 Last summer, Belgium watched as Carl D. Glaeser and the rest of his negotiating team outbid rival Lionbridge Technologies in a bankruptcy auction for Mendez SA, a localization and translation specialist. Glaeser, the CEO of Bowne Global Solutions, orchestrated the purchase of Mendez, a division of the collapsed Lernout & Hauspie of Belgium, for $44.5 million. Bowne Global Solutions is a New York-based globalization/localization company offering services such as documentation, translation, project management and software development in markets across the world. On a recent swing through Japan, Glaeser talked about the future of the globalization and localization sector with J@pan Inc publisher Terrie Lloyd.
Mendez also had 50 people in Japan doing voice recognition work, but the division was shut down when the company was auctioned off.
The voice recognition part of L&H was not part of the business we bought. It was a shame to close it, as they had some very good technology. I was impressed with some of the stuff they were doing.
Were you personally involved in the bid for Mendez?
We initially looked at Mendez last February. We actively looked at it with a lot of other suitors at the time. We did an evaluation; we spent several weeks doing due diligence. Then we did some follow-up due diligence in the summer and decided that with the appropriate economic and financial situation, it would be an attractive purchase for us. I did attend the auction.
How was that? It's not everyday you get a competitor going up for auction like that.
There were almost 100 people in the room. There were two phone tie-ins from Belgium. We were in a room -- a large conference room in southern Manhattan. There were all these people in Belgium too. It was a relatively quick auction. We had our strategy. We knew the other bidders involved. We knew a lot about their financial situations. We realized what we needed to do, and we stuck to our strategy.
Was this the first time you had been in that kind of
auction?
It was the first time I had been in a bankruptcy auction. It was interesting procedurally.
And you had a whole nation looking at you as well, right? I understand that most Belgians invested in Lernout & Hauspie in one way or another.
It's amazing. It's a sad story about greed and a few people taking advantage of a lot of really good people. I think a lot of people really trusted that company with their hard-earned money, and they ended up losing every penny. I really feel sorry for the people.
When the business was doing well, they had a good story. They were market leaders in a lot of areas. And the Mendez team did a good job of running their business. They did their best to keep it away from the flying debris of the parent. They kept the business going through some very tough times. They were going through a year of trying to sell the business, keep the business going and having their parent in court every other day with additional charges filed against them. The Mendez team did a great job.
How has the integration gone?
We look at it in terms of the people we kept as we actually did the integration process. We have good managers. That was our objective. We didn't go in and say, "Since we bought you, you have to go." It was pretty much 50-50 in terms of the employees who left because of the integration process. It was pretty evenly split.
Your company has come a long way in the last three or four years. When you buy a company, are you going in to acquire market share or from a bottom line point of view?
There are various ways we look at a business. First of all, the service offering. There are various services that a market like this needs. Then there are global scale considerations. Over 60 percent of the services we offer, large companies do themselves in-house as a captive marketplace. But globalization and localization is not a core competency for them. The opportunity is to have a financially strong player that offers a full range of services and an end-to-end process orientation. That allows us to go after the larger captive market and take pieces of it in the next stage of the evolution.
It seems to me you are going in the direction of an EDS, the US-based company that provides global IT services. But EDS can book revenue for 10 years in advance. Are you going in that direction?
The industry is evolving. First of all, we have about 94 percent customer retention. We started this business in 1997. In '98 and in Ô99 we did a lot of individual projects. Last year and the latter part of 2000, we started doing annual contracts. Now we're at the phase where we can develop strategic arrangements with our top 10-plus customers and we're looking at three to five year types of arrangements now. Due to the maturity of the industry, this is going to take probably another year or two until we get more of the large-sourced deals.
Do you actually go in and buy teams like a classic in-sourcing model?
What we do is we come to a business arrangement with the large customers. For some of the large-equipment manufacturers, this is a vital thing they have to get off their balance sheet as soon as possible. We have a few of those deals now and we're negotiating a few more as we speak. That's a very big benefit for them.
What do you do if you gear up for a company and then they suddenly decide they don't want to produce a product or they have some problems? Obviously, the tech sector is in pretty bad shape.
We look for long-term relationships. We staff to a certain minimum level and we're pretty sure the revenue is booked when we are staffed to that level.
So you have some skill in getting local temporary people so that you can beef up as the projects come along and slim down again when you get the projects through the pipe.
Our objective is to have a good core group of value-added services as the core of our business. We manage the products and the services, we create value, we manage intellectual property, we create intellectual property -- that's our piece here. Things like translation and things we can't add a lot of value to, we outsource.
Do you take business risks? Do you go
in with a client and take a share of
the revenue?
We've looked at that model. We've done it in some areas. We're investing very heavily in machine translation and in R&D for this industry segment. Most people aren't investing anything in R&D. We're investing millions of dollars a year in machine translation.
We've been hearing about machine translation for the last 15 years.
And you'll continue to hear about it for a while. It's a complex thing. We have an engine that is close to being finalized. We are now working on the primary languages. We have linguists working on that as we speak.
Where do you think the job of human translators is going?
There's always going to be a need for human translation. That's never going
to go away. There are parts of that process that can be made more efficient. We can make it more efficient through an end-to-end process orientation, employing new and existing tools, machine translation and some other things we're developing.
Getting back to the tech sector, there has been a huge drop-off in everything here. It's pretty ugly. How are you diversifying in order to keep your revenues up?
IT is still a major segment of ours. We are holding our own, but it is not growing. We're growing in aerospace, automotive, telecommunications/mobility, medical, entertainment and e-learning. And we have a ÔWho's Who' in these spaces as our customers -- revenue-producing, profitable customers. At the end of the day, you need to be broad and deep at the same time. Some areas are growing. We do things for fighter jets and all of a sudden people are buying a lot more military hardware.
Despite the economic downturn here, some of your clients have done well. Canon did very well last year, relatively speaking.
Nikon is doing quite well too with the digital camera and digital imaging market.
What is there to localize or globalize for companies that make consumer products?
For Nikon we do all the software, the screen shots, the verbiage, the manuals, online help systems and the help desk. Consumer products are pretty good because they have to localize a lot more areas than some industrial products.
In my experience, Japanese companies don't put much emphasis on quality of documentation and anything that is
'soft.'
We found in some surveys we've done that if people's documentation is clear and crisp, it cuts down on the back-end customer service. If you do it right the first time, it alleviates a lot of the back-end cost.
Japanese companies have never been famous for connecting their back ends with their front ends.
If they get enough consumer complaints, and they go to markets like the US, they'll start doing it.
The yen looks set for a slide in the second quarter. Do you have any plans to move more resources into Japan and take advantage of the cost savings or perhaps even move into China, Indonesia or somewhere like that?
We think globally and act locally, and that's our motto since we've been in the business. We have centers of particular excellence. We have a desktop publishing center. We have a testing center. We take non-linguistic skills and have them set up in different centers around the world. For example, we have two centers in the world that do software testing. One is here.
Here in Japan?
Yes. I don't know if it will be here forever, but it's here now.
I would think it would be in India or somewhere like that.
A lot of our major clients are Japanese; they prefer the physical touch. There's a lot of interaction.
You must be bumping into your competitors a lot more these days as you are all consolidating and growing. How do you position yourself against the other three majors: SDL, Lionbridge and Berlitz?
We are the market leader dramatically in the areas of financial performance, customer retention, recurring revenue, reliability and on-time delivery. The question becomes who is competing with what? What we can offer clients that most people can't is one consistent way of doing things on a global basis. I don't think any of those people you mentioned have the financial resources or the systems in place to do that.
Do you see any further consolidation among these companies?
I imagine there will be some more.
Are you guys profitable?
We've been profitable for the past seven quarters.
The sense I get is that this company would be a prime candidate for an IPO at some point.
It would be a good cheap source of capital.
You may run out of globalization work to do. What direction is the company taking?
There is a tremendous amount of ability just to get that additional in-source market. But then there are opportunities in areas like technical writing, where we do operations and maintenance documentation for power plants, for example. A company builds a turbine, a someone else puts a concrete floor in, another builds the tanks or installs the security systems. The general contractor needs someone to pull it all together, and that's what we do.
And increasingly, we are doing a range of connected activities for clients. A couple of years ago, we created a version of Palm's PDA for the Japanese marketplace. We did everything. We developed a new engine for them, did the Graffiti handwriting input, did the transliteration, the
kanji conversion. We took the screen and made it left to right. We are doing all the work for all Palm OS customers, including Sony's
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