S04E07: Outlook for Localization Industry in 2023

Intro

Hello, and welcome to the Translation Company Talk, a weekly podcast show focusing on translation services and the language industry. The Translation Company Talk covers topics of interest for professionals engaged in the business of translation, localization, transcription, interpreting, and language technology. The Translation Company Talk is sponsored by Hybrid Lynx. Your host is Sultan Ghaznawi with today’s episode.

 

Sultan Ghaznawi

Welcome to this episode of the Translation Company Talk podcast. As always, we are here with another exciting topic and guest. Today we will be discussing the outlook for localization industry this year and to speak about this topic I have invited Florian Faes, who is on top of all trends and development in the language services sector.

 

Florian is the managing director of Slator and host of the Slator podcast. Based in Zurich, Switzerland, Florian Faes spent almost a decade in Asia before launching Slator in 2015.

 

Slator is the leading source of news and research for the global translation, localization, and language technology industry. Slator’s advisory practice is a trusted partner to clients looking for independent analysis. Headquartered in Zurich, Slator has a presence in Asia, Europe, and the United States.

 

Florian, welcome to the Translation Company Talk podcast.

 

Florian Faes

Hi, Sultan. Thank you so much for having me.

 

Sultan Ghaznawi

I’m so happy that finally we get to have this conversation. Florian, for those people who haven’t heard about you, don’t know you, and they listen to the podcast, please introduce yourself to our audience. Tell them what you do, where you located.

 

Florian Faes

Sure. So, my name is Florian Faes. I’m the managing director and co-founder of Slator, Slator.com, from Tran – Slator. That’s the origin of the company name. I’m based here in Zurich, Switzerland, and been in this industry, language industry for a couple of decades now.

 

I can tell a bit more about the company. So, the company was founded in 2015, together with my co-founder Andrew Smart, who happens to be based in a much nicer part of the world in Bangkok, Thailand, so a lot warmer than here.

 

And before I started Slator, together with Andrew, I was in the language industry for 10 years with an LSP called CLS Communication, which we sold eventually to Lionbridge, who most people still know. And most of that, those 10 years, actually, spent in Asia, not here in Zurich, spent in Singapore, Hong Kong, mainland China, and Shanghai. But that’s ancient history.

 

So, Slator is really a provider of content, events, research, and advisory services to the language industry. For example, next week, we’re hosting our Slator Con remote conference, online conference. We publish like 10, 15 pieces of content every week. On the research side, we publish a lot of research reports, big reports, 50, 100 pages.

 

So, a couple of weeks ago, we published a game localization report, and also host a podcast.  So, it’s interesting to be on the other side here. And yes, we also do advisory services that can touch up on that maybe later a bit more, but that’s the long and the short of it.

 

Sultan Ghaznawi

Very, very exciting. Yes, I’ve been following Slator for a while, and there’s a lot of very rich and valuable information coming from that specific source for the industry. So, it’s guiding us in terms of where to go. Florian, how did you enter localization and translation industry? What was the motivation? Why did you join or come to this industry?

 

Florian Faes

It was a coincidence. So, my, I guess, origin story here is there was a brochure on a table, and I didn’t know where to take my career. And the brochure was for a translation program at the Zurich University of Applied Sciences. And I’m like, hey, that sounds interesting, because I was traveling at the time, just like, mid 20s, early 20s, I’ve been traveling for a bit, and that piqued my interest in languages. And so picked up the brochure at that point probably went online and signed up and got in.

 

And, and yes, originally, I’m actually an electrician by training in Switzerland. It’s quite a different educational system, so you do like apprenticeships and things like that. So, I started out as an electrician and transferred into that translation career, and then really was actually a translator for a couple of years before I then took on much more responsibility of the business side as we were building out the business in Asia.

 

So took over operations roles, sales roles, and general management roles. And yes, that’s how I ended up in the localization translation industry, haven’t regretted it.

 

Sultan Ghaznawi

So, I’m sure it’s been several years since then, if you look back, can you describe in its industry what were some of the major events in your experience and what typically comes to mind when you think of so many things, events and evolutions and changes that have taken place over these years?

 

Florian Faes

Great question. So, it obviously changed from a much more basic BPO service-oriented industry into now. We’re basically one of the most trailblazing industries when it comes to adoption of AI. Think about what’s going on right now. Everybody’s freaking out about, oh my God, this thing can write code, this thing can do this or that. In the language industry, we’ve been doing this for seven, eight years now with neural machine translation. For a long time.

 

So that was a real shift because when I was a translator, it was basically, you open Trados or Tag editor, in my case, I use Tag Editor, maybe some of the older people still remember that all the time. And it was just translation memory-based translation and a bit of google search.

 

So, the real, I think, transition happened in like 2016, 17, 18, when we really transitioned into this AI-based workflows, maybe now without this chatGPT and GPT models, maybe we’re transitioning into yet another new era. But I think that was the major change.

 

I think other than that, many other changes would have been of much lesser importance for the business as a whole, certain verticals grew a lot, like media grew a lot, gaming grew a lot, maybe others stagnated a little bit, but if you compare it to the disruption that, I mean the positive disruption at the end of the day, if you look at the volumes and the business growth that was brought in by machine translation and  expert in the loop model, everything else pales in regard.

 

Sultan Ghaznawi

That’s interesting. And I think that there’s something I can agree with you on that. But I would also like you to today cover the industry as a whole to give us a picture of what’s happening today, given, that’s later, constantly monitor strands and what’s happening in the language services sector. So, I would like you to talk today about where our industry is and where it is headed for the rest of the year. I would like you to give me a high-level view of the translation, localization industry from where you’re standing.

 

Florian Faes

So, I think in 2023, we’re seeing a bit of a slowdown, it was really busy. Let me start maybe in 2020, COVID, everybody thought, things were going to break, things ended up not breaking. And actually, we got a really a V shaped recovery in the language services industry. Then 2021 happened, everybody got extremely busy, a lot of funding, a lot of merchant acquisitions happening, clients ordering a lot more. So, it was very, very busy in 2021 started slowing down in 2022. And now I think we’re going with a bit more caution into 2023.

 

Also, when you talk to industry participants, you hear a lot of concerns around pricing pressure on the unit, on unit rates. And I don’t think it’s the typical pricing discussion that we’ve always had in the industry, even 20 years ago, people would say, well, you know drop your rates by 10%, yada, yada. I think now we’re really seeing a much more broad-based pressure on prices, which is a little tougher for those that can’t adjust. And of course, the general macroeconomic backdrop is less favorable than one or two years ago, right, with the tech layoffs and some other areas, not doing so well.

 

So, I think 2023 is going to be more challenging for the language industry than the past couple of years were. There’s pockets of resistance and growth like gaming, media, for example, data for AI services, somebody needs to train and feed all these models that we’re using to automate certain parts. And interpreting has been very, very strong, like in healthcare, immigration, legal justice system, that’s going really well.

 

And of course, you cannot not mention the whole chat GPT, GPT chapter here, on the day we’re recording this, GPT three is coming out or has come out.

 

Sultan Ghaznawi

GPT four.

 

Florian Faes

GPT four, yes, sorry, GPT four came out just today, the day we’re recording this, and this is going to impact the industry. Do we know how? I don’t know. But certainly, it will have some impact. So, it’s going to be one of the more interesting years in 2023 for the industry.

 

Sultan Ghaznawi

So, you just talked about it in general broadly, but I want you to talk a little bit in more detail. I know you’re very busy at Slator, at crunching numbers and identifying trends and so on. What do you see on your dashboard today when you’re looking at the top 10 trends affecting the localization sector?

 

Florian Faes

Top 10. All right let’s start with maybe top one or two or three. Look, I think we’re undergoing a massive continuous shift to these what I call expert or what some call expert-in-the-loop model. We’re trying to replace that term human-in-the-loop with expert-in-the-loop, because if you’re a human, that’s not enough anymore, especially on the translation side, you need to be an expert in the domain and a particular language combination. So, I think it’s more apt to speak about an expert-in-the-loop model.

 

So, I think we’re seeing even more adoption of that in areas that were so far untouched like life sciences, medical devices, even gaming in certain media areas, the expert-in-the-loop model is getting deployed. So, to me, that is a big theme that even that this year we’ll see a lot more areas that are getting converted to that model while the other areas have mostly fully embraced that in areas like legal or finance or some other tech areas where there’s high volume. So, to me, that’s definitely the number one trend.

 

The number two, I would see these large language models. They can do so much. They can create content from scratch, perfect content in a sense. You can go to chatGPT and ask, well, write me a, I don’t know, a children’s story or a financial report or anything. So, I think we’re going to see a massive explosion of, well, I don’t think so. It’s happening. We’re seeing a massive explosion of AI generated content. So, the question is going to be, will this also be a made multilingual with AI or is there going to be even a tiny fraction of that AI generated content that will need a human or an expert-in-the-loop? And that’s where the industry could benefit from.

 

And then maybe a third trend would be the general slowdown in financing for certain ventures. Private equity owns like a good chunk of the large LSPs and maybe you’ll touch upon that later, but I think financing is a little harder to get by these days than it used to be, higher interest rates and generally tighter funding environment. So, we’ll see what impact that has on the bigger players in the industry.

 

So yes, expert in the loop, GPT models, large language models and generally tighter funding environments for some of these bigger LSPs. That’s, for example, some of the three that we’re seeing from our standpoint.

 

Sultan Ghaznawi

So, the third one, which had to do with the economy, it’s a good segue basically for my next question. The current economic climate has created both winners and losers, even at vertical or sector level looking at different industries that buy localization from us. So, for customers of localization, the different industries that basically depend on localization, where do you see the transfer optic and activity versus depression?

 

Florian Faes

Let’s maybe start with the bad news. Maybe I wouldn’t call it depression, but just generally a bit of a slowdown is definitely happening in tech, the big tech companies have historically been some of the biggest buyers of translation, localization, literally the Facebook, Google, Microsoft, Apple, as opposed to maybe 12 months ago when they couldn’t hire fast enough, now they’re retrenching. And also, they’re scaling back some of the programs, trying to automate more. So, I wouldn’t expect anybody exposed to the technology sector per se to do really well this year.

 

I think manufacturing, especially in Europe, has also been under pressure over the past 12, 18 months. And so, I think manufacturing, engineering is a tough place to be. Maybe financial, financial banks at the end of the day, and maybe insurance companies, but potentially more likely banks, is going to be a challenge this year. And also, I think financial content lends itself somewhat more to expert-in-the-loop translation or full automation, because it’s very repetitive and there’s a lot of reference data around. So, for me as a former financial translator, I could see some of these reports that I used to translate being nearly fully automated now. So, I think there’s potential for more automation there. So those are three sectors that I wouldn’t be super excited about heading into 2023.

 

Now on the plus side, you see media and gaming still doing very well in media. Let me give you an example, which is actually a great example for general dynamics in the language industry, where you see something that’s happening that will generate demand where there was literally no demand at all before.

 

So, YouTube, just a couple of weeks ago, really launched the multi-language option for their audio, for videos like with MrBeast. They had MrBeast in a beta state, that MrBeast being one of the biggest YouTubers in the world, or the biggest YouTuber in the world, probably 100 million subscribers. So now on his videos, you can actually select the language. So, you don’t have to create a new video and dub and translate and dub this. You can actually inside the YouTube video have multiple languages, like on Netflix or in Disney Plus, like we just go in and select your language. And now they’re rolling this out among many of their top creators. So, think about the demand that this is going to generate for translation, and then of course, this over and dubbing, huge, you roll this out to 10,000 new creators; you’re generating huge new demand.

 

And that’s generally something that happens often in the language industry, that you see new areas pop up that just a market that didn’t exist even like a year ago, see with some tech companies in the past, and now you see it with something like MrBeast on YouTube.

 

So, I’m very excited about that media, gaming, and then life sciences or medical devices. These are highly, highly regulated areas where you can only do so much automation for regulatory and legal reasons. So those areas are still going strong, have been going for decades. I don’t doubt that they’re also going to go up this year. So yes, media, gaming, life sciences, medical devices are something that would be very resilient this year.

 

Sultan Ghaznawi

You just mentioned tech layoffs, let’s talk about that in the US and across the globe that happened in the past few months, we’ve been seeing a lot of layoffs. It seems like all major platforms and brands decided to let go of talent, very highly educated and a skilled talent and a very short span of time. What does that mean for the, for our industry, for localization? And do these companies have to outsource the localization work that was previously done in-house?

 

Florian Faes

It’s a tough question, but probably I would see that if they are in a position that they need to do layoffs, they probably would also scale back some of the localization that they’re doing generally because they’re retrenching across the business. So, I doubt that there is a direct correlation of like, okay, we’re letting these people, we’re laying some people off and now we need to outsource more on localization. I think they’re probably also scaling back on localization spend. So yes, I doubt that a lot more will be outsourced.

 

Sultan Ghaznawi

Does that mean that they will be reducing the quality of service or the type of service that they deliver today to their clients?

 

Florian Faes

Do you mean the tech companies to their clients or?

 

Sultan Ghaznawi

Yes, absolutely. Tech companies to their clients, but which was dependent on localization before?

 

Florian Faes

No, I think there might just be less aggressive in their growth plans, they might not launch this product or that feature or run this additional initiative. So, I think it’s just a general, maybe focus on what makes them profitable in the first place. So yes, I doubt that you see a poorer localization experience from a client-side there. So, I think it’s just a general slowdown, but we also have to see this against the backdrop of the crazy, crazy late 2020 and 2021, right, where these companies staffed up massively. So, I guess over a five-year period, I think you’re still, you could still see a lot of good growth, but they did have to retrench because it was just so massive how they grew in the past couple of years.

 

Sultan Ghaznawi

That makes sense because they are becoming more stabilized and, but there’s still that talent pool that’s out there that doesn’t work for these tech firms. Can our industry absorb some of that talent that become available due to the layoffs?

 

Florian Faes

I think so. I really think so. It’s, the industry is large enough and, I wouldn’t call it in the localization part, it wouldn’t be a mass layoff.  There’s not like thousands and thousands of top localization talent that’s being let go that the industry couldn’t absorb. So, these people that are being let go, I think they have a very good chance to get hired by another, maybe a startup or tech startup that’s in another area of like that is untouched by these layoffs or then on the vendor side.

 

If you have these skills, you know how a large tech company or like a fast-growing startup runs localization, you have these skills how to build up these fairly automated workflows, how to manage vendors. I think chances are good, you’re going to find a job on the vendor side as well, because those are very in demand, this very highly in demand expertise and skills. So, I wouldn’t worry too much for these people.

 

Sultan Ghaznawi

Still, talking about economy, let me ask you about your observations related to mergers and acquisitions in this industry. Slator keeps a very close eye on this. With VC investments slowing down, are there still opportunities for M&A here?

 

Florian Faes

Definitely, yes, we’re very closely involved in this. In fact, we also do advisory work. So, for example, I can talk about this because we were able to announce it. So, we helped Un bobble acquire EVS in early 2023. We helped sell a natural language processing company called Repustate also in early 2023. And we’re helping some other companies now on the buy and the sell side.

 

So, if you’re looking at the macro environment, it’s definitely slowed down right from the really crazy days in 2021 because interest rates are going up. We all know this now. We had this bank failure in the US just recently that was closely related to that. So, interest rates are going up, generally funding gets tighter. And so, you’re seeing that there’s less appetite for risk investments, of course, coming from the venture capital side, but also less capital available for the private equity industry.

 

So, venture capital, would be further out on the risk side. Like for earlier-stage startups, private equity is more for profitable established companies of which there are many in the language services industry. That’s why there are so many private equity owned LSPs. But there are different forces at play here. So, while you have this caution now in funding on the venture, let’s talk about the VC component now the riskier investments. While there’s a general hesitancy of VCs to go into riskier, to go generally into these types of investments, you also have these this boom in AI of which language is at the core. So how do you balance that?

 

Now if you’re a normal software, like a business-to-business software as a service company unrelated to AI, yes, you’re probably going to have a harder time finding funding. But if you’re in the middle of this AI boom, you have some, multilingual writing like software or you have some other large language model, base layer company. You’re at the middle of this boom. So, VCs are still going to be key to invest. So, we have to balance these two forces. So, I think in the in the language space, it’s still going quite strong.

 

Again, on the private equity side now going out to these companies or these private equity funds that invest in more stable profitable companies. There’s definitely more caution now because cheap access to cheap capital is gotten harder. So, I wouldn’t assume that there’s going to be a number of massive acquisitions like for like big LSPs by private equity firms in the next, maybe 12 to 18 months.

 

Sultan Ghaznawi

You just mentioned the collapse of the Silicon Valley Bank and a couple other banks in the US and their stocks of interest rate drop happening in the US as early as the summer. That’s obviously unforeseen and precedent and not even guaranteed if that would happen. But if it did happen, what would it mean for the localization sector?

 

Florian Faes

Do you mean if there’s more bank failures?

 

Sultan Ghaznawi

Regardless if interest rate is dropped due to a number of things happening in the economy, banks being one of them, how would it impact our industry?

 

Florian Faes

That’s a great question. So, if let’s say, okay, they were on this rising path of interest rates and now, okay, they’re going to scale back. Well, you’re going to see more inflation. I’m not a macroeconomist, but I guess if you scale it back, you’re going to heat up inflation again, which, for some, if you’re invested in the stock market, maybe not too bad in terms of valuations rising again.

 

How would it impact the localization industry? I think it’s a bit too macro to say that there’s going to be a particular impact on the localization industry, other than just, yes, more inflation, probably economic growth going up again, language industry historically is very correlated to GDP growth, to just general macroeconomic growth. And so, yes, wouldn’t be the worst thing if you don’t mind inflation, I guess. But that’s, again, I’m not an expert on that particular topic.

 

Sultan Ghaznawi

Florian, consolidation has been happening in our industry for a while, and it’s inevitable and probably a good thing. Where do you see an opportunity in our industry where consolidation can deliver better value to clients today?

 

Florian Faes

Yes, you got to make sure if you have all these merchants and acquisitions, you got to make sure that one plus one is three and not one and a half. And so, what you want to avoid as the buyer is that you, you, initially you change too much, like you take the client’s favorite project manager away, you change the salesperson that had been on the account for, a decade or so. So, you want to make sure that you, especially on the people side, leave some of these pieces in place initially and make the client understand, hey, there’s still the same people here that are able to service you.

 

I think what companies need to take care of when they do post-merge integration is very cautiously but deliberately transition to the better tech stack. When you merge two LSPs, there’s always, you have obviously two TMSs maybe, two CAT tools, two MT stacks as well. So, you want to make sure you transition to the better one without impacting the client too much. And then when you achieve that, obviously the client should benefit from, hopefully, better, better translations, better services, et cetera.

 

Yes, that’s, yes, again, on the PM side, on the account management side, sales side, and then hopefully you can cover a broader spectrum of the client’s needs. So maybe if you were in an account and you were just doing marketing, but now, the company that acquires you also helps with legal and maybe does media or subtitling, maybe you can cover a much broader spectrum of a particular account’s needs. So that would be the benefit there.

 

This podcast is made possible with sponsorship from Hybrid Lynx, a human-in-the-loop provider of translation and data collection services for healthcare, education, legal and government sectors. Visit hybridlynx.com to learn more.

 

Sultan Ghaznawi

Switching topics. Let me ask you about the impact of super automation in the form of former flourish language models. We were talking about GPT-4 earlier and other developments in the NLP subfield of AI or machine learning. What are your observations and general predictions? I know that you keep a very close eye on this, obviously the whole industry is looking at it. What are your thoughts? Where is it going?

 

Florian Faes

It’s so interesting, this morning I was playing around with GPT-4, so again, that you can buy the $20 premium subscription of OpenAI for chat GPT and then you get access to GPT-4 and I was just doing like a 15-minute machine translation test. It’s great, but it’s not groundbreakingly great for MT. Like it’s, I don’t know, usual Google Translate, Deep Bell, Microsoft Translate, typical neural MT standard. So, it’s very good, but it’s not like, oh my God, this is the best thing ever and it’s going to disrupt everything again. It still makes some, not errors, yes, some errors and some inconsistencies and I’m testing this with English into German, my native language. So that’s probably the highest resource language out there.

 

So, I would assume that in other language combinations it will perform a lot worse. So, in terms of just the MT capability of these models, so far, they’re still lagging a little bit behind the more narrower models that we’re using in production in the language industry and have used for years now. So, I don’t expect a major breakthrough there, but of course, these are generative AI models. So, you can create content based on a prompt, which was something that wasn’t around, you know, a year or two ago.

 

So, the question now is what’s going to happen with all of this new content? Is there, even if a fraction, I mentioned it before, if even a fraction of this content requires human involvement, then who else other than the language industry would be in a good position to edit this, service this, make sure it works for that particular use case. So, there’s a huge opportunity right now to capture that if indeed a fraction of this artificially created content ends up requiring some human involvement.

 

On the flip side, you could say, well, maybe on the translation side, instead of translating, you can just generate it from scratch in multiple languages. So maybe that could be a negative, right, unless that content that gets automatically generated in multiple languages still requires a human to look at it or an expert to look at it, which would be a positive.

 

So, there’s various forces at play here, but I just think that the language industry is in a great position to find out where the service element here is required and capitalize on it.

 

Sultan Ghaznawi

Florian, do you see unicorns in this industry forming that leverage these latest developments and technologies as solutions for language services?

 

 

Florian Faes

Yes, we are actually just a couple of days ago, we published something called the language AI 50 under 50 and now we’re like, what do you mean 50 under 50? So, 50 companies that are under 50 months. So, startups, recent startups in language AI, we put out that list, it’s freely available. So, you have a couple of unicorns on this list already, which would be Cohere, for example. So, Cohere is like a direct competitor of open AI. They do the same   thing, foundational, large language models.

 

We actually had their founder on the podcast, so maybe you can also listen to that if you’re interested. Or Jasper, Jasper is an AI writing software as a service, which is quite heavily used among marketers, I was told. Or CopyAI, I’m not sure if CopyAI is already a unicorn, unicorn being a company that’s valued at a billion dollars or more. But yes, you have Cohere, Jasper, some others.

 

But then there’s also super interesting companies that are a lot smaller or not yet unicorn, for example, Blackbird, Blackbird.io. Go check it out. It’s a middleware, Zapier-like connector for various TMSs, CAT Tools, MT engines, super fascinating company. It just came out of, I guess, almost like stealth mode. Or companies like Dubverse that do AI dubbing. So yes, there’s a lot happening, very, very interesting company out. And I think our list there would be a great starting point if you’re looking for some names.

 

Sultan Ghaznawi

Thank you. I appreciate that. I think, yes. That’s an interesting list. I’ll go and look at it. And I’m sure people listening should also find that very interesting. As an industry watcher, Florian, you measure the productivity and output of different language services, such as translation interpreting, transcription, language, QA, and many others, now AI being in the mix too. What new forms of language services do you see developing with the advent of these technologies?

 

Florian Faes

Sultan, that’s the billion-dollar question. If I knew, I’d probably start a company around that. I don’t know. Very, very difficult to see where this is going. You could argue like, I don’t know, humanizer and like creative writing. So, your prompt the model, it writes something, and then you tweak it on the edges. Your data curation is very, very important, data sourcing, curation, verification, et cetera, on language data. Any areas where there’s like still this expert-in-the-loop translator is required. I don’t think that’s going to go away anytime soon. So, anybody who’s really good at taking multilingual or taking input and working together with MT to fine-tune that, subject matter experts.

 

We may move towards a model where you don’t necessarily have to be fluent in two languages. You just have to be very knowledgeable in a particular subject matter to, in a sense, proofread or check output that the machine generated.

 

And then of course, there’s this building and testing of continuous training of all these models, these machine translation models and other models, generation models across all kinds of niche verticals and applications, because you and I, when we go to something like chat GPT, we would just go like write a children’s story or take a Bloomberg article and copy paste and have it translated.

 

But us as industry experts, we also know that there’s so much more text out there for which these models haven’t been tested on or haven’t been fed data with. So, there’s all these niche cases where a lot of the language industry actually makes its money that still need to get tested and continuously trained on.

 

Sultan Ghaznawi

Let’s look back at the industry as a whole and briefly discuss regional performance. Where do you see the majority of economic activity happening with regards to localization translation geographically? Traditionally, it has been US. Is it still the largest market? What other regions are profitable presenting opportunities for localization?

 

Florian Faes

I think according to our estimate, like the US makes up about 39%, then all of Europe, about 36% of the total language industry pie. So, it’s equal. Think of it as roughly 40% each. Then you have Asia. I don’t see a massive divergence in terms of if there’s faster-growing regions or regions that are growing faster than others. Again, I think it’s mostly correlated to just economic growth.

 

I think right now, I’d probably want to be an LSP in Dubai or in Saudi Arabia. They’re having a bit of a boom time there. Maybe not so much in central Europe, in Germany, but generally, I think the opportunities are… You have a lot of opportunities in the US, a lot in Europe, a lot in Asia. I can’t give you a specific geography that I’m seeing growing more strongly than others.

 

Sultan Ghaznawi

Let’s discuss the British market. It’s unique and interesting because after Brexit, it has a new dynamic and culture with regards to how they handle global relations, trade, and so forth. What type of an opportunity does it represent for the localization industry? It’s a fertile ground to acquire well-performing LSPs. I actually still haven’t really understood why the UK has so many well-run, profitable language service providers because it’s not like it’s a multilingual country like Switzerland or maybe a couple other like Belgium. In terms of the domestic market, I think it’s extremely competitive. I think it’s not easy to go into the British market and start a company from scratch and succeed very quickly because it’s very competitive.

 

I think from a broader point of view, yes, if you want to acquire profitable LSPs that perform well, the UK is certainly a good hunting ground. If you want to start from scratch, it’s a little harder. That said though, London is arguably Europe’s biggest slash most cosmopolitan international city. There’s a big domestic market there for language services. It’s not an easy market, but does it have anything to do with Brexit? I don’t know. I don’t see Brexit as a major positive for the UK. If anything, they lost a couple of the international organizations that moved, for example, one of them moved to Amsterdam that might have been a negative.

 

Life goes on outside of the European Union as we can attest here in Switzerland having never been into European Union.

 

Sultan Ghaznawi

Let’s look at the recent history of Florian. The past five years, it has been interesting for everyone in the world with the pandemic, the wars, technological advancement, and we were just talking about GPT-4 and political changes and so much more happening. What patterns and trends have developed that can guide the localization industry?

 

Florian Faes

One thing that makes the language localization industry very resilient is its ability to scale up and down quite quickly. Because it’s an industry that doesn’t operate, that doesn’t own a lot of hard assets. If you’re in the oil and gas business and you need to drill wells and build all kinds of physical infrastructure, it’s a little tougher when there’s a downturn. It’s very hard for you to scale down or you’re sitting on these unproductive investments.

 

The language industry can scale up or down very quickly as demand rises or falls. You saw, for example, in the media space, when streaming came around, there was a massive boom. There were some discussions around shortage and capacity problems, etc., but generally the industry scaled up very, very quickly. In other areas now, LSPs can scale down fairly quickly as well. It just speaks to the very strong resiliency of the language industry to adopt to various business environments and various technological trends.

 

I think now we’re at this crossroads again where over the next two to three years, the industry will have to find very innovative ways of producing service businesses or line lines of service businesses that can incorporate these latest breakthroughs in AI. If I knew exactly what it was, I probably should start a company, but I’m just fascinated as an observer to see how people are going to make this work.

 

Sultan Ghaznawi

We’re talking about trends, but at the same time, we should also be looking at the landscape. When you do that, what are some of the top threats in your opinion that localization sector is not well prepared to deal with? Do you have any suggestions on how to confront them or deal with them?

 

Florian Faes

One of the threats would be those LSPs that have not really moved to this expert-in-the-loop post-editing, incorporating these latest advances in AI type of workflows, those that are feeling good about their TMS slash CAT-based workflows. I think the time of muddling through is coming to an end now in 2023. People had a six, seven-year heads up, and I think now you’re going to get under a lot of pressure.

 

You probably won’t be able to compete on pricing anymore if you’re just on the traditional TMS CAT stack. I’ve been surprised by the way by how long some slower to adapt LSPs have been able to push this off, but I think now 2023 is definitely going to be a major year there for that. To me, if you could encapsulate it as a threat, I think the established workflow model is coming to an end. That’s going to be great for some, but not great for others.

 

Sultan Ghaznawi

When we’re looking at threats facing our industry as a whole, changing demographics and dynamics, clients are changing, you mentioned GPT-4, majority of the platforms, technology platforms will probably rely on these technologies to source their content, the localization and so forth. Are we as an industry Florian ready to confront those type of threats, or that’s something not to worry about?

 

Florian Faes

I think as an industry, I said before as well, I think we’re very, very adaptive. We’re very resilient, we’re very resourceful to adapt to that. We just have to, because some of these traditional clients just disappear. Let’s see, for example, look at finance, some of these fund reports that I used to agonize over and think about every term here and there probably are automated by now because, well, it’s automatable. By necessity, the industry has to adapt and change.

 

I feel quite optimistic, I guess, over the next five years. For example, 10 years, I wouldn’t want to comment on, but I think over the next five years, I feel very optimistic if companies really are succeeding in that retooling.

 

Also, linguists are very open to working with these tools. There’s always a contingent of translators that are reluctant to work with this. I understand, if you’ve done something for 10, 20, 30 years, you’re reluctant to change, but I think there’s an entire new cohort of expert linguists that are coming up now that to them, these types of tools are just natural. Generally, I feel very optimistic, and I think if you’re prepared to continue to change your business, it shouldn’t be a big problem.

 

Sultan Ghaznawi

Speaking of looking into the future, we talked about this in the beginning of this conversation, but how do you see 2023 as a year when it gets wrapped up? What would it mean for localization? Do you see it as a year of prosperity? Do you see challenges? What do you see when you look at your crystal ball?

 

Florian Faes

I don’t think it’s going to be the best year, frankly. I think it’s going to be a bit of a challenge. I think as we spoke about in tech, it’s such a big client cohort that I think it’s going to be a challenge to add a lot of revenue in the core localization space. If you’re in core translation localization, I’d be a bit cautious.

 

That said though, as I said before, many LSPs are experts in going to these adjacent markets and making it work for them. For the companies as a whole in industry, I think it’s going to be an exciting year of tapping into new areas of growth that they can then work in for the next two or three or four or five years. But for the core language translation, language localization, I think it’s going to be a bit of a challenging year.

 

Sultan Ghaznawi

I hope that it will be a positive year regardless. In closing, what are your thoughts, Florian, and your suggestions for leadership in this industry, both on the supply and buyer side of things?

 

Florian Faes

For leadership in this industry, can you help me specify that a bit more, who’s leading?

 

Sultan Ghaznawi

Owners of LSPs, managers, decision makers, and also people like localization managers on the buyer side, what should they be doing, tightening their budget, preparing for technology? What advice would you give them as a Slator leader at this moment?

 

Florian Faes

Got it. I would be very, let’s say you’re on the ownership side and the CEO side at the LSP. I think you should be very much open to innovation. I don’t want to make it sound too bland and generic, but have somebody at the company, no matter how large you are, play around with all these new tools. I don’t mean you have to make a giant project or something.

 

Even a small agency with 10 to 20 people, there’s somebody at these companies that’s usually very excited about trying out new things. Have somebody at the company or maybe a group, if you’re a larger company, play around with all of these new things that are coming out, signing up to all of these new services, and really think about how you can integrate that into your own service organization and helping your clients be more productive.

 

On the client side, I’d be totally asking this from my vendors. They’d be like, well, okay, I’m the localization manager of company X. I see all this cool stuff out there. Can this be integrated into my workflow? Can I translate three times more? Or can I now get all my videos subtitled very quickly, for example? Or can I get some dubbing done on my e-learning videos? I’d be leaning very heavily on my vendors to be much more creative in helping me capitalize on these latest advancements.

 

Sultan Ghaznawi

Florian, what a fun and insightful conversation. I really, really enjoyed it, and as always, I love to learn about our industry trends and what is shaping our decisions and what affects our businesses. So, with that, let me thank you for your time and for everything that you’ve shared with us today.

 

Florian Faes

Thank you so much Sultan.  Thanks for having me. The language industry is a growing and evolving services sector and oftentimes ignored. Given the size of this industry, we are an enabler of today’s massive international business and the internet wouldn’t function as it does today without the support of the translation and localization services, despite the challenges we are facing.

 

The outlook for the localization sector is good and bright. In fact, this industry helps other industries manage and mitigate risk at times of economic difficulties by enabling them to grow business across borders. We must acknowledge and appreciate the value that we create for international relationships and business beyond simple translation of words. I believe the next few years will be very exciting and we are lucky that we are living at a time where this industry has undergone so much transformation in the span of a few years.

 

That brings us to the end of this exciting episode. I had a really good and fun conversation with Florian and I’m sure you enjoyed it as much as I did. Don’t forget to subscribe to the Translation Company Talk podcast on Apple Podcasts, iTunes, Google Podcasts, Spotify or your platform of choice and give a 5-star rating for this episode.

 

Until next time!

 

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