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Stream International to pull out of Kalispell- Opinion- Quick-fix approach to economic development produces another disappointment.-

Stream International, one of Kalispell’s largest employers, announced Tuesday it will close up shop by summer’s end.

By MICHAEL JAMISON of the Missoulian

The shutdown comes just three years after city leaders granted Stream a $4 million incentive package to entice the company to town.

Stream, which once employed about 900 workers, had been named the 2002 Montana Company of the Year by Gov. Judy Martz and statewide business leaders. Critics, however, had long maintained that the company did not pay a decent wage and should not have received public tax money as part of the incentive package.

Matt Skuodas, general manager of the Kalispell operation, said Tuesday that his company "has been adversely impacted by the economic downturn."

Stream provides over-the-phone help for computer users, contracting with computer and software companies to offer technical assistance to callers.

In the wake of the announcement, city leaders were meeting with attorneys, scrambling to determine their status with regard to the incentive contract between Kalispell and the company.

"We’re going to wade through it this afternoon," said City Manager Chris Kukulski. "I think it’s sound, but we need to walk through it line by line."

The incentive deal with the city was cobbled together by city, county, state and federal agencies, as well as the private sector. It included a $500,000 grant from the U.S. Department of Commerce Economic Development Agency, which was secured with the help of Sen. Max Baucus, D-Mont.

At the time, Baucus said "attracting high tech-oriented businesses that are willing to invest in quality training for their employees, like Stream, is essential to economic growth and creating good jobs in our state."

Tuesday, Baucus said "this is another blow for folks in the Flathead and it’s a blow to our efforts to boost Montana’s economy."

"I was proud to help bring Stream to Kalispell," Baucus said, "and I’m deeply saddened by today’s news."

Baucus said he is exploring the possibility of federal assistance funds for the 330 Stream employees who will be out of work by the end of August. It remains unclear whether that assistance would be extended to the 245 Stream workers laid off in April.

In crafting the incentive package, Baucus said, Kalispell’s leaders "did a good job in negotiating protective measures for the community in the event we ever faced a day like this one."

The bulk of the incentive package hinged on the city’s purchase of 50,000 square feet in the Gateway West Mall at a cost of about $2.5 million.

Stream moved into that space in August 2000, paying for capital improvements at the site, and signed a 10-year lease with Kalispell at $275,000 per year.

But so long as Stream generated at least 500 jobs (with 40 percent paying at least $9 per hour) and completed capital improvements as promised, the company enjoyed free rent.

(Technically, the company paid rent, but the city then reimbursed the company for its investment in the city-owned building. The result was a wash – the checks passed each other in the mail and no one owed anyone anything.)

The company, Kukulski said, is still on the hook for the duration of the 10-year lease, regardless of whether Stream operates in Kalispell, and now will have to begin paying rent.

"Worst-case scenario," Kukulski said, "is the city is standing here holding a 50,000 square-foot commercial building that has $3 million in recent upgrades that Stream paid for."

But according to Bob Kula, spokesman for Stream’s parent company, Solectron, the city is not standing there holding anything.

"We will continue to satisfy all the obligations to the city until we can sublet the site or until the lease expires," Kula said.

In other words, they’ll pay their rent.

Kula said the company had no choice but to close the Kalispell office, citing "ongoing economic conditions."

By that, he said he means a global downturn in the telecommunications and computer networking markets. Fewer big companies are outsourcing their technical help, he said, and customer demand is down.

That is the same rationale Stream offered back in April, when the company announced it was laying off 245 employees.

When the April layoffs were announced, revenue at Solectron was off 10 percent on the year, with stock trading at about $3 per share, down from $8 per share the year before.

The tough times do not appear to be universal, however. During the past year, Kula said Stream has opened new call centers in New York state and in Italy, with plans for another in Canada, and the company – with 10,000 employees around the world – continues to grow in locations outside the United States.

While offices in the United States generally are struggling, he said, "there is some growth at some (offices), yes."

He declined, however, to say which sites were growing, saying only that "we don’t provide site-by-site information."

Kula also said the company will not provide information about any possible severance pay for Kalispell’s laid-off workers, but he did acknowledge that employees will continue to be paid for the next 60 days, as required by law.

The company also has said it will work with local job placement agencies to help employees find new jobs.

"This was a very difficult decision, and not a reflection of how our people in Kalispell have performed," said Skuodas. "This is part of a broader company effort to return Stream and Solectron to profitability."

Reporter Michael Jamison can be reached at 1-800-366-7186 or at [email protected]

http://missoulian.com/articles/2003/07/09/news/top/news01.txt

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Hoped-for prosperity of Stream runs dry

Missoulian Opinion

SUMMARY: Quick-fix approach to economic development produces another disappointment.

Kalispell city officials wondering what to do with the 50,000 square feet of soon-to-be-vacant office space they have on their hands could use it for conferences addressing the folly of promoting economic development through subsidies. They certainly have some fresh material to work from.

This week, Stream International gave notice that it’s closing down its Kalispell telephone-based computer and software technical assistance operation, which at one point employed 900 people. Some $4 million in local, state and federal subsidies lured Stream to Kalispell, but managed to keep the company there for only three years. Community leaders thought they’d bought some jobs and prosperity, using tax dollars, but it turns out they only rented them.

Businesses have the profit motive to guide them in choosing where to locate and how to conduct their affairs. Businesses that make sound decisions prosper; those that don’t fail. Using subsidies to coax businesses to locations they otherwise would avoid can persuade businesses to build in the wrong places. Also, companies that shop around for communities offering the best package of subsidies don’t necessarily stop shopping once they’ve got your money.

Politicians often are eager to pony up economic incentives – using your money – to attract new businesses. It gives them the opportunity to crow about creating new jobs when seeking re-election. Of course, this style of economic development doesn’t always create jobs; often it merely moves them from one part of the country or world to another. In the process, people wind up paying higher taxes to court and attract new businesses.

This approach doesn’t make economic sense to begin with, and it’s especially futile for Montana. We often recall the advice Montana-born economist Lester Thurow of the Massachusetts Institute of Technology gave a few years back. Montana doesn’t have enough money to play the subsidy game, he said: "Texas will always outbid you, and the companies they don’t get, you probably don’t want."

So, how do we grow our economy? For starters, understand that economic development is a long-term, incremental process. Next, we have to make certain our state and communities are attractive to businesses – and to people. People follow businesses, and businesses follow people. Different approaches work in different communities. There’s no set combination that will produce prosperity everywhere. Communities need to play to their strengths while mitigating or at least recognizing their weaknesses. The goal should be to create an environment in which people and businesses can prosper. Then trust capitalism and the free market to do their thing.

This may seem the longer, harder road to prosperity. And maybe it is. But it’s also the surest one.

http://www.missoulian.com/articles/2003/07/10/opinion/opinion5.txt

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Employees have diverse views of upcoming job loss

By Morgan Winsor
The Daily Inter Lake

Jeremy Badley’s relaxed grin and posture while flicking ash from his cigarette during a break Wednesday outside Stream International hint at how he feels about his doomed job.

"It’s something that happens," he said. "What are you going to do, cry?"

Badley is one of 330 employees at Stream who will lose their jobs when the technical support center shuts down operations at the end of August.

Between puffs of his cigarette, Badley explained his backup employment plan.

"I’ll probably go back into aviation or something, like electronics," the 26-year-old technician said.

Stream’s parent company, Solectron, dropped the bomb Tuesday when it announced a decline in demand for its e-mail and technical support services had forced the company to shut down call centers around the world.

The news shocked some employees. Others saw it coming.

"It was a surprise, but we’ve all been expecting it," said Stan Grotberg, a 46-year-old technician who has been with Stream for almost three years.

In August 2000 Stream opened in a leased portion of Gateway West Mall. At one time the company had more than 900 employees.

The company has had periodic layoffs in its short history in Kalispell. In April, more than 245 employees were laid off.

Mike Anderson, 47, has dodged cutbacks for three years. When Stream closes, his plan is to "either go into some sort of Internet business or build choppers."

"Most of the people here were aware that things were looking bad," Anderson said.

One woman, a 32-year-old single mother who asked not to be named, said she was "shell shocked" when she learned the center would close. She said she would probably "go back to school to be a paralegal, something I’ve wanted to do for 15 years."

Brian Leonhardt, 37, has a "just take it one day at a time" attitude.

"I have no place to go except one foot at a time," the tech support worker said.

But 24-year-old Melanie Noel is elated about the company packing up.

Asked if she enjoyed her seven months on the job, she replied, "If you enjoy bending over and taking it."

Noel also has a backup plan when the company leaves town.

"I’m going to sit on my ass and play video games, collect unemployment and make babies," she said. "Just kidding. I’ll go back to school to become a psychologist."

Anderson said his time at Stream was worthwhile.

"It’s been a fun and rewarding experience for all of us," Anderson said.

Grotberg agreed.

"Yeah, there was lots of free pizza."

Reporter Morgan Winsor may be reached at 758-4421 or by e-mail at [email protected]

http://www.dailyinterlake.com/NewsEngine/SelectStory_AD.tpl?command=search&db=news.db&eqskudata=34-815612-53

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Stream jobs flow overseas

By MICHAEL JAMISON of the Missoulian

Company says it needs cheaper labor to compete

KALISPELL – Wages might be low in Montana’s Flathead Valley, but for the folks managing Stream International, they still aren’t low enough.

"The entire industry is moving toward lower-cost locations," said Bob Kula. "It’s the reality of the marketplace. We’re definitely restructuring our business and adding capacity outside the United States and North America."

That is to say, when 330 Stream International jobs leave Kalispell next month, they’ll likely head to foreign lands.

Kula is spokesman for Stream’s parent company, Solectron, and was in Kalispell early this week to announce the company is closing its shop here.

The shutdown comes just three years after city leaders granted Stream a $4 million incentive package to entice the company to town. At one point last year, the company was one of Kalispell’s largest employers, hiring about 900 workers.

Stream is in the "call center" business, providing over-the-phone help for computer users. Big outfits such as Microsoft contract with Stream, paying the company to offer technical assistance to callers.

Kula said the company had no choice but to close the Kalispell office, citing "ongoing economic conditions."

By that, he said he means a global downturn in the telecommunications and computer networking markets. Fewer big companies are outsourcing their technical help, he said, and customer demand is down.

But somehow, profits are not.

In paperwork filed with the Securities and Exchange Commission, Solectron stated that the Stream International arm of the company, known as Global Services, is operating well within the black.

"Net sales from our Global Services business unit increased to $247.6 million and $499.0 million, respectively, for the three and six months ended February 28, 2003, compared to $223.1 million and $364.9 million, respectively, for the corresponding periods in fiscal 2002," the company reported to the SEC. "This represents increases of 11 percent and 36.7 percent, respectively, for the three and six months ended February 28, 2003, over the corresponding periods of fiscal 2002."

In other words, business is booming amid a global technology downturn.

"They keep telling us the bottom line is hurting," said Wade Padgett, "but it sure doesn’t look that way."

Padgett is a four-year Stream International veteran, whose last day at the company’s Beaverton, Ore., site was Wednesday. His job, he said, is going to Canada.

"It’s really the first time where the company has come right out in a memo and said the jobs are going out of the country," Padgett said. "Usually, they say they don’t know where the contract is going."

In fact, Kula declined to say where the contracts once handled in Kalispell were headed. Instead, he spoke in generalities about an industry moving increasingly out of the United States.

Earlier this year, a report by Forrester Research Inc. estimated that 3.3 million call center jobs and $136 billion in call center wages will head overseas in the next 15 years. The Seattle Post-Intelligencer, in reviewing that report, estimated that the cost of operating a call center in New Delhi, India, was about half the cost of operating that same call center in America.

In addition, the annual turnover rate at U.S.-based call centers is about 200 percent. In New Delhi, turnover is just 3 percent per year.

Jack Heacock, director of the Telework Coalition, sees two major problems with the foreign country trend, in addition to the more obvious concerns related to exporting portions of the domestic economy.

First, Heacock said, is the problem of quality. Generally speaking, he said, the quality of service is better in the United States, where employees are better educated, with more cross-training and superior English language skills.

Second, he said, is a matter of security. Is it wise, he wonders, to give out personal information, transaction data and corporate commercial passwords to citizens of foreign countries?

Kula passes on discussing security, saying only that Stream is "always concerned about the security of our customers."

And as to issues of quality, Kula said "we believe that, across the board, we provide the same quality of service, no matter where the site is located."

But Padgett, with four years on the ground at Stream, disagrees. Service is far superior here at home, he said, and in recent years he often took calls from frustrated customers relieved to finally be speaking with someone who knew both the answers and the language – that is to say, someone in Oregon instead of Italy.

But Padgett is a realist, as well, and recognizes the market pressures his former bosses work under.

"I’ve never seen the business like this," he said. "It’s become competitive in a way it never was before. Clients are coming in and saying, ‘Lower the price of the service or else we’ll go with someone else or we’ll pull it back in and do it ourselves in-house."

In an environment like that, both Kula and Padgett agree, it makes some sense to hunt for cheaper labor.

"They’re out there to make money," Padgett said of Stream, "and nobody can fault a company for that."

Padgett does find fault, however, with what he says is the unsavory way Stream and Solectron conduct business.

The trend is repeated again and again, he said. First, the company finds a town with a depressed economy where people will work cheap just for the opportunity to work.

In fact, that is exactly why Stream International representatives said they were coming to Kalispell in the first place.

Then, the company demands a healthy incentive package from that depressed economy. In Kalispell, the incentive amounted to a $1 million loan and free rent, among other things.

Then, Padgett said, "they continue to look for somewhere cheaper. If the benefit of leaving outweighs the penalties, they cut and run for the next cheap labor pool. Their tactics, in my mind, are very predatory, taking advantage of towns that are really hurting."

And nowadays, when the company cuts town, it leaves to go out of the country.

Even as the Kalispell site is closing, Padgett said, a site just across the border in British Columbia "is growing fast. It’s bursting at the seams. They just leased more space, because they’re hiring so many people."

In Canada, he said, Stream can pay a lower wage and, thanks to nationalized health care, they’re off the hook for expensive benefits.

Canada, however, is only one place Stream is expanding even as operations in Oregon and Montana shrink and fold. Early last year, one of Padgett’s managers traveled to India to set up a new site.

Under the "what’s new" section of Stream’s Web site, the company touts three items: an event for European clients; a new manager in the United Kingdom; and an announcement of expanding services in Europe.

"Generally speaking," Kula said, "there are part of our business that are doing OK, and generally speaking those parts are outside the United States."

Sometimes, when the client’s contract is moved out of the states, laid-off workers qualify for assistance under the North American Free Trade Agreement, Kula said. But if a contract runs out and employees lose their jobs, then another contract is secured and given to an overseas site, NAFTA provides no assistance.

"That’s a real problem," Padgett said. "It’s like a shell game. It lets them say they aren’t moving jobs overseas, but all the new jobs are created overseas while the jobs here are eliminated."

He, for one, has applied for NAFTA assistance, he said, because his job went to Canada. The issue is pending.

But too often, he said, Stream site managers tell laid-off employees they don’t know where the contracts are going, that the information is held confidential by the corporation, and so workers do not know if they are eligible for NAFTA assistance.

"It just takes the fight right out of you," he said, "when you’re committed and loyal and then you don’t even get to see the guy who just eliminated you. You don’t know where your job went. The managers just say, ‘It came from corporate,’ and you never get any face-to-face. Who knows where your job just went?"

His Oregon site used to employ between 1,400 and 1,500 people, he said. Now, it has 300 or so workers.

"The problem I have with this," he said, "is they come in with all this talk about commitment to the community, commitment to the employees. Then, they pull out for some place where they can pay people $3 per hour. They don’t like to say it, but that’s what it is. They continue to lay off people here while they’re building and expanding sites in Canada and Europe."

But in today’s global market, outfits like Stream seem to have little choice if they are to remain competitive and keep the stockholders happy.

Writing in the February issue of Network World, analyst Toni Kistner noted that "call centers have always lost lots of money due to costly staff training and high turnover, which in turn has kept hourly wages low, which in turn attracts the least experienced and committed staffers, and around we go."

One solution, she said, is to tap places like India, where education levels are high, wages are low and turnover virtually nonexistent. In the past couple years, she writes, 200,000 call center jobs have been lost to India alone. Hundreds of others, she writes, are going to the Philippines and Canada.

Meanwhile, Stream’s site managers continue to receive bonuses for hitting call-volume goals or selling products to callers. The people actually handling the calls and selling the products, however, "never see the trickle down," Padgett said.

"We want to do what’s best for people," Kula said, "but we have to protect market share, as well."

Protecting market share, Padgett said, has meant moving jobs overseas and shortchanging employees at home.

"The manager would get a paycheck bonus for hitting call volumes, and he’d go through the room with a bowl full of candy to congratulate us," Padgett said. "Big deal. Thanks for nothing."

Reporter Michael Jamison can be reached at 1-800-366-7816 or at [email protected]

http://missoulian.com/articles/2003/07/11/news/mtregional/news06.txt

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