My neighbors have promoted the idea of bringing a call center to Madison to boost the local economy.
Alas, just like Midco picking North Dakota over South Dakota in May, Stream Global Services finds our income-taxy neighbors Iowa and Minnesota more appealing places to work than low-tax/no-tax South Dakota. Stream is closing its call center in Vermillion:
Stream Global Services announced Thursday that it will be shutting down its facility here, which employs more than 150 people, near the end of October.
According to a statement released by Joe Thornton, Stream's senior director of brand management in Bloomington, Minn., "The company is realigning resources across some of our U.S.-based facilities to better support our client needs and long-term business objectives. The affected client workload will be absorbed within our U.S. operations."
...Stream's service center in Vermillion is located in a 20,000-square-foot building at the intersection of Cherry Street and Highway 50 on the city's western edge.
The company's Sergeant Bluff facility is much larger — 148,000 square feet — and can accommodate approximately 1,200 workers.
...Stream is also pursuing plans to make a major investment in Minnesota, in the Twins Cities area. MorrisAnderson, a financial consulting company with offices in Chicago, reported that Stream is seeking up to $2 million in funds from the state of Minnesota related to its plans to move its headquarters from Wellesley, Mass., to Eagan, Minn. [David Lias, "Vermillion Call Center to Close," Yankton Press & Dakotan, August 24, 2012]
Vermillion has a much larger population of student workers than Madison, yet even that community couldn't hold on to a call center against the competing advantages of the Omaha and Twin Cities metros. Our low taxes didn't keep Stream here. If companies want low wages, they'll do like Verifications Inc. and find even cheaper labor in Arizona and overseas.
So if the economic development secret sauce isn't low taxes, and it isn't low wages, what is it?
Your cause vs effect argument is illogical so the question you pose can't be answer correctly. You are assuming that the only reason they chose to leave was because the low wages and low taxes didn't offset their costs and allow them to keep their profit margins. Many companies like this reduce the number of locations strictly from a logistics standpoint. Assets in other areas may have been easier to expand and incorporate the increased workload. Having centralized locations also increases communication which can increase efficiency. Another consideration could be the possibility that they are expanding their operations as far as industry goes and they are looking to have more employees closer to their customers. There are many reasons that come into play when making these decisions and unless you know something the rest of us don't, it is illogical for you to make the inference that you did.
In all honesty, call centers are on the decline for many reasons and local taxes and wages aren't one of them. There have been laws put into place that have affected many industries that these call centers have worked for. Mainly here in SD, credit card processors took a hit. Companies like Premier had actually switched their operations to bring their call centers in house for certain niche markets that they used to farm out. You should consider this closure a win in your book since I am sure you are against some of the credit card operation around here. I'd be willing to bet that the decreased financial activity in our area plays a bigger role in the decision than your taxes and wages argument.
Right, and where do they choose to reduce costs? The state with low wages and low taxes. The state advances the hypothesis that low taxes and low wages are key to economic development. This counterexample undermines that hypothesis. You yourself agree: there are many reasons beyond low taxes and low wages that come into play. Thank you for reinforcing my logic.
It may be as DB says that consolidating operations to fewer locations provides greater efficiency. It may also have something to do with the $2 million the company is looking to get from the state of Minnesota to move their headquarters.
If all of the states would get together and agree to stop doling out corporate welfare using taxpayer dollars for the purpose of shuffling the deck we could either cut taxes or direct more money toward priorities, or a combination of both. Paying companies to move from one state to another may or may not benefit the new state over the long run, but it doesn't benefit the nation at all to move companies from one place to another - unless the companies (and jobs) move here from Canada or some other place.
When all states play this game it wouldn't make sense for one state to unilaterally disarm it's welfare doling program. The states ought to get together to form a union so they can work together instead of at odds with each other. Wait. They already did that a couple hundred years ago.
Low wages and low taxes are key to economic development and it surely isn't the only thing our state touts as reason for business development as you like to imply. Without the customers to keep the business going, it won't matter because you won't have work to do. Don't be surprised if more call centers leave. Their work is on a severe decline in this state.
No, DB, if call centers are in decline, other factors besides low taxes and low wages must be key. The regs you refer to on call centers are national, not state, so that's a non-unique issue.
As for how South Dakota promotes business development, let's look at the positioning lines currently rotating on the SD-GOED website:
(1) Here in South Dakota, experience a tax climate as free as the country they built (over pic of Washington on Mt. Rushmore)
(2) Our sunsets will take your breath away. Our top-ranked tax climate will give it back.
(3) You won't find any red tape here. We have better uses for the color red.
In the web version of our elevator pitch, two of three messages we send are "Low Taxes!" As I've said before and as Stream's Vermillion shuttering affirms, that line isn't nearly as key as Pierre or DB think. Minnesota beats South Dakota on business success because those taxes folks pay produce a return on investment in the form of public services.
"The regs you refer to on call centers are national, not state, so that’s a non-unique issue."
And where do a majority of these businesses reside in the country? South Dakota. They are located where a majority of the business is, or was. Everyone from the guy doing the landscaping on their office buildings has been affected by the credit card laws that have been put into place. There is no denying that.
"As for how South Dakota promotes business development, let’s look at the positioning lines currently rotating on the SD-GOED website:"
How about we look at all of the points they make and just not what is in some rotating banner?
(1.) Unionization
(2.) Cost of living Index
(3.) Average cost of community hospitals per patient.
(4.) Educational Attainment
(5.) Student per computer ratio.
(6.) Index crimes per 100,000 population
(7.) Strong Ag economy
(8.) Stable business environment
You sure do love to paint a narrow picture to push your agenda. You aren't even willing to acknowledge why a lot of these places are losing business and why they are considering becoming more efficient and consolidating assets. They would still be here if they still had business here, but those customers are gone for good.
DB, GOED chief Pat Costello himself says that the state's two big foci are taxes and labor issues. Sure, they say lots of stuff, but ask for them to sum their thinking up, and their own words show their focus is what I say it is, low taxes and low wages. And that focus is wrong.
Sure, I acknowledge that Stream is consolidating for efficiency to adapt to the changing market and lost customers. But when they make those changes, and they have options, they pick states with income tax and higher wages over us. Hmmm... is Stream just as deluded and narrow-minded as I am?
And are you trying to say that, as a call center, their customer base was somehow dependent on South Dakota? Does Bulldog Media/Rewards Runner draw only from a South Dakota customer base?
It's just possible that the availability of educated people is a factor. South Dakota uses a prison system for this purpose. This is a questionable practice.
I agree that taxes and labor issues are big factors. Those two alone should not deplete from other factors as well. That is all I am trying to say. Taxes and wages alone won't bring a business here, nor will it be the only thing they consider when leaving. To say they don't consider other incentives like geographical location to the businesses they conduct business with is dishonest. It's not uncommon that offshoots of businesses open their doors where a industry they serve strives. I believe our leaders understand there are many factors. We could provide an environment identical to other states and we could still lose businesses simply because they want to be closer to their partners or other assets that are vital to their operations.
Also, I am not saying a call center derives most of their customers in SD. I am saying they derive most of their customer's from businesses that reside in SD. Those businesses are on the decline so they may be moving where other industries are prevalent. Companies tend to like to do business with other companies in the area even if those businesses have customers nation wide. I'm not saying that is the situation in every case, but it is pretty common for businesses to look locally when they need work done. Sometimes they don't and they look straight overseas to places like India. I don't think there is much to change the minds of those business owners unless we are going to impose some sort of tax to make it beneficial to stay in the country. We definitely need to take a look at how we try to put businesses on a level playing field with the rest of the world.
Right, DB: businesses do consider other factors like culture and geography in their decisions. That's my main thesis. South Dakota ignores those other factors and puts too much stock in the low-tax low-wage approach, not to mention the Toyota lottery that we'll never win (see R's comment about working together) and that we need to reject by overturning Referred Law 14.
Now, the business customers: even if credit card reform has been hard on the usurers, the financial services sector is still a huge part of SD's economy, isn't it? Have Stream's financial services sector business customers pulled up stakes from SD? Just how relevant is in-state col-location here, when you yourself acknowledge that India-outsourcing strongly mitigates the weight of that factor?
And how relevant is this whole business customer discussion when financial services is just one of five major industry sectors Stream lists as its base? Just how much credit card business with SD companies do they do versus financial service sector business customers based elsewhere and their overall industry portfolio? Give me some numbers, DB, to back up this train of thought.
Plus, the $2.2 million they report for expected income taxes on the first six months of this year is only 1.2% of their gross profit and 12% of their net loss. Sounds like Stream has much bigger fish to fry than their tax bill.
The problem is Corey is you are trying to say the low taxes and wages mean less than other factors. That may be the case in some instances, but not all. Each business is different. It all depends on the type of industry we are trying to attract. Some look strictly at taxes and wages, while others don't. I think sitting in on a recruiting meeting would be eye opening as to what a CEO is really thinking when deciding where to expand. I'm pretty sure tax incentives and bait, as R said earlier, play a huge role.
The financial sector in SD took a huge hit in the past 3-4 years. We have all seen the layoffs in the businesses themselves, and the companies they associate with. We still are a credit card hub here in SD, but those businesses aren't doing near the amount of work that they are used to. Some have even dove into other markets to try to make up that lost revenue. Stream may be in 5 service industries, but until we can see exactly what profits they derive from each, it's tough to say how much they were affected. If we start seeing more leave, it's safe to say that they are going where the business is. I believe a few call centers opened up in the state recently and that was a direct result of bringing work in-house. I'd pay attention to Stream and you will probably see they are expanding in certain areas while closing up shop in others. This is probably a direct result of how their markets for customers are changing.
In-state col-location plays a big part when dealing with time sensitive products. When it comes to getting a product to market, they don't necessarily have the time to coordinate efforts in foreign countries and deal with the problems that arise because of it. I've sat in on meetings at 4AM on calls with people from VISA and India for past jobs. It's not fun and can be a huge headache if a problem comes up and you have to wait until they get out of bed due to the time difference. Then, there is always the things that get lost in translation. What we say in our culture may mean something entirely different there. This is why many businesses will get the product to market and then go offshore to hire someone to maintain it. That is pretty common these days.
Now, another thing to consider is there is a market returning to the states slowly, but surely. As consumers, we have become sick of speaking with foreign call centers. We have gone as far as paying annual fees to insure that we get to speak to a clear English speaking representatives. Consumers are starting to make the connection with foreign call center = bad product = bad for America. A little patriotism and a little more cash from our wallets could do a lot for this country. We can't beat China and their low wages, but we can pay a little more for the same thing here and help a neighbor out down the street.
By the looks of that link....they are in a slow decline in all their markets. They are reducing their losses but at an expense. They may be looking for ways to stop the bleeding. Consolidating their offices may just be that cost-saving method and it would just work better for them to be in MN. It may have been a choice decided on their current assets and which facility could allow the increased workload with less input costs to upgrade a different facility.
The culture and time zone argument makes sense, but it is irrelevant to Stream's choice to expand in the Omaha and Twin Cities metros instead of Vermillion. Same time zone, same culture.
Yes, I am saying that low taxes and low wages matter less than other factors. So is Stream. So did Midco. So did Verifications. You're giving me wishful speculation; I'm giving you examples. How about Bulldog Media: are they in Madison because of low taxes and low wages? Or do other factors keep them here?
"...work better for them to be in MN"... because South Dakota's low-tax low-wage promises don't matter as much to the business case as other factors. Exactly.
"because South Dakota’s low-tax low-wage promises don’t matter as much to the business case as other factors. Exactly."
Or because they have a facility already in MN that can handle the transfer of workload without too many extra costs. When you look to downsize, you look to downsize as cheap as possible and allow yourself to stay solvent. Reducing the number of office locations without affecting their customer service is step 1.
"Same time zone, same culture."
But are they leaving one industry for the same, or moving to take advantage of one that may be growing or at least staying stable?
Lots of unanswered questions before we can say this didn't help or this would have helped more to keep them here. It isn't a lie that SD has a great business tax atmosphere, but that isn't the only thing they push. In the case of BMG, they are here because the talent is here. You may see this town grow in the IT sector, especially when it comes to security. We have the makings for being a healthcare hub too, we just need someone to make the investment to get us started. Between Mitchell and Madison, they call us the Silicorn Valley for a reason. And just an FYI, I came to this state for the low taxes, high wages, and ability to make a fortune. SD isn't the land of low wages for every industry, just the ones that don't strive in our state. I think that could be said for any state.
good points made by all but I'd like to bring a human insight to the discussion.
As Cory knows I work at Verifications in Mitchell and I face unemployment in 2 months. Unless I'm lucky enough to find at job.
My co-workers in Aberdeen are facing this after next week as that center closes on the 31st.
Even though I have some time it's like a cloud hanging over my head.
To make it worse I watch as people from India are doing my work and its dishearting. All for the sake of profit.
I'm not smart enough to know how to fix this problem but I think we have to start by making it tough for these companies to go overseas. End all tax credits to do this. I'm not sure but I believe there was a bill that would have ended those tax breaks before the House just before the break that was defeated.
How "Patriotic " is it to give up American jobs for jobs in India?
I believe in a business making money. But at what cost?
All I know it's very frustrating.
Mr. Owen, I am sorry about your situation. And I am going to write to the Governor to end tax credits to companies that go overseas and I am going to vote against the President who allows this mess.
Who is DB-----unless I(we)know who you are this conversation becomes useless.
For many years I have owned and operated businesses in South Dakota. There have been many discussions with state business recruiters and local business people who have always pushed the low wage / tax line. There was some success bringing some 'cheap' businesses to this state. These cheap businesses have come here to take what they could for as long as they could but don't ask these cheap businesses to move their corporate headquarters here. The governor can have his hunting parties for donations and other perks but it is not going to bring more corporate headquarters here. There is no desire to move the chairman and other decision makers here to the hinterlands.
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You can forget getting anything more than the call centers and other expendable jobs being brought here. It is too expensive to ship raw material here and too expensive to then ship the finished goods out. Get over it South Dakota, as tax rates drop around the country and globe, low taxes and cheap labor will have no appeal even cheap companies.
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Some of us are here by choice, some by birth, some by accident but no one will move a successful corporate headquarters to a land where you can't escape very easy.
Owen, one would think it would be a no-brainer to eliminate tax breaks for shipping jobs overseas. If such breaks exist, they violate both patriotism and capitalism. But even if we get the government out of picking winners and losers, to what extent can we expect corporations to act patriotically? We'd almost need to rewrite corporate charters to say something like, "Sure, we'll let you pursue profit for your shareholders, but if the community [city, state, feds, whoever issues the charter] finds your activities do not produce a net plus for the community's interest, you lose your charter." How about that for a patriotic brake on capitalism?
T, I ask what is the secret sauce, and you tell me there is no secret sauce, we're just stuck with cheap corporations and crappy jobs. Gloomy.
You support a suspicion I've long had, that when we market ourselves with the "low-tax, low-wage" line, we draw a certain type of employer: the cheap ones, with no real commitment to the community, no desire to support public investment or the welfare of their workers, only a drive to squeeze every penny of short-term profit out of whatever resources they can get their hands on. Also gloomy.
You have Eeyore syndrome, Mr. H.
It is chronic.
It is incurable.
Baloney on all three counts, Grudz! I reject depression and pessimism. I do not suffer them in any ongoing fashion. And I have endless faith in the possibility of all sorts of victories... at least until the heat death promised by the Second Law of Thermodynamics, and that's billions of years away. Forward! We've built spaceships and Sioux Falls; how do we build sustainable rural economic development that brings jobs that make us more than low-wage slaves?
The state should be encouraging the next Raven by supporting the local people / team with a skilled 'production' based ideas, not a a 'service' based scheme.
Omaha designing sustainable sewer and stormwater recycling: EPA blog.