Welocalize announced that it was buying California-based Localize in its ambitious quest to become the third largest LSP within 3 years. CEO Smith Yewell briefed us on the deal, his seventh over the last 7 years. The acquisition will add US$5 million to Welocalize’s 2006 total of US$28.2 million, bring more management talent to the bench in the form of Gary Prioste, and give the company operations in the heart of Silicon Valley with clients like Apple, AutoDesk, and Cisco. Localize recently became an Idiom LSP Platinum Partner, a status that Yewell expects to achieve for Welocalize. Yewell also said that Welocalize will focus on becoming expert in the major translation and localization technologies used by his customers — that means building expertise in products from Alchemy and SDL, too. The rumor mill buzzed with news of this deal at the end of August — reports held that Symbio and Translations.com were also interested in acquiring Localize.

We asked Yewell about the supply of companies that he could buy to meet his quixotic goal of growing to prominence by acquisition. He acknowledged that it’s hard to find LSPs in the US$3-5 million range. In our research we’ve found that the owner-operators of these firms have become accustomed to their life-style businesses and are reluctant to sell. Meanwhile, integrators like Wipro from outside language services have been showing up at localization conferences intent on learning more about the industry and its players — but thus far haven’t opened their checkbooks to buy. It’s only a matter of time. Elsewhere, media companies like Finland’s SanomaWSOY have started to dip their toes at the regional level, but still don’t have a clear growth strategy.

Why are BPO companies like Wipro interested? The business of providing language services like translation and localization has become critical to global commerce, branding, and other communication. Globalization has made interpretation, dubbing for TV and film, and translation of documents, software, product information, and websites commonplace items on any knowledge worker’s tasklist. But as our recent report on this US$10 billion industry found, it remains highly fragmented and a bit obscure even after several waves of consolidation over the last decade. We believe that the language industry is poised for more consolidation driven by the quest for more market efficiency, better technology, rationalized offerings, and global scale. At the same time, we see it continuing to be very balkanized, with organizations reluctant to improve their age-old and inefficient processes.

So as we round the turn into the final quarter of 2007, we begin to see the shifting field of the language services race: Welocalize moves up into the middle of the mid-tier (US$20-100 million), while SDL (if we exclude its technology business from the total) and TDC (TransPerfect and its Trans-siblings) comprise the high-growth rivals (US$100-200M) to industry leader Lionbridge. Recently Inc. magazine took notice of the language sector, flagging Eriksen Translations (#2,552) and Welocalize (#859) among the 5,000 fastest-growing private companies in the United States (both are listed as providers of Business Services).

If you’re a buyer of language services, how this industry race plays out should prove very interesting in your planning. The core suppliers will continue jockeying for position, scale, and geographic coverage — this will have a profound impact on how you buy the services that keeps your company able to operate internationally.