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Our Analysts' Insights

11Sep

Employment Results and Expectations in the LSP Market

不景气. Recesión. Rezession. Récession. Recession.

In languages worldwide, the word is being used with increasing frequency on financial news websites and Twitter. Google searches for “recession” peaked in mid-August and remain higher than at any point in the past five years.

The world’s largest economy, the United States, is in the 11th year of continuous expansion, but appears to be slowing: growth fell to a 2.1% annual rate in the second quarter, down from a 3.1% pace in the first three months of 2019, according to the U.S. Commerce Department. Employers also added workers at a slower pace in August.

There is no recession yet, but most economists expect one. The questions are when and how severe.

Economists have their indicators for the broad economy and CSA Research has ours for the language services and technology market. We have observed waning demand in the verticals most affected by the economic slowdown, namely manufacturing, with its impact already affecting the Eurozone and China; the effect of Brexit on business between the United Kingdom and its trading partners; fallout from the trade wars; and technologies such as neural MT that worry suppliers that rely only on simple translation for their revenue.

Our just-released report “LSP Business Confidence Mid-Year 2019: Outlook for the Language Services and Technology Industry,” provides in-depth data and analysis on the attitudes, intentions, and perceptions of 100 CEOs from the 193 largest global and regional LSPs. We asked them about revenue, volume of demand, and employment plans for the first half of the year, expectations for the second half, and how they think the full year will play out. We then correlated their responses to our annual Global Market Study. If you're already a CSA Research member, you can read the 36-page report for the complete analysis and our recommendations.

The results of the survey show that CEOs of these LSPs saw less encouraging revenue results in the first half of the year compared to 2018, and are also clearly less optimistic for the year as a whole. This year, 59% saw an increase in revenue over the prior year, while 72% did in 2018. Perhaps even more telling, this year 21% saw a decrease in revenue while only 12% indicated they did last year. As for the entire year, 70% expect to grow revenue. That lags behind 2018, when 86% of the CEOs surveyed expressed confidence in their companies’ growth.

These revenue indicators have a downstream effect on employment. We typically see companies anticipating higher levels of employment in the first half of the year and then tempering those expectations as the year progresses when they have a better sense of demand and business requirements. This year, they appear to be responding to some visible financial signals in the marketplace.

They remain optimistic overall on hiring but slightly less so than a year ago. This year, 64% of those surveyed anticipate increasing their head count in 2019, compared to 68% last year. That sounds like a non-story until we view those expectations by the two halves of the year. For the first half of the year, companies reported a higher incidence of increased employment than they did last year (55% this year versus 48% in 2018), which is due to good results coming out of 2018. However, for July through December only 48% expect an increase this year while 58% did in 2018. In short, while expectations for the year are similar to 2018, it appears that the bulk of the employment growth already occurred this year.

Figure1

 

We correlated individual company responses about hiring and found that CEOs in some geographies are more optimistic and that larger companies expect employment growth:

  • CEOs in North America (85%) and Northern Europe (76%) expressed the greatest confidence in increasing the employment numbers during the year. Most decreases are expected in Western Europe (21%). Southern European companies indicated the highest percentage of flat employment for the year (53%).
     
  • While the majority of companies expect to increase employment, those with the most revenue anticipate the biggest gains : 75% percent of companies with revenue greater than US$20 million expect to increase staff, compared to 52% of companies smaller than US$5 million. The range of US$5 million to US$19.99 million includes the most companies expecting to cut staff (15%).

Figure2

 

Don’t panic, but also don’t wait. History has shown that recessions are extremely difficult to predict, even for economists. Even just this year, consensus on when one will occur has begun to shift. Simply said, in the language services and technology industry, even growth that is slower than prior years will still mean another good year.

With that said, the data from our business confidence survey shows that LSPs should prepare for a potential slowdown. For most, they should pay attention to the staff responsible for their demand generation activities – marketing, sales, and account management. Looking ahead, making innovative technology an integral part of their business rather than viewing it as an existential threat will help them in the longer term. This includes both machine translation as well as increasing the effectiveness and productivity of current personnel using technology. These are the actions companies who are outperforming the general LSP market are taking.

Keep following our primary research, where we monitor the leading indicators in the market for you to act on. Don’t count on certain financial indicators, internet chatter, or Google searches to guide you. Remember that the global financial crisis in 2008 wasn’t even declared a recession until almost a year after it started. That might be too late for many LSPs.

About the Author

Paul O'Mara

Paul O'Mara

Director of Data Products

Focuses on system integration and data validation, analysis and visualization

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