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Labor, Location, and Capital Preservation

1 May, 2002

By: Susan Arledge

The events of September 11th, last year’s recession and the contraction by high-tech firms had a huge impact on site selection and real estate decisions for the call center industry. The most significant impact was the need by most corporations to preserve and protect capital due to the uncertain times. Every cost, especially those related to any non-essential business activity, was being scrutinized and all relocation decisions were analyzed thoroughly before approvals necessary to access capital could be obtained.

CAPITAL PRESERVATION

Decisions to open a new call center, which require a tremendous infusion of up front capital for furniture, fixtures and equipment (such as switches, generators, UPS and computers) were slowed, if not halted, until the future direction of the economy and the call center industry was better understood.

In-house customer service centers, the first point of customer contact for many companies, are critical functions that require retaining or hiring numerous employees. At a time when headcounts were being drastically reduced throughout the corporate world, the customer contact center function became a perceived liability. Wages, benefits, and start up costs forced some customer care teams to consider third party outsourcing firms as a way to preserve capital and reduce employee headcount internally.

EXCESS CAPACITY ISSUES

Soon after September 11th, third party firms began receiving requests for proposals from corporations to outsource their call center services and therefore, needed to quickly find cost efficient ways to serve these clients. Often, the client requested that the third party service bureaus locate the center outside the U.S. in order to bid more competively and meet the cost parameters. The impact of this additional demand on service bureaus forced them to hurriedly address their own excess U.S. capacity in their currently operating centers before being able to commit to opening centers outside the U.S.

AVAILABLE “PLUG AND PLAY” CENTERS

The closing of numerous call center facilities around the U.S. became a possible means of locating a new center without the time and start up expense of building a new center.

Announcements of call center closings from companies such as Gateway, US Air, Sykes and Stream International, placed a glut of “plug and play” call centers fully equipped with workstations, computers, switches, UPS, generators and other Telco equipment on the market, which encouraged call center firms to look at these options first as opposed to building a new center or retrofitting an existing building in their location of choice.

Additionally, other industries have been closing surplus real estate facilities, especially in the retail sector, due to corporate downsizing that were often well suited for adaptation as a call center. K-Mart and Target closed numerous locations, as well as several movie theatre closings, all of which make excellent candidates for conversion to a call center and can provide the required parking. Leveling the floors of a movie theatre and adding the required HVAC can be costly, but these renovation costs are often borne by the landlord. Areas that housed ticket windows are easily converted to reception areas and theatres or auditoriums are well suited to use for training facilities.

IS “LOCATION, LOCATION, LOCATION” REPLACING “LABOR, LABOR, LABOR?”

Call center firms have now begun asking their site selection consultants to find available “plug and play” call centers before they search other areas, thereby requiring that a city with existing options have a demographic and labor profile exactly suited to the call center’s desired employee profile. Often, this is not the case. Many of these plug and play centers were shuttered because they were in poorly performing labor markets or were located where the city’s employee profile did not match the call center firm’s requirements.

The flip side of the mass availability of these closed call centers is that there are numerous cities with excellent employee profiles and labor forces, but no real estate options quickly or easily made available. Most call center firms do not have the luxury of having sufficient time to complete a build to suit project; therefore, while real estate is seldom the “driver” for site selection decisions, having no existing real estate options in a city can quickly become the “eliminator” for many areas.

Kingston, Ontario received numerous inquiries from call center firms interested in locating a center in Canada and Kingston calculated a loss of over 2000 jobs in a six-month period as a result of having no suitable real estate options available. By working with local property owners, the Kingston EDC organization, KEDCO, quickly identified options owned by landlords or individuals that were willing to make all necessary tenant improvements to convert a building to call center use. As a result of this public and private sector team effort, KEDCO was able to attract StarTek to the Kingston area, and StarTek then opted to open not one, but two call centers in Kingston to take advantage of the labor supply and cooperative attitude of the real estate community and KEDCO.

Sprint PCS found the same community effort in place in Rio Rancho, New Mexico, which allowed them to complete a build to suit call center consisting of 75,000 SF in only 89 days. The Rio Rancho EDC put together a team that included the city, landowner, general contractor and architect. This team worked with the Rio Rancho EDC to proceed with grading the site, ordering steel and other long lead items, and completing construction drawings while the site selection and negotiation process was still occurring. Efforts such as these are allowing communities that might not otherwise be considered to become real alternatives for new call centers.

The effects of September 11th were harsh and they were immediate. Site searches were put on hold and many are just now starting to begin again. Cities in the U.S. must now compete with Canada and off shore locations such as India, Jamaica, and the Philippines due to the available labor supply and low hourly wages. The advantage held by U.S. cities is the abundance of real estate options, particularly former retail locations. Canadian and off shore locations tend to have fewer existing real estate options that are easily converted to a call center use, based on their historically conservative real estate development climate. The impact of capital preservation, the need for existing and available real estate, and consideration of the “plug and play” locations that have been vacated are making real estate site selection decisions often more driven by location than by labor.

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