Starbucks ends HR stream to Convergys

Budget 2008, Chidambaram

Starbucks Corp, the world's largest coffee chain, has terminated its human resource (HR) outsourcing contract with relationship management and consulting firm Convergys.

Starbucks was one of the 2007 wins for the struggling HR outsourcing unit of Convergys, which generates about 9 per cent of the company's total revenue.

"In our view, the Starbucks termination just made it that much more difficult for the HR outsourcing sales force to close enough new big deals to hit the 2009 revenue target for this unit," Kaufman Brothers analyst Karl Keirstead said in a note to clients.

Cincinnati, Ohio-based Convergys has call centre and back office operations in Gurgaon, Mumbai and Bangalore among other cities in India.

The company recently said in an analyst meet that the deal termination would have no effect on its 2008 or 2009 revenue or income targets for this unit.

In July last year, Convergys said it will provide HR administration and payroll services for Starbucks' partners in the US and Canada, along with benefits services for Starbucks' partners in Canada.

Sources said the termination was driven by internal issues at Starbucks, and not with Convergys.

Indy Banerjee, director at advisory firm TPI told DNA Money, "There has been a drop in the HR outsourcing market. Clients are facing challenges in getting value-adds from their HR outsourced contracts and are delaying their buying decisions citing maturity levels."

HR outsourcing deals in 2007 plunged to $3.27 billion from $5.35 billion a year ago, Banerjee said.

For Convergys, the Starbucks cancellation comes within three weeks of rival Hewitt Associates announcing the termination of HR outsourcing contract by Wachovia, one of its largest clients.

Sector experts said the HR outsourcing market has a much lower level of client sophistication compared with applications outsourcing, but has a much higher degree of complexity and up-front costs.

Convergys generates about 66 per cent of its total revenue from its call centre outsourcing unit.

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