Fast forward to my last personal contact with China, which came this spring when I attended a conference in Washington D.C. put on by the U.S. Commerce Department, China: Risk and Reward & How to Win. Some 400 companies showed up, and the conference had sponsors like Boeing, HSBC Bank, FedEx and several language services and localization firms. The keynote speaker was China’s Ambassador to the U.S. who used Washington D.C. phrases like “this is a win win situation.”

But the most memorable thing for me was learning that the largest market for 700 series BMWs is now China. Other factoids about China are also over the top:

• China is the largest PC market in the world
• China is 25th and growing in software
• China is now exporting brands like Lenova and Haier
• Life expectancy has grown from 32.4 years in 1949 to 70 years in 2004

So, in a generation, we have gone from venerating empty toothpaste tubes to BMWs – the 700 series no less. To those of you who attended LISA’s Shanghai Forum earlier this year, China’s energy is old news. But I would encourage you to go back and review these two presentations:

The 2008 Beijing Olympics: Multilingual Technologies and Service at Work and Play

China: The Next Localization Gateway

Then, if this is still not enough, download UPS’ second annual Consumer Preference Study just completed in June, which includes more than 100 pages of valuable insights .

China today, like the internet, changes every day. And it is “chuppies,” the Chinese urban consumers, who are driving the demand. 80,000 U.S. firms are dealing with China and 150,000 of the country’s 500,000 expatriates 150,000 are Americans.

If you don’t have a China strategy, you better get one fast!

It’s the Energy, Stupid!

“It’s the energy, not just the opportunity,” explained Smith Yewell, talking about Welocalize’s acquisition of Transco, a leading Chinese globalization firm. The energy that he felt in China is now being felt throughout the company – people have even begun buying Chinese language learning tapes! This, to CEO Yewell, is more than an acquistion where you put out a release claiming “its great strategic fit” or “we are looking forward to our enhanced synergies.”

Several years ago, I wrongly predicted that the first acquisition involving localization in China would be by a Chinese firm buying a Western firm. But that did not happen. Lots of Chinese firms wanted partnerships, links with Western firms, but Transco’s corporate culture is so close to Welocalize’s that it made the deal possible. What impressed Yewell during his first visit to Transco was a sign behind the receptionist that read, “Be the Best” and the founder’s attitude that Transco wanted to do more than just be a low cost localization source for Chinese. “We want cross-pollination,” stated Yewell.

Yewell’s firm is nearing US $30 million in sales, which puts them in INC Magazine’s top 500 list for the second year in a row. The company has moved up from 407 to 327 with a three-year sales growth of 400%. With the Transco deal under its belt, it now has some 250 employees.

It’s not where you start, but where you finish.

Meanwhile, Telelingua reported “substantial increases in sales,” according to CEO Lionel Mellet, with much of it attributed to Chinese. Telelingua is also developing partnerships in China. Elsewhere, Symbio, a Chinese firm, is taking another route to expand into Western Europe. So far, it has chosen to go it alone and has made no acquisition or established any formal partnerships. Instead, it has hired Western managers and announced that it will expand its operations into Western Europe.

And every day I get an email form some Chinese firm wanting to partner with me. The Chinese take themselves seriously, including one guy who ran his business out of his mother’s apartment. It’s the classic capitalist attitude of “it’s not where you start, but where you finish.”

The U.S. War in Iraq and the “War on Terror” Continue to Boost (Rocket) the U.S. Translation Market

While news from China (its energy, opportunity, acquisition and expansions) dominated the commercial market, the U.S. Government market continues to provide good earnings for a number of language providers who wish to play that convoluted game. We all know that Language Weaver is the beneficiary of venture capital from the CIA, as well as from three venture capital funds. Its work has spread out from the Arabic-English pairs (mainly for the U.S. Government) to other pairs. Systran is also in this market.

There should be a couple of good years left in U.S. Government sales for the various “wars” through the end of the Bush presidency. But, in going after these huge contracts, you have to be aware of how the game is played and look for opportunities to work for the integrators or other principals. Otherwise, it is almost impossible to compete against them for the really big jobs. Why? In looking through the competency statements of the various contractors, you don’t see phrases relating to their expertise in language, quality or software that you will hear about in LISA’s upcoming Forum in Warsaw. Instead, you will see phrases like “understanding agency nuances...” Welocalize, probably the largest non-defense contractor in Washington, D.C., won’t go after government work. “Not for us,” Smith Yewell simply explained.

I decided to take a closer look at what goes on in this game since so many have called me asking, “How can I play?” You can, but you have to do so carefully, or you will lose a lot of money. I live right outside of Washington, D.C. and frequently write about how to get business in this town; see my blog Ant Farm on our web site at www.jfamarketing.com/.

One of the U.S. Government’s main language contracting agencies, the U.S. Army Intelligence and Security Command (INSCOM), continues to give out contracts for a number of languages – including one in Jamaican patois. It makes one wonder if a war with Jamaica is next. For a peak at what they do, visit their web site at www.inscom.army.mil/. But don’t look for U.S. government web sites to be very up-to-date. Regardless of what government types say, don’t rely on web sites or government publications to find out what’s going on. If you hear about a contracting opportunity that way, in many cases the decision has already been made.

One interesting thing you will find on these sites are the participants’ list at last year’s “Industry Day,” when a number of translation and localization firms came into to strut their stuff. Among the participants were Lionbridge, Worldwide Language Resources and Comprehensive Language Center. The rest were military contractors, with very little private industry work, looking to expand into the market and who would probably outsource any work they get to someone else.

There have also been many delays in the awarding of contracts due to INSCOM’s lack of expertise and lobbying. Thus, you run across phrases like “We regret the delays to the formal release of the documentation of the solicitations for the Monument Service Elf Translator and Interpreter Services. Strategy changes, questions from the industry (read lobbying) and providing for the support of the Army being designated as the Executive Agent for the Department of Defense resulted in changes to required documentation.”

Follow the bread crumbs.

Two main defense contractors, L3 Communications and McNeil Language Technologies, are armed to the teeth with retired generals since contract registrations and government schedules are hot in pursuit of what is left of funds for the Bush Administration’s War on Terror and the Arabic and Middle Eastern language work it brings. McNeil was bought by Veritas Capital, a privately held New York investment firm with over US $1 billion in its portfolio. It has created a seven-member panel of retired military officers, the Veritas Defense and Advisory Council. According to Government Executive Magazine, “the presence of so many former government luminaries invites comparisons to another well-stocked investment house that plays heavy in the government market – The Carlyle Group…”

McNeil wants the business that is held by L3 Communication’s Titan division. To bolster itself against the competition, L3 joined forces with Lockheed Martin. To counter that, McNeil, in addition to the weight of the Veritas Advisory Council, went out and recruited former, sometimes gruff, Army types with closer connections to translation and localization contracting.

Government Executive Magazine summed it all up in doing a profile of James aka "Spider" Marks who joined McNeil: “… if you run a company in need of a former Army general with some key contacts in military intelligence – someone like Marks – you snatch him up before the competition cashes in on his expertise and his Rolodex, which acts like a trail of bread crumbs through the procurement channels leading to big-dollar contracts.” Marks is now the Senior Vice President of Security at McNeil and has his eyes set on the Titan contract mentioned above – the U.S. Army's worldwide contract for linguistic support, worth nearly $700 million. Also joining McNeil was the former Commandant of the Defense Language Institute in Monterey, California.” This type of use and expense of former employees is not possible in the private sector, for there is no one company that can offer contracts of the size being offered by the U.S. Government.

Northrop Grumman, whose motto is now “Defining the Future,” has also entered the fray. It started out manufacturing airplanes but has become a “defense integrator” and now also “provides customers with technologically advanced language translation. Interpretation, analytical computational linguistics and information technology business solutions (www.it.northropgrumman.com/offer/mission/foreignlanguage.html). It has developed something called Arabic Now, which is an automated foreign language processing tool.

Another firm, MVM, offers a more basic approach in seeking government procurement, with statements like this appearing on its web site: “Our security-cleared linguists can translate foreign documents, transcribe, and translate real-time information. Our Spanish-speaking linguists can detect slight differences in accents, colloquialisms, and idioms within speech from more than 20 countries.” MVM also offers services in armed and unarmed guards, X-ray magnetometers and prisoner transport.

There is a lot of money involved, so when contracts are given out, there can be protests when the contracting process is “disjointed.” One set of protests caught my attention and brings out all the permutations in the processes involved. In this case, it was among the smaller firms involved in providing language service to the U.S. Government. Worldwide Language Resources had lost and won one case, where contracts were not let in accordance with the request for proposal (RFP). It filed a protest when it thought a firm named SOS was unfairly awarded a contract. It didn’t win that protest. However, Worldwide Language Resources and SOS then filed a protest together, even though one had earlier protested against the other. They both protested when a company with the improbable name of Russian and Eastern European Partnership (also know as OSS and REEP to clarify things) won a sole source contract to provide Arabic translations in Iraq worth an estimated US $35 million! Did you get all that?!

The U.S. Government Committee on Government Reform cited this contract as typifying “bad contracts.” This one was cited for “lack of competition and mismanagement.” In any event, the Government Accounting Office (GAO) upheld the protest, which was moot because by the time the ruling was handed out, Russian and Eastern European Partnership had essentially carried out the contract. But it was instructed to pay the legal fees of the protesters.

I wanted to learn more so I called information in Fineville, New York where Russian and Eastern European Partnership was located and asked for their number. The operator said, “I know Fineville. There’s nothing there but a gas station and an ice cream parlor.” In any event, you can find the partnership under www.usereep.com. Notwithstanding Fineville’s size, it turns out that REEP is the “largest provider of foreign language immersion to the U.S. Government.” It also leads tours of battle sites for military personnel to “vicariously experience the art and science of war.”

So What Do You Do?

Where firms in the commercial sector worry about “spiders” picking up their name as many times as possible on the web, the military market works by hiring people with nicknames like “Spider.” Don’t spend your marketing money on a fancy web site (just take a look at REEP’s). Instead, spend it on contacts.

I have gotten a number of calls about how to approach this high dollar market. I would contact each of the major integrators (the names at the Industry Day function can serve as a guide), or one of the firms that has preferred minority contractor status because it is run by women (e.g., Comprehensive Language Center) or by the descendent of a particular ethnic group (e.g., Torres Advanced Solutions). And if you have a unique technology like Systran or Language Weaver, you may be lucky enough to receive phone calls without jumping through too may hurdles.

Back to the Real World

Back in the mundane world of commercial sales around the world, there is quite a bit to report.

Systran

Systran, which has some dealings with the U.S. Government, reported first-half sales to be soft at 4,333,000 euros and an operating income of 345,000 euros. Its operating margin of 7.9% was “adversely affected by investments and the negative impact of foreign exchange rates.” Sales generated from software licenses represented 68% of total sales during the period – down 11% from 2005. Professional sales were 1,383,000 euros, representing an increase of 16.9%. Not surprisingly, “the increase is due to additional orders from the U.S. Government.” Its shares now trade at around 3 euros, and the next financials will be available October 27.

Lionbridge

Lionbridge Technologies (LIOX) announced results for the quarter ended June 30: revenues of US $110 million, at a gross margin of 34.9%. Net income of US $3 million and cash flow as at US $8.8 million.

Lionbridge's chat rooms are active. One trader said, “Something is going to happen real soon. M/A (mergers and acquisitions) is up this year and this company is a catch in the growing globalization trade, Enjoy the gains. Strong long-term buy. Forget about the day trades. Lionbridge’s shares are trading around US $7.00 a share.”

SDL

Life is not too shabby at SDL either. Its six months 2006 revenues stood at ₤45,556,000, with earnings of ₤6,163,000. This represents a growth rate of 34% over 2005 and put it on track to be a US $200 million company in 2007. Shares are trading at around 200 pence.

---

John Freivalds is Managing Director of JFA Marketing and publisher of The Periodic Tables (Languages, Money, First Class and Toasts). He can be reached at jfa@hughes.net.