Dialing up call centers
A slumping industry shows signs of life
Published May 1, 2004 | May 2004 issue
The call center industry has had a challenging time since 9/11. Consider the fate of a call center in Ashland, Wis., owned by Advanced Data-Comm Inc. The Dubuque, Iowa-based company opened the Ashland center in 2000 only to close it after 9/11 as business plummeted. Advanced Data-Comm then reopened the center in fall 2002 with 30 employees, a workforce that has since doubled.
The up-and-down nature of the Ashland center epitomizes an industry often in a state of flux or, lately, a zig-zagging pattern headed mostly down. Reflecting the larger economy, the call center industry has seen job losses or static employment since 2001 in every state in the Ninth District. Even where activity rose last year, such as in South Dakota, the employment level has yet to reach what it was at the beginning of the decade.
A snapshot of telemarketing in the district shows the loss of hundreds of jobs in Minnesota, Montana and Wisconsin, with little change in employment in North Dakota. Surprisingly, state and industry officials said neither federal and state do-not-call lists nor outsourcing has greatly affected the industry, despite an intense level of media attention to both trends and the movement of call centers elsewhere in the nation to India, the Philippines and Ireland, among other countries.
While the industry is down, it is far from dead. John Sutter, director of marketing at Advanced Data-Comm, has seen employment at the company's six rural call centers rise from 700 in 2002 to 935 as of March 2004. Advanced, which also owns a large call center in Superior, Wis., has concentrated on conducting outbound marketing research calls and accepting inbound calls regarding customer service, order processing, product registration, third-party verification and other services.
Though Advanced Data-Comm's business has increased substantially, its good luck is not shared by the rest of the industry in the Ninth District. If its plight two years ago was in sync with other call centers, its success today remains somewhat unique. This company's winning in an industry that, as the numbers show, has been shedding employees for quite some time.
The big talkers
Getting a perfect view of the industry is difficult. A fair if unquantifiable bit of employment is in customer service and help desk operations owned by corporations but not counted as call center employment by states and the Department of Labor. Only one state in the Ninth District, South Dakota, separately tracks the number of help desk and customer service employees. A recent example of the difficulty of good numbers on call centers and the rapidity with which they change occurred in South Dakota a year ago.
In 2002 the state's call center employment rocketed up by 1,900 jobs because Gateway Inc., the computer manufacturer, began including its customer service department in the call center data, said Mary Cerney, director of research and marketing for the Governor's Office of Economic Development. A year later the state's call center employment dropped by 2,100 jobs, she said, the majority due to Gateway closing the call center.
Despite the problems in obtaining a perfect picture of call center employment, most states have a good idea of how many people work in them and what the trend looks like for the future. The largest number of call center employees in the Ninth District live in South Dakota, which surpassed Minnesota in employment last year.
The state has seen a high level of activity over the past few months, with Addax Telecom Inc. of Nashville slated to open a center employing 40 people in Pierre and a plan to triple the staff within three years. That city also scored a coup with Premiere Bankcard, which just opened a center that could employ 500 people within five years. The company already has more than 2,100 employees in the state.
Pierre's not the only place with activity. Sioux Falls-based Capital Card Services opened a new facility in Brookings with a staff of around 30 in 2002. And Milbank recently attracted a Phoenix-based Synergy Solutions call center that may hire as many 130 people.
Despite that activity, the state is still licking some wounds inflicted last year. Rapid City saw the closure of a call center owned by the retail and catalog company Spiegel, leaving 240 employees without jobs. Conseco Finance laid off 39 staffers in 2002 in Rapid City. A recent glance at a Sioux Falls commercial real estate Web site revealed six call center spaces for sale or lease.
South Dakota's call centers employed 3,800 people in 2003, said Cerney. Staffing in financial call centers, which the state breaks out in a different category, saw a decline from 9,400 in 2002 to 8,500 last year, she said, mainly due to a contracting economy. Still, with new centers opening and more in the works, this year looks promising.
"It's going to be a good year, it will be up from 2003," said Cerney. "We have put some announcements out, and we will have some new ones soon. One [call center] wants to be operational the first of April and we've got two or three others looking right now."
Minnesota ranks with South Dakota in the number of call center employees. Steve Hine, research director for the Minnesota Department of Employment and Economic Development, said call center staffing statewide plummeted from 4,977 in 2001 to 3,813 in the second quarter of last year, while the number of facilities dropped from 120 to 109. Though outstate call centers declined by just five to 74, they bore the majority of job losses. Third-quarter statistics showed a loss of another 400 jobs statewide.
"The lower cost of communications now makes these kinds of companies much more mobile nationally and internationally, and the skill requirements they have don't necessarily take advantage of our competitive advantage of having a population with a high education and high skill level," Hine explained. "With greater mobility and lower communications costs, it wouldn't be much of a surprise to see them go elsewhere."
They haven't entirely gone elsewhere. While the industry continues to wax and wane, call centers remain an integral part of the economy in northern Minnesota, where more than 3,600 people work in back office and call center operations for such large corporations as United Health Group, Qwest, Enterprise, Metris and Blue Cross/Blue Shield, said Chris Maddy, director of Arrowhead Business Connection, a partner-funded marketing group in Duluth. (The high number includes call center operations not counted in the state's figures.)
The region saw a 400-job gain in call center employment from 2002 to 2003, he said, due to expansions by existing clients and the opening of a handful of new call centers.
"These are good paying jobs, with starting wages from $9 to $13 an hour and a median wage at $14 to $15 an hour," said Maddy. "That's a good, healthy income for a lot of people. We see a lot of people using these jobs as a second income or as a way to get back into the workforce after losing jobs in other industries, like mining."
The small talkers
Northern Wisconsin, Montana and the Upper Peninsula have smaller populations of call centers. Wisconsin struggles to get statistics on call centers in the northern section of the state, but Beverly Gehrke, a regional labor market analyst with the Wisconsin Department of Workforce Development in Hayward, figures 1,500 to 1,700 people work for 15 employers, concentrated largely in Superior, LaCrosse and Eau Claire.
Montana's numbers for call centers appear decidedly in decline after suffering a huge blow when a Stream International Inc. call center in Kalispell closed last year, putting 330 people out of work. Teleperformance USA closed a Butte operation with 100 jobs last year, too, citing the do-not-call legislation. A call center operated by Englewood, Colo.-based Teletech Inc. may occupy Stream's space in the future, while enjoying a host of economic incentives the city has offered.
Several hundred telemarketing jobs have been lost in the past two years, said John Zavalney, a research specialist for the Montana Department of Labor and Industry. The telemarketing industry has a "history that's rocky; it grows rapidly and drops rapidly," he said.
Still, the state's call center industry shows small signs of life. Broadband provider Bresnan Communications of White Plains, N.Y., will employ around 90 people at a call center in Billings slated to open sometime in the future, said Marie Huff, a spokeswoman for the company's Montana operations. News reports show a handful of other firms considering Montana for future expansion.
The Upper Peninsula has only three call centers with a total of 300 employees, said Kathy Salow, regional analyst for the Michigan Department of Labor and Economic Growth. The U.P. had a call center staffed with more than 300 employees from 1998 until it closed in 2000, she said, but no operation since has had anywhere near that number of employees. The largest call center currently has 170 employees; another, 120. The region has been slow to try to attract call centers, but Iron County has begun to market itself to the industry, added Salow.
Trouble in Minot
North Dakota has aggressively courted telemarketers and back office call centers for years and seen great growth—until recently. "For 2002 and 2003 we did not see positive numbers; it was a status quo kind of thing," said Lee Peterson, the state's commerce commissioner. "It's just about static, with no growth and not much decline—it's staying where it is."
North Dakota employs between 2,000 and 2,500 residents working in call centers, he said, many for companies such as American Express, Medical Arts Press, Choice Hotels and Unisys. The state landed another win when Scottsdale, Ariz.-based Phase 2 Solutions Inc. announced last August it would open a center in Minot. Initially, the company reported it would have 125 jobs available, but Peterson said employment will likely go as high as 225 positions over the next year. PepsiAmericas also announced last year it would establish a call center employing as many as 230 people in Fargo.
But the state has also taken some hits. Sykes Enterprises Inc. laid off 100 employees last year in Bismarck, and Z-Tel Technologies Inc. laid off 167 employees in 2002 in Minot. WebSmart Interactive, created in Minot by a group of prominent business people with connections to Gov. John Hoeven, closed last year. The move threw 207 employees out of work and prompted an investigation by the Fargo Forum that revealed the Minot Area Growth Through Investment and Cooperation (MAGIC) Fund provided generous grants to at least four call centers, despite what the paper called flawed accountability measures.
The WebSmart debacle has former employees waiting for more than $200,000 in back pay from a company that received more than $2 million in subsidies. The state attorney general is investigating the company, and two other states have launched probes of its sales operation. Ironically, Phase 2 Solutions will move into the firm's former offices.
Peterson, who was the president of MAGIC when WebSmart received its assistance, conceded the deal with the company should have been studied more thoroughly. Local development agencies so badly want locally founded companies to succeed that they sometimes "take more risks than they would if the company came from out of town," he said. The WebSmart case will force the state's development agencies and his own office to more closely watch where and how their dollars are spent, he said.
Beyond a slack economy, the industry faces the twin challenges of do-not-call legislation and outsourcing. Though the lists do not appear to have affected the Ninth District yet, the impact has been felt elsewhere. "In our survey we've seen a reduction of 50 percent of calls being made daily, which means 54 million calls are no longer being placed every day, and it doesn't take a rocket scientist to figure out fewer calls means fewer humans are being employed everyday in the industry," said Tim Searcy, executive director of the 650-member Washington, D.C.-based American Teleservices Association (ATA).
With the do-not-call lists gaining popularity, companies have begun directing money out of telemarketing and into direct mail and other marketing channels, said Searcy. The double-digit annual growth once seen in an industry ATA estimates has 6.5 million full- and part-time employees will no longer occur, he said, and work will continue going overseas where cheap wages and an educated workforce are available.
Gary Cohen, president of Minneapolis-based ACI Telecentrics Inc., does not see it that way. Many people who signed up for the federal do-not-call list had already added their names to similar lists maintained by the ATA, the Direct Marketing Association and individual states, noted Cohen. The new list will probably result in a 15 percent decline in the number of people telemarketers can call. "That's why it didn't have as much of an impact as expected," he said. (In the Ninth District every state has a do-not-call list, and those residents who sign up will automatically be added to the federal lists.)
Outsourcing remains a growing issue as Indian companies, for example, continue to attract business and train employees to speak more like Americans. Still, not one Ninth District company or economic development agency reported having directly lost business to overseas call centers, and several people interviewed pointed to the decision by Round Rock, Texas-based Dell Inc. late last year to pull business out of an Indian call center and bring it back to the United States after hearing complaints from customers.
Cohen said he's heard rumors that American Express and General Electric will bring or are bringing call center jobs back to the United States after seeing language and quality issues emerge. "I'm not job-biased, I'm not a built-in-America person, but I think what we've seen in this area is problems with the quality of the work," he suggested, while not dismissing the reality that India and other English-speaking countries will compete for jobs.
If the poor performance of some Indian call centers does not stem the outsourcing tide, the political environment of the country just might. The issue over outsourcing will heat up during the presidential campaign, and Congress may debate a policy curtailing the flow of jobs to other countries, said John Boyd, a Princeton, N.J.-based location consultant.
Barring federal intervention, call center operators still believe they can compete with overseas call centers. Cohen's answer to competition is to continue operating a host of largely rural Midwest call centers—including two in the Ninth District—that will survive based on "high quality services at a lower cost," he argued. "We've gone to rural communities because we could get high quality labor, much better labor than we could get in urban areas and at a lower cost."
Advanced Data-Comm's Sutter agreed. "I won't tell anyone not to worry about that trend, but we haven't seen a lot of our business go overseas," said Sutter. "Our customers like our low hourly rate, and in the industry as a whole we have seen a few companies coming back from overseas because they're not getting the service levels [American call centers] can provide. We're seeing it trickle back now."
Boyd, a fan of the region who has placed more than a few call centers in the Dakotas, said the region's excellent colleges, low costs, a solid workforce and communities willing to provide economic incentives appeal to the industry. As the economy picks up, he believes companies will stop "cutting costs to the bone" and add call center activity to service existing customers and attract new ones.
Call centers will continue to open because industries still need them to service, survey and sell to customers. "The call center industry is still the fastest growing industry in the country in terms of generating new jobs because there are so many legs—from help desk to publishing to fulfillment to the pharmaceutical industry, with prescription drugs by mail a growing sector—driving this industry," said Boyd. "And it has so many levels to offer employees, from entry-level low-skill jobs that are wonderful alternatives to fast-food and retail positions, to sophisticated, technical jobs."
For Americans tired of telemarketers, that might not be good news.