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 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 makes it a particularly interesting time to ask: “How’s business?” Concept and methodology This report is the second 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. You can explore the first Business Confidence Study Q4 2022/Q1 2023 Edition here. 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]. Respondent profiles Participating companies This second edition of our Business Confidence Survey yielded valid responses from 55 language service providers (LSPs) and 15 language service buyers (LSBs). While we do hope to expand this study to include LSBs in the future, participation from these companies was still too low to draw statistically significant conclusions, so all of these responses were disqualified. As such, this edition of the Business Confidence Study only represents data from participating LSPs. The upside of this is that results are easily compared with past findings, which also considered results from LSPs only. Company headquarters This edition of the Business Confidence Survey reached LSPs from 20 different countries. Results were relatively consistent with the previous report: two-thirds of companies are headquartered in Europe and 16.7% are based in North America. We saw slightly higher representation from South America (11.1%) and slightly lower from Asia (5.6%). Unfortunately, this edition of the survey did not include submissions from LSPs based in Africa or Oceania. Company HQ by geo-region Company size The data represent primarily small- and medium-sized companies with up to 400 employees. There are two notable exceptions: submissions from large companies that reported 22,000 and 40,000 employees, respectively. These outliers aside, the median company size is 20 employees. The data is on par with data from the previous edition of this survey. Company size Respondent role Respondents were asked what role they serve in their companies. Responses were then sorted into the following categories: Executives: including CEOs, managing directors, owners, founders, CIOs, and vice presidents Managers: including directors, managers, and heads of departments Professionals: including project managers, translators, engineers, consultants, developers, and other such roles. This survey saw a higher number of responses from professionals (7.5%, up from 1.5% last quarter), however other data are consistent with the last edition. Once again, almost three-quarters of respondents were executives (71.7%), with the vast majority of those being CEOs and owners. Respondent role at the company What the results show Business situation Almost 80% of survey participants reported their overall business situation to be good (37%) or satisfactory (42.6%). Respondents are also overwhelmingly optimistic about the coming quarter (Q2), with 64.8% expecting business to improve. It is interesting to note that current data show greater optimism about the immediate future than responses from three months ago, despite reported performance having worsened overall. Current business situation (Q1 2023) Future business situation projections (Q2 2023) Comparison: Current business situation (Q4 2022 vs Q1 2023) Staffing Staffing level remained consistent from Q4 2022 to Q1 2023 for two-thirds of all survey participants, while 20.4% of companies increased and 13% decreased their staff, showing less fluctuation in staff turnover as compared to the previous edition of this survey. Respondents also expect these figures to remain relatively stable into Q2 2023. Current staffing trends (Q1 2023) Future staffing projections (Q2 2023) Financial situation Reports on recent financial performance were overwhelmingly positive once again, although the percentage of companies reporting bad performance did increase slightly (from 9.1% in Q4 2022 to 14.8% in Q1 2023). This is directly mirrored in a lower percentage of companies that reported good performance in the past quarter. When it comes to expectations for Q2 2023, 59.3% of companies expect their financial situation to improve and 37% predict it to stay the same, leaving just 3.7% that expect this to worsen. Current financial situation (Q1 2023) Future financial situation projections (Q1 2023) Demand Survey responses about demand trends are almost identical to the previous edition of this study. When it comes to how demand changed from Q4 2022 to Q1 2023, responses are split almost equally: 37.3% of companies report that demand increased and the same number report that demand decreased in Q1. Looking forward, companies are even more optimistic than they were last time: two-thirds of companies expect demand to increase in Q2 2023 (up from 58.7% last quarter), while only 5.9% expect it to decrease (as compared with almost 20% last quarter). Current demand (Q1 2023) Future demand projections (Q2 2023) Comparison: Future demand projections (Q1 2023 vs Q2 2023) Revenue Sentiments about revenue are evenly spread across the board and predictions for the coming quarter are overwhelmingly optimistic. Two-thirds of companies expect to see their revenue increase, and only 3.9% predict that revenues will decrease. Current revenue (Q1 2023) Future revenue projections (Q2 2023) Prices Pricing trends remained almost unchanged from Q4 2022 to Q1 2023. 25.5% of participants raised prices in the past quarter (compared to 26.6% last quarter), 64.7% left prices alone (compared to 64.1%), and 9.8% reduced their prices (compared to 9.4%). This is better than language service buyers may have been expecting, after data in the previous edition (Q4 2022) revealed that 42.2% of companies planned to increase prices during the past quarter. The majority of companies (72.6%) also expect their prices to further stabilize in the coming quarter. In more good news for buyers of language services, the share of respondents planning to increase prices almost halved from last quarter, dropping to 23.5%. Current pricing trends (Q1 2023) Future pricing projections (Q2 2023) Comparison: Pricing predictions vs actual pricing trends (Q1 2023) Challenges Survey participants were asked to identify their company’s top three operational and overall business challenges for the coming quarter. The top two challenges remain unchanged from last quarter: more than half of all respondents named inflation and economic pressure, as well as price pressure (60.8% and 54.9%, respectively). The third-ranked challenge in Q1 2023 is reduced order volumes, as reported by 43.1% of companies. This may in fact be a carryover effect of inflation, economic and price pressure, as companies start to really feel the impact. Challenges for Q2 2023 Strategies Many companies appear to have adjusted their plans over the past quarter, as indicated by changes in the most-reported strategies for Q2 2023. Where increasing salaries was the top strategy for Q1 2023, a huge 60.4% of companies have now turned their attention to machine translation. Strategies for Q2 2023 Comparison: Strategies for Q1 2023 vs Q2 2023 Main takeaways Predictions cannot be trusted This survey demonstrates that respondents’ predictions are just that: predictions. Across almost all questions, the expectations for Q1 2023 were not met. This is perhaps most evident in the data on demand and revenue trends. Where almost 60% of respondents predicted demand and revenue to increase from Q4 2022 to Q1 2023, only 37% of companies reported that reality this quarter. Optimism doesn’t always mean reality will live up to the expectations. That said, this whiplash effect is not fully unexpected, since 2022 was a good year for LSPs and sentiment was riding on a positive wave. The shifting economic climate has, however, been felt. Comparison: Projected financial situation vs actual financial situation (Q1 2023) Comparison: Projected demand trends vs actual demand trends (Q1 2023) Comparison: Projected revenue trends vs actual revenue trends (Q1 2023) Comparison: Projected staffing trends vs actual staffing trends (Q1 2023) Geographical differences remain The data we currently have doesn’t allow us to draw definitive conclusions about any geo-regions other than Europe (due to unavailability of statistically significant responses for these other regions). However, we commented in the Q4 2022/Q1 2023 edition that there were some clear distinctions between European and global respondents, most notably, that European-based companies were more likely to predict negative outcomes for the coming quarter than other companies. This trend is only reaffirmed by data in this edition of the study. Once again, the majority of companies to cast pessimistic expectations over Q2 2023 were based in Europe. This negative outlook and results are quite possible a result of Europe as a whole being hit relatively harder in recent months by factors such as inflation and the energy crisis. Revising prices: A missed opportunity? There is a marked difference between Q4 2022 and Q1 2023 in how LSPs approach the subject of pricing. Where at the end of 2022 there was seemingly more appetite for raising prices (42.2%), most LSPs have simply stood pat in Q1 2022 (only 25.5% actually reviewed their pricing). In the face of more economic adversity, one has to wonder — aren’t LSPs missing the opportunity to reset the rules of the game and simply ask for more? At Nimdzi, we’ve been advocating for the Great Renegotiation since early 2022. The lag between expectations for Q1 and the reality in terms of revenue shows that pricing remains one of the more readily available tools in the LSPs’ toolboxes. As long as they are ready to use it.