Lionbridge Lays BRIC Foundation for Growth

byRenatoBeninattoandDonaldA.DePalma
CEORoryCowantodayannouncedthatLionbridgewillacquireMumbai,Indiabased MentorixforapproximatelyUS$21.3million,netUS$7millioncash.Lionbridgewill payapproximately1.7timesrevenueand10timesearningsforMentorix.TheIndian companyemploys700inoutsourcedelearningcontentdevelopment,program management,andapplicationdevelopmentandmaintenancesolutions.Lionbridge willintegrateMentorixsoperationsintoitsownandwillbeabletosupportmoreof theproductdevelopmentcyclewithinternalstaff.Itwilltransfermanybackoffice operationstothislowercostgeographyasitfollowscompaniesinotherindustries alreadypursuingaBRICBrazil,Russia,India,andChinaoutsourcingstrategy.

Acquisition Gives Lionbridge Some High-Powered, Low-Cost Ammunition

Lionbridgehascometorealizethat,atthelocallevel,itstranslationandlocalization customersonlyrequireclientfacingactivities(thatis,salesandprojectmanagement). Allotherwelldefinedactivitiessuchaspreprocessing,qualityassurance,testing, andthetranslationitselfcanbeexecutedwherethecostsoflaborandoperationsare lowest.Bybuyingacompanyinalowwagemarket,Lionbridgewillbeableto: Bemorecompetitiveinthetotalcostoflocalizationprojects.Lionbridgewilluse itslowcostoutposttobecomemorecompetitiveinengineeringintensiveprojects suchasinternationalizationandtesting.Itwillsurelytransfertechnicaljobslike desktoppublishing(DTP),testing,engineeringfrommoreexpensivelabormarkets liketheU.S.andIrelandtoMumbai.However,currentcustomersandprospects shouldbeforewarnedthatmoreeffectiveoperationsmaymeanmoreprofitfor LionbridgebutnotnecessarilycheaperinvoicesasCowanstrivestowinthe heartsandmindsofshareholdersandfinancialanalysts. Sellmorevalueaddedservices.Reiteratingacorporatefocusontheintersection ofcontentandcode,Cowanwilladdauthoringandcodedevelopmentto Lionbridgescurrentofferings.Thesecapabilitiescouldpushthecompanybeyond itstraditionalsoftwarelocalization,lifesciencestranslation,andtestingbusiness intoconsumerelectronics,otheruntappedtranslationandlocalizationmarkets, andintomoremainstreamcontentrichapplications.Incoveringmoreofthe productlifecycleinternally,Lionbridgewillhavetomanagefixedcostswhereto dateithasfavoredavariablecostmodel.However,thisshouldbelessdifficultina marketwherelaborisfarcheaperthantraditionalproductioncenterslikeDublin.
Copyright 2003 by Common Sense Advisory, Inc. Unauthorized Reproduction & Distribution Prohibited 10 September 2003 www.commonsenseadvisory.com

Lionbridge Lays a BRIC Foundation for Growth

Leverageitsfeetonthestreet.Lionbridgecannowuseits40+salespeopleinthe U.S.andEuropetosellnewservices.Mentorixscontributiontorevenuewillbe productsandservicesratherthansalesandmarketing.Whileitisastrongcompany withlongtermcontracts,ithasbeenslowinacquiringclientsoutsideofIndia.

Moving the Back Office to India Will Stimulate Others to Act

Lionbridgesacquisitionwillcausesomesleeplessnightsforotherlanguageservice providers(LSPs)rushingtoadapttoanewlowcost,broaderservicerival. TheothertwothirdsoftheBigThreewillreact.SDLalreadyuseslowercost productioncentersandisclearlythelowprice,costeffectivesupplier.Its managementteamistechnicallysavvyandwilldoubledownontechnologyto closecostorproductivitygaps.Bowne,stilldigestingBerlitz,willhaveatougher jobasitrealignsitsinheritedcoststructurewhilebreakinginitsnewmanagement. SmallerLSPssharpentheirpencils.Mostlocalizationandtranslationprojectsgo tosub$20millionsuppliers,andthelionsshareofthatworkisactually performedbymuchsmallervendors.Thesetinycompanieswillcomeunder strongpressuretoreduceengineeringprices.Aslongaslanguageremainsthe majorcontributortotheirrevenue,theymighthavetoforegoengineeringandDTP servicesoroutsourcetomorecompetitiveprovidersinIndia,thePhilippines,or Argentina.Thestrengthofthismarketsegmentisstillincustomerrelationships,so thesesmallcompaniesshouldcontinuepullingthatlever. Elearningspecialistswillfindanewcompetitor.RelyingonMentorixsexpertise inelearning,LionbridgessalesforcewilltargetaccountsheldbyTransware (Ireland)andWelocalize(U.S.),twospecialistsinthisvertical.Lionbridgesnew salientcouldcausethosecompaniestobroadentheirownofferingsbyacquisition.

Localization Becomes Seen as Part of a Broader Offering

Weanticipatetheinevitablecompanyculture,timezone,andbusinesssystemclashes asCowanintegratesthetwofirms.ButLionbridgehassomehardwonexperiencein integratingacquisitionssomesuccessful,likeVeritest,eTestingLabs,andIntland otherslessso,likeChinaConnect,whichitshutdownlastyear. WebelieveLionbridgesplantoextendtesting,elearning,content,andlocalization intonewmarketsisgoodnewsfortheindustry.Itwillcreateanewtierofthe languageservicessectorabletoprovisionabroaderarrayofcriticalcorporate functions,withlocalizationbecomingmorevisibleintheboardroom.Ratherthan buildtheirowninfrastructureformultilingualcontentmanagement,nonIT enterprisesalreadyaccustomedtooutsourcedmanufacturingwillappreciateturnkey servicesintegratingcontentandcode,thuscreatingafertilemarketforLSPsthatcan offeracompetitiveendtoendsolution.
Copyright 2003 by Common Sense Advisory, Inc. Unauthorized Reproduction & Distribution Prohibited 10 September 2003 www.commonsenseadvisory.com