The 1,500 residents of Clintwood learn the meaning of outsourcing the hard way.
By David Streitfeld
Times Staff Writer
March 28, 2004
CLINTWOOD, Va. — This remote Appalachian town doesn't get many
visitors, but every day it sends thousands of travelers on their way.
If you buy an airline ticket off the Travelocity website and need to
call with a change or a question, the phone rings here.
The Travelocity call center brought 250 jobs to a community wounded by
the decline of coal mining, its mainstay for a century. It plugged the
town's 1,500 residents into the global high-tech economy, offering the
prospect of a secure future.
That illusion crumbled last month
when Travelocity fired Clintwood, saying it would close the call center
by year-end and move all the jobs to India. The Internet, far from
being the town's salvation, is threatening it with collapse.
Opened fewer than three years ago, the center is the largest private employer in the county.
"I figured it would be here forever, like Wal-Mart," said Greg Owens,
29, who joined Travelocity after being laid off from a job at a private
school in northern Virginia. "Most of us are just praying for something
else to come in."
The closing of the call center in Clintwood
and two others in nearby towns demonstrates American companies'
increasing efforts to outsource jobs to India, the Philippines, Russia,
Malaysia and other far-flung places.
As high-speed data cables
wire the world, locales with cheap labor can gain jobs — and those with
expensive labor can lose them. The call center clerks in Clintwood
start at $8 an hour. In India, their replacements will earn less than a
quarter of that.
These towns' struggles also show some of the
difficulties that many communities will encounter if, as experts
predict, outsourcing continues to grow. More than a quarter of the 2.25
million call-center jobs in the U.S. are expected to go offshore.
The towns are painfully learning that they need to develop jobs,
companies and resources that can't be easily relocated. But that isn't
a simple mission for low-wage, low-skilled workforces like those in
Appalachia. Like much of rural America, the area has seen a brain drain
for decades.
Some critics see no hope. "Unless we can reverse
some of these trade inequalities, the working class will simply be
ruined. They'll flip burgers, go on welfare or sell drugs," said Lewis
Loflin, an adjunct professor at Virginia Highlands Community College in
nearby Abingdon who runs a website criticizing the region's failed
efforts at economic development.
Corporations have been moving
U.S. factories to other countries for decades, but the trend has only
recently caught on with office workers like those in Clintwood. Many
economists contend that so-called offshoring is healthy, that dollars
paid to workers in other countries ultimately return to America to be
spent on goods and services.
By reducing costs, outsourcing
also allows companies to lower prices, which benefits consumers. In
theory, at least, companies will take their savings on labor and use
the money to expand, which should ultimately include more hiring in the
U.S.
All this is cold comfort for tens of millions of office
workers, many of whom feel vulnerable. In this election year,
offshoring has blossomed into a potent issue.
Until recently,
Appalachian towns such as Clintwood were an outsourcing destination,
not a victim. Companies that wanted to cut costs could hardly find a
cheaper place in America. With that salary of $8 an hour plus benefits
— something almost unknown in these parts for entry-level jobs —
Travelocity had no trouble attracting employees.
Amanda Rose, a
19-year-old college student, left a clothing store for Travelocity. But
before she could start, the Internet company announced the shutdown.
Her old job already had been filled. "I had a pretty good job, then
here comes this great job, and two days later I have nothing," Rose
said. "It's hard to find a job in Dickenson County. It's so hard. There
aren't any opportunities for younger people."
The disappearance
of Travelocity will send more young people like Rose to such cities as
Knoxville, Tenn., and Roanoke, Va., further eroding the fabric of the
community. "We're becoming more and more Third World here," said Bill
Deel, a retired English teacher. "The best and the brightest leave."
The joke among the town's citizens is that the only secure jobs are at
the new state prison, because they're not going to be shipping the
convicts to India anytime soon. There are several new lockups around
the county, which a lot of people have mixed feelings about.
"It's not quite as bad as being a nuclear waste dump site," said John
Clay Stanley, director of the Dickenson County Chamber of Commerce.
"But we're the dumpsite for human misery."
Even with the
Travelocity jobs, Dickenson County was in a precarious position. With a
population of 16,000 and falling, the county leads Virginia in the
wrong statistics. Per-capita income here is half the state average, but
the suicide rate is 66% higher. Unemployment is in the double digits.
Like most community officials, Stanley refuses to be pessimistic. But
the abruptness of the Travelocity announcement was unnerving.
"A few weeks ago, I was watching a TV program showing how
customer-service people in India were being trained to speak with a
Southern accent," Stanley said. "I didn't realize I was seeing our
annihilation."
Travelocity says it is only doing what its
competitors have already done. Sykes Enterprises, which runs centers
for Fortune 500 clients, is also cutting back sharply in the region. It
shut one center in eastern Kentucky in January and has slated the
second for extinction next month. Those jobs are going overseas too.
At the heart of offshoring is the question of what a company owes its
workers and its community. It's a topic with particular resonance in
Appalachia, where the coal companies once owned everything and the
miners had to fight for basic human rights.
Fifteen years ago,
the primary employer in Dickenson County was Pittston Coal. Like
Travelocity, it was losing money. So Pittston cut benefits for retired
miners and their widows. The miners responded by walking out. Hundreds
were arrested for civil disobedience. Violence flared as the strikers
punctured tires on coal trucks. The strike lasted nearly a year, the
bitterness far longer.
Two years ago, Pittston sold its holdings. Mining is still a big business here, but ownership is fragmented.
Travelocity promised a much warmer relationship. Employees would even
get stock options. "We plan to stay and be a part of the community,"
one executive, Jim Marsicano, said at the official announcement
ceremony in May 2001. "Our employees are a family. Every company says
that, but we're a little different than most companies."
Another executive, N. Russell Smith, told the local newspaper, the
Dickenson Star: "We hope people will feel that, from top to bottom,
they are just as important to this company as the highest executive."
Local development officials were so happy to land Travelocity that they
loaned the company $250,000 for employee training. They also rounded up
$1.6 million in government funding to build a day-care center. The
goal: keeping the employees — and therefore Travelocity — happy.
A few years later, the company's promises are remembered with weariness
and the money with regret. Travelocity didn't turn out to be so
different after all. But the techniques used by workers against the
mining companies no longer apply.
"The situation with Pittston
was physical," said Will Mullins, 22, a Travelocity operations manager.
"We could block the roads and block the trucks, and there was no way
they could get the coal out. But there's no way to block the Internet.
If we tried to do a strike, they'd just ignore us."
Travelocity, like other companies, is doing what it takes to survive,
he added. "They'd cut our throats if it meant the stock price would go
up a quarter." The company, a division of Sabre Holdings in Southlake,
Texas, was an early leader in the Web travel business, but in the last
two years its market share has been falling against No. 1-ranked
Expedia and the up-and-coming Orbitz. Trying to remedy that situation,
Travelocity has launched an $80-million ad campaign featuring a gnome
that roams the world.
Some workers at the call center don't
understand how the company can afford the "roaming gnome" but not them.
One created a computer screen-saver that parodies a popular MasterCard
ad: "An hour of Indian labor: $1.50. Roaming gnome: $80 million.
Costing 250 employees their jobs: PRICELESS."
Travelocity,
which says it will save $100 million over several years by closing the
call center, emphasizes that it's trying to be a responsible corporate
citizen. The company gave the employees 10 months' notice.
It
is encouraging them to apply for higher-paying sales jobs at its two
remaining U.S. call centers, in Pennsylvania and Texas. It will
subsidize medical insurance for three months after the center closes
and refund some of those training grants it got from the state.
The one thing it won't do is keep the center open. "We feel this is the
right thing," said Michelle Peluso, who became Travelocity's chief
executive in December.
Offshoring will play a significant role
in making the company solidly profitable for the first time, executives
say. Travelocity lost $55 million last year because of what Peluso
called "our share of missteps." Much of the management team has
changed, although Travelocity's former chief executive, Sam Gilliland,
was promoted. He is now chief executive of Sabre.
In a
financial document announcing the call center's closing, the company
said it had been trying to cut costs but "attrition levels" were a big
reason it wasn't successful.
"It was $4,000 in training every
time we hired someone new," Peluso said. "Many people made the
economics tougher by choosing not to stay with Travelocity."
Did Clintwood, then, fail Travelocity? The call-center workers
acknowledge that many new hires worked briefly and quit, unable to
endure the cranky customers and strict regimen. Suddenly, $8 an hour
didn't look that good.
Daniel Kincaid, a Travelocity
employee, rejected that view. "Maybe if Travelocity had invested a
little more in people, if it had paid them a little better, it would
have slowed down the revolving door," he said.
If people in
Dickenson County feel sad and disgruntled about Travelocity, across the
border in Kentucky they're downright angry at Sykes Enterprises, which
is transferring about 700 jobs overseas with the closing of call
centers in Hazard and Pikeville.
"A community like this is full
of salt-of-the-earth, down-to-earth, hard-working people," said
Pikeville City Manager Donovan Blackburn. "They're tickled to death
with $6 an hour. This was a win-win situation. We put together a
lucrative tax incentive package for Sykes. And then when the package
ended, they just ran."
The Sykes centers were announced by
President Clinton during a 1999 visit to Hazard. The economy was
booming and jobs in the big cities were hard to fill. It seemed to many
that the good times would go on forever. The poorest part of America
was finally about to participate.
Kentucky Gov. Paul E. Patton
called it "a great day for the new Appalachia." Clinton hailed Sykes
for making "a major commitment," as chief executive John Sykes stood by.
"Sykes and Patton went arm in arm," recalled Hazard Mayor Bill Gorman.
"I figure Sykes might have picked the governor's pocket."
In
both Hazard and Pikeville, Sykes received at least $3 million under a
state program that taxed the mining of coal to provide funds for
development. Sykes' facility in Hazard was built in Coalfields Regional
Industrial Park, nearly all of which is still vacant.
Hazard,
though, is more vibrant than Clintwood. Globalization may have taken
away the call center, but it's brought many Indian doctors to Hazard's
regional healthcare center.
During a brief tour of the town,
Gorman pointed out the new 120-bed veterans center, the expanding
Appalachian Regional Healthcare complex, the spot where a Lowe's home
improvement store will be built and the nearly finished Wal-Mart that
is double the size of the old Wal-Mart.
The loss of the Sykes jobs can be borne. But Gorman and other Hazard leaders feel betrayed anyway.
"You come into a small town and raise hopes, I think you have some
commitment," said Charles Housley, a development executive with
Appalachian Regional Healthcare. "Corporate integrity is another thing
that's leaving this country."
An assistant in John Sykes'
office in the company's headquarters in Tampa, Fla., said the chief
executive was on a round-the-world tour and there was no way to reach
him.
Subhaash Kumar, senior director of investor relations,
said Sykes was closing its U.S. call centers and opening new ones in
such places as the Philippines, Costa Rica and India for one reason:
Its clients, which include the consumer Internet operations of
Microsoft Corp. and SBC Communications Inc., were insisting on reducing
their costs.
"This is client-driven," Kumar said. "Our clients tell us where they want the centers to be, and we do it."
Even if Rep. Rick Boucher (D-Va.) succeeds in his efforts to find a
replacement for Travelocity, Dickenson County has gotten the message:
Concentrate on the things that can't be taken away, the things that are
homegrown and small scale. This fall, a museum is opening in a former
funeral home that will celebrate the area's most famous son, bluegrass
musician Ralph Stanley. And there are plans to exploit the region's
harsh natural beauty for tourism.
Still, there's no way around it. Barring good news, Travelocity's departure will be a major blow.
"Economists are saying all this offshoring will be good for the economy
in the long term," said Clintwood Mayor Donald Baker. "I guess the
question is, what do these people do in the short term?"
In the
short term, Travelocity agent Charlie Dotson knows what he'll probably
have to do — the job that killed his uncle in an accident and that gave
both his grandfathers black lung disease. It's something he has tried
to avoid, but now he's 30, with two children and too few options.
"I'll go work in the mines," Dotson said. "It's the only job here where you can make a decent living."