deal of new outside capital. It has all the classic features that are attractive to outside capital — an industry which continues to grow every year but which is not dominated by any single player. Within the last couple of years, Lernout & Hauspie (Mendez et al.), Language Management International (The Corporate Word), and Bowne Printing (IDOC) have all bought into the language industry, joining Berlitz and Alpnet as the most "acquisitive."

With each new acquisition, the acquiring party can claim it is the largest localization firm. At the time of writing, that honor can perhaps go to IDOC. Its corporate parent has invested $40 million in buying into the localization business, and at the end of March added three more firms to its IDOC purchase: GECAP in Germany, ME&TA in Madrid and Pacifitech in Tokyo.

Figure 1. The Feverish Five. Five main groups (four publicly traded) have emerged as the leaders in trying to grow their localization and translation businesses in the past couple of years through acquisitions. Several have increased their acquisition activities substantially in the past couple of months, if not weeks or even days.

In addition, several public companies have been launched or have sought additions to their capital base, including Accent Software International and Globalink, which also offers localization services. Therefore, at any given time investment bankers such as Cowen, which represent investors and companies in the language business are giving presentations to venture capitalists and investors throughout the United States, Europe and Japan.

Most of this new capital has gone into the localization and multilingual software business while the business of translating brochures, birth certificates, and business cards has become the province of the many firms listed in the Yellow Pages. Jeff Becker of Cowen & Company, a hi-tech investment banking firm which has raised $ 70 million of Lernout & Hauspie’s capital needs during the last couple of years, noted that he initially thought that their speech technology side was the most attractive, but is now just as excited about what they can do in localization. And Cowen was able to do this even though L&H has accumulated losses of some $60 million during the last three years. It's a hot market. "Keep watching the papers; a lot is going happen", Becker told me in early March.

Tom Blondi, President of Language Management International, a venture capital firm, is equally aggressive and circumspect. Asked if The Corporate Word was their last purchase, Blondi responded, "No."

Where the fever began

The entrance of real money and the beginning of the language management business began in 1988, when Berlitz bought the language subsidiary of Ogilvy Mather for a reported $7 million. What made this sale interesting was that the price was about 40 times earnings!

At about the same time, Alpnet started its acquisition surge. They were a pioneer in a sense and did this before any one else did. Not surprisingly, one of Alpnet’s founders is a CPA and looked at the language industry more as a business than as an avocation. Tom Seal, Alpnet's President, said the firm bought so many agencies and started new offices because "We see the progressive players in this industry shifting away from dealing with dozens of small and medium-sized firms in the various regions of the world, and working with a few select worldwide partners with whom they can share the project management world." In the new language industry paradigm, the company issued press releases with subtitles such as " Alpnet announces debt conversion". For many years, potential investors based industry prospects on what Alpnet did, as there was no other public firm to watch. Alpnet made history in 1991 by announcing four profitable quarters for the first time in its 12-year history.

One of the world's biggest wheeler dealers entered the language business when Robert Maxwell bought Macmillan, the publishing company which then owned Berlitz. Given Berlitz's strength in the marketplace, Maxwell took the company public in December 1989. A charming man who deserved his reputation, he once told a UPS language manager that if UPS did not use Berlitz for translations, he would move Macmillan's book shipping needs elsewhere.

However, Maxwell did bring another firm to the world's financial markets. Berlitz struggled through the Maxwell era, and now it is mostly owned by Benesse Corporation (formerly Fukutake Publishing in Japan). Along the way, it made sizable acquisitions in the localization field, such as Softrans. Berlitz hopes to achieve $85 million in translation and localization sales this year and has for the first time sought new financing via the franchising route. And investors are buying franchises. Given the nature of the changing language marketplace, these ads are going into Entrepreneur International, not the ATA Chronicle.

A machine translation conference in 1990 in Washington D.C. sparked the interest of another publishing house, RR Donnelley, America's largest printer, in getting into the translation business. They printed most of IBM's manuals at that time and wanted to find another service to offer IBM, making it even more difficult for another printer to get the business. Their strategic focus as explained to me was locking in IBM's business with another service, not necessarily the language business per se. They bought INK, one of Europe's largest translation houses, and formed RR Donnelley Language Solutions, which has now more or less been absorbed by Stream International.

Management theory dictates that to be successful, you have to be either Number 1 or Number 2 in a business category. Some companies in the localization business are now so well financed they will be buying up increasing numbers of smaller ones in the years ahead in order to assure themselves of that position. From a client's point of view, however, a localization manager who has been accustomed to good personal relationships and service can ask "How large can they get before they get bad?"