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Lessons towns can learn from Sykes' downsizing

Two small Oregon towns show the right way and the wrong way to prepare for a major business closure.

By SCOTT BARANCIK
Published August 16, 2004

TAMPA - What do city leaders in Bismarck, N.D.; Morganfield, Ky; Wise, Va.; Ponca City, Okla.; and Sterling, Colo., have in common?

Heartburn, perhaps, over Sykes Enterprises call centers.

Sykes is closing its U.S. call centers at a rate of one a month. Although five cities so far have escaped the guillotine, any one of them might be lopped off next as the Tampa company pursues cheaper labor overseas.

The tales of two rural towns in Oregon - Milton-Freewater (pop. 6,470) and Klamath Falls (pop. 19,642) - may offer some clues for the city leaders on how to protect the jobs of local Sykes workers.

Lesson #1: Assume Sykes is going to close your call center, too.

Cheap labor is luring companies such as Sykes, which provides customer service for clients including American Express and Procter & Gamble, to move their call-center operations overseas. Company officials say it's the only way they can meet client demand for lower-priced services.

In 2004 alone, the company has given nine of its U.S. call centers the pink slip, including its two Florida sites. Why not assume yours will be next?

That's what Klamath Falls, a former logging community near the California border, did last year.

At the time, city officials were well aware Sykes had closed several U.S. centers. They also knew Sykes' local head count was falling.

So when Sykes announced in late 2003 that it would lay off all but 80 of its Klamath Falls staff, city leaders saw the writing on the wall.

"We had been monitoring (the center) for some time," said Trey Senn, executive director of the Klamath County Economic Development Association. "It had just been kind of a slow leak."

Officials in Milton-Freewater, where Sykes was both the top employer and taxpayer, also knew about the closures elsewhere. But deputy city manager Linda Hall said the town felt secure, partly because Sykes' local head count had been relatively stable. The March announcement that Sykes would close its facility there and lay off all 264 workers came as a shock.

Lesson #2: Take the offensive.

After Sykes said it would cut its Klamath Falls staff to 80, city leaders called the company with a point-blank question: Would you be willing to sell or lease your property if we found a new tenant?

The fact that Sykes said "Yes" made it clear the company was not planning to revitalize its Klamath Falls operation, Senn said. The response commenced a round of negotiations, which concluded when Sykes agreed to sell its 20 acres, 42,000-square-foot building, and all the furniture, computer equipment and cabling inside for $4-million. Sykes spokesman Jeff Tucker said the company lowered its price to help the community.

"We all thought," Senn said, " "Let's just find another company. We've got the people, we've got the fiber (optic cable).' "

In Milton-Freewater, an agricultural and mining community near the Washington border, officials sought a similar package from Sykes, minus the $4-million price tag. In a March letter to then-CEO John Sykes, city manager Delphine Palmer said the community deserved to get the building and land free of charge because of incentives it offered the company "in good faith" in 1998. Among other goodies, the city took out a 20-year, $2.2-million loan from a local bank and gave the cash to Sykes.

Sykes refused. After all, Tucker said, the company never guaranteed Milton-Freewater a particular number of jobs, wage level or length of stay.

Klamath Falls' Senn sympathized, however.

"I think every community that had a Sykes facility probably thought about or wrote a letter saying, "Would you donate the facility?' " he said. "But I didn't think there'd be any use to it. They're a for-profit business."

Lesson #3: Act quickly.

Klamath Falls didn't waste any time when it learned that a growing Virginia company was seeking to lease additional call centers.

By Thanksgiving, two months before Sykes was to close its Klamath Falls facility, Senn was meeting with the anonymous company's representatives in New York and Washington, D.C. The company said it would sign a 10-year lease at $10 per square foot but wanted a quick turnaround.

A group of city leaders dubbed "Team Klamath" went into action.

Fearing a bank loan would take too long, they borrowed $4.5-million from the state's strategic reserve fund at 5 percent, bought the building from Sykes, and sank the remaining $500,000 into renovations. City and state officials also offered the company $400,000 for employee training.

The fast work paid off. Privately held NEW Customer Service Cos. of Dulles, Va., which handles phone calls concerning extended warranties on computers and other goods, chose Klamath Falls over several competing cities.

"It wasn't the best incentive package out there," senior vice president for operations Ray Zukowski told Oregon Business. "What Klamath Falls did a great job on is driving a stake in the ground on ownership and partnering with us."

Tucker said Sykes deserved much of the credit. "In all of those instances, Sykes was the catalyst that brought in a new employer that saved jobs or even created more."

Lesson #4: Keep your expletives to yourself.

Milton-Freewater admittedly was a little angry at Sykes. The Tampa company arrived in 1999 with a flourish and, according to city officials, tried to quietly head out five years later by faxing a goodbye letter to Mayor Lewis Key.

But deputy city manager Hall said company officials didn't like it one bit when they picked up the newspaper in March and read bitter quotes she and others aimed at it.

It may be just a coincidence that Milton-Freewater recently lost out to Hays, a town in Kansas (pop. 20,013) and site of another ex-Sykes call center, for yet another contract with NEW Customer Service Cos.

In February, Hays officials took out a full-page newspaper ad thanking Sykes for its contributions to the local economy.

Lesson #5: No guarantees, no goodies.

Companies such as Sykes and NEW have their choice of job-starved communities. They usually seek financial incentives, and competing cities fall all over themselves with juicy offers.

But the Sykes experience taught Klamath Falls officials to bargain harder for guaranteed jobs, wages and tenure.

"With Sykes, we had committed $200,000 of grant money in return for a guarantee of 200 jobs for one year," Senn said. "When we did it all again this time, the state asked for at least 400 full-time jobs for five years. And NEW was excellent on it, said "Yep, no problem.' "

The NEW facility already employs 560 workers. When Oregon Gov. Ted Kulongoski swung by recently to congratulate the community and NEW chief executive Fred Schaufeld, city officials presented him with a bottle of "Ted and Fred's Brand NEW Brew."

What about Milton-Freewater? Sykes canceled its closure notice in May after obtaining some new work. A small crew still works there; the search for a new tenant continues.

Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.

[Last modified August 14, 2004, 00:24:12]

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