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A Town's Future Is Leaving the Country

Mar 28, 2004 Top Stories - Los Angeles Times

By David Streitfeld Times Staff Writer

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.

See Travelocity Debacle

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 (news - web sites). "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. BBDaniel 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 (news - web sites) 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 (defeated in 2008) (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. (Note this failed and defaulted on their loans.) 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."

2004 Los Angeles Times

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