Nearshore Americas

Trauma Endured by Startek is Powerful Lesson for Global Outsourcers

By Narayan Ammachchi

Although most globally focused call center operators have gotten back on their feet from the crippling impact of the great recession of 2008-2009, one player has struggled mighty to get back in the groove. That player is Startek and its trauma over the last few years is a pointed lesson on the grave vulnerabilities global services players face when they are overly focused on one vertical and how that vertical – in this case, telecom – finds cheaper customer care solutions.

Over the past four years, Denver, Colorado-based StarTek has shut down as many as 13 facilities and reported losses quarter after quarter. Though the company has recently opened a new facility in Denver and hired hundred more employees, the scars left behind by the recession have yet to heal.

Founded in Greeley, Colorado in 1987 as a packaging company, StarTek has come a long way to make its mark in the global outsourcing industry. With over 9000 employees, it mainly provides call center support for customer service departments of telecommunication companies.

When the economic storm started to sweep through the United States, businesses of all stripes looked for ways to cut cost. Many outsourcing service providers snapped up more businesss, but not all were so fortunate.

Customers in the Driver’s Seat

StarTek’s trouble started when telecom carriers like AT&T and T-Mobile USA started cutting cost. Before the recession struck, these two operators accounted for more than 70 percent of StarTek’s revenue. “StarTek has over 80% ($225 million) of their revenue sourced from AT&T and T-Mobile,” writes King White, President of Site Selection Group, which helps businesses with locating labor and capital intensive projects.

Dwindling contracts started to impact StarTek’s balance sheet, forcing the company to close some of its call centers. For StarTek, the biggest loss came when T-Mobile decided to close seven call centers in the first half of 2012 following its failure to be merged with AT&T.

Soon after, AT&T dealt another blow when it unveiled a plan to automate some of its customer care services. Such an act destroyed a large number of call center jobs in US, but AT&T’s spokesperson, Emily Edmonds, defended the move saying it was “necessitated by changes in customer behavior, including increasing use of technology to choose convenient self-service options rather than calling our centers.”

Using smart-video technology from SundaySky, AT&T rolled out a service that allowed customers to crosscheck their monthly bills by watching a video clip with computer animation and voice narration.

“Providing outsourced customer service and technical support to T-Mobile and its competitor, AT&T, generated 78 percent of StarTek’s 2011 revenue, which declined 17 percent from $265 million in 2010,” according to a report in the Denver Business Journal.

“StarTek generated more than $43 million from its work with T-Mobile in 2011, which was 20 percent of StarTek’s $219 million annual revenue. That’s down from the nearly $61 million it made with T-Mobile in 2009,” the Journal said citing the company’s filings with the Securities & Exchange Commission.

When reached by Neasrshore Americas, Startek declined to answer questions regarding its financial health. “We are a public company and are subject to rules and regulations about forward looking statements,” replied Rosemary Hanratty, StarTek spokeswoman.

Onshore Messaging

When Cincinnati Bell outsourced some of its customer services to StarTek, Chad Carlson, StarTek’s president and CEO said: “StarTek’s focus has been on keeping jobs in the U.S. We are part of the Jobs4America program and are committed to creating and keeping contact center jobs onshore.” Chad Carlson, an industry veteran, replaced Larry Jones as CEO and president after Larry shareholders ousted Larry for declining losses.

But analysts say running call centers are tough in United States because of a lack of experienced professionals willing to work for relatively lower salary. “Finding talented staff is very tough for call centers in US. The problem is StarTek has to compete with its rivals to find and hire talented customer care agents,” said Peter Ryan, a leading analyst with Ovum, a London-based business analyst firm.

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When telecom operators started cutting cost following 2008 global financial crisis, StarTek went to open centers outside the United States, first in the Philippines, then in Costa Rica and Honduras.

“I think things have just started to improve for StarTek. If the management becomes more proactive, it will be able to turn business around,” added Ryan.

StarTek has recently opened a new office facility in Colorado and has employed about 500 people.

With presidential election campaign at full swing in the US, Communications Workers of America are urging the Congress to pass a legislation banning offshoring of call center jobs. But Ryan says StarTek does not need to bother, because, he says, such a law is less likely to be passed.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

1 comment

  • Wow, Sitel op-ed piece that passes as investigative journalism. Last time I saw one of these was when some other competitor encroached. Guess Startek was just the latest? Nice to have the bank to pay for these!