have too much of their operation in Europe and too much of their sales in the U.S. What they should probably be doing now is selling more in Europe and producing more in the U.S.”
Another way to increase margins, obviously, would be to raise prices. But there, too, Lionbridge is constrained. Thanks largely to the efficiency gains brought by Logoport and Freeway, Lionbridge has been able to keep prices roughly flat—and in line with those of its competitors—for more than two decades. That’s great for customers; taking inflation into account, they’re actually paying about 40 percent less per word than they were in the 1980s. Unfortunately, the technology isn’t helping the firm build any margin.
That may be because there are still hidden costs to getting clients’ content onto Freeway, where employees and freelancers can get at it. “Every time they get a new project, they have to ask whether it’s worth ramping it into Logoport, or whether they should just do it on the side, since there is a cost associated with bringing it in,” says Sargent. “And some clients don’t want their stuff in Freeway. So many small projects are just run on an ad hoc basis.”
But Sargent doesn’t necessarily think the solution is to use Freeway for all projects. The company can probably save more money by reducing its internal head count, starting with its expensive European talent, he says. Alternatively, it could shift more of its operation to Asia, where labor is still cheaper.
“Part of the reason to have a globalized company like Lionbridge is so that you can use things like differences in labor costs and currency values to your advantage,” says Sargent. “If they can continue to grow their revenue and have a greater and greater share of their employees based in China and India, it may be that the size of the problem in Europe will become less and less every quarter.”
Cowan said in early May that he expects Lionbridge’s financial picture to turn brighter later this year, assuming that revenues from established customers continue to increase, cost-reduction actions take effect, and economists’ forecasts for a strengthening U.S. dollar are correct. So far, the market isn’t buying it. Despite the company’s attempts to prop up share prices by buying back small increments of its own stock, it’s been on a fairly constant downslide since late March. The only patch of good news, as market analyst Zacks Investment Research put it after Lionbridge’s last quarterly earnings report, may be that “there is not much downside left” to the company’s stock price.
By all rights, the companies that are making it possible for other corporations around the world to expand into one another’s markets should be able to earn a little profit in the process. But at Lionbridge, it seems that something’s being lost in translation.
