Robert Morris University and the

School of Business present:

The 2009 Rande & Georgia Somma “Integrity First”

Business School Scholarship

●Four (4) $2500 grants for Business Students - to be

awarded for Fall 2009

-Students must have a 3.25 overall GPA

-School of Business Students should be entering their

sophomore, junior or senior year in Fall 2009

-Transfer Students should have at least 9 credits from RMU

-Deadline for Application is April 24, 2009

-Scholarships will be awarded by August 1, 2009

-School of Business Ethics Committee and the Somma family

will judge applications

-Applications will be available electronically on the RMU

website and through Linda Sivak, School of Business secretary
(sivak@rmu.edu).
 SCHOOL OF BUSINESS
Qualifying Application

The Rande & Georgia Somma “Integrity First”

Business School Scholarship
Deadline for submission: April 24, 2009

Student Name:______________________________________________

Six digit RMU id/ Email:______________________________________

Number of Credits Completed:__________________________________

Number of Credits at RMU:____________________________________

Overall GPA:______________ Within Major GPA:_____________

Business School Department Major : (Check one )

Accounting and Taxation__________ Management________

Finance and Economics___________ Marketing__________

I, _________________________________, the undersigned, hereby state that my case

analysis as submitted is my work, and mine alone.

DATE: ________________ Check this box as representation of your electronic

signature

Candidates must electronically submit the above completed form along with your
case analysis by April 24, 2009 to:

Dr. Darlene Motley c/o Linda Sivak

Email: sivak@rmu.edu
Please call or email Dr. Motley if you have any questions.
412.397.3458 ofc
 SCHOOL OF BUSINESS
PRESENTS THE 2009
Rande & Georgia Somma
“Integrity First”
Business Scholarship
CASE ANALYSIS AND SUBMISSION GUIDELINES

• Please follow the guidelines below in addressing the Outsourcing Case

• Format: Double-spaced, Times New Roman 12 font, 1" margins, minimum of 4 pages and a
maximum of 8 pages.
• Address each of the questions asked at the end of the case.
• This case analysis is an individual assignment. As a Robert Morris University student, you
are subject to the Robert Morris University Academic Integrity Policy
(www.rmu.edu/academicintegrity). As a scholarship applicant, you are required to sign an
affidavit ensuring that your submission represents your individual work. This statement is
provided on the qualifying application.
• Your case analysis should incorporate a variety of resources including full citations,
references and appendices as needed. Additionally, you may incorporate your own academic
and/or work experiences. Wikipedia will not be accepted as a reference source, neither will
Blog sites. Refer to the OWL website available via Purdue University
(http://owl.english.purdue.edu/) for information on proper citation format.

Reminder:
• Initial eligibility: GPA of 3.25 and at least sophomore status by Fall 2009
• Transfer students must have completed at least 9 credits at RMU

Submission Guidelines

There are two requirements for submission:

1. Submit your qualifying application indicating your GPA, credits taken, etc.

2. Once you have written your case analysis, save it with your name in the document file and
submit it to Dr. Darlene Motley c/o Linda Sivak in the Management department along with
affidavit acknowledging sole authorship of your analysis (sivak@rmu.edu).

Deadline:
 Your application and case analysis must be submitted electronically no later
than 5pm on April 24, 2009.

Categories of Assessment for Case Analysis

Outsourcing at Any Cost?

Do corporations ever have a moral obligation not to outsource?

1. UNDERSTANDING OF THE ISSUE & THE IMPLICATIONS

2. ORIGINALITY IN APPROACH

3. COHERENT LINE OF ARGUMENT

4. CLARITY AND EFFECTIVENESS OF STYLE

5. RESEARCH AND BIBLIOGRAPHY

6. ADHERENCE TO FORMAT AND LENGTH RULES

 2009 Rande & Georgia Somma “Integrity First” Case

University of Colorado at Boulder Leeds School of Business

The Center for Business & Society

Cases in Business & Society

Outsourcing at Any Cost?
Do corporations ever have a moral obligation not to outsource?
By Julian Frieland, Ph.D.

In 1997, when Galaxywire.net, a successful Internet service provider, was looking for a new
central office location, it found a very receptive community in Green Fork, Ill. With the
unemployment rate hovering at 16 percent, the city was ready to offer the company a great deal
in return for moving there. Galaxywire planned to hire 3,000 in its first year, primarily in
customer service, software engineering and Web design.

City development officials offered a $300,000 low-interest loan for employee training, a 50
percent tax abatement for the first 10 years, and even landed a federal grant to construct a new
$2.3 million secondary building for day care and executive suites. With Green Fork only about
an hour’s drive from Chicago, it seemed this small city of 30,000 with plenty of willing and able
workers was the perfect spot for Galaxywire’s home office.

The company accepted the offer and at the official announcement ceremony, CEO Dale Horner
predicted a bright future. For 35 years, Green Fork’s largest employer was Freedman Steel, but
the company left town after a lengthy and bitter labor dispute. Since then, locals had grown
distrustful of large corporations. Acknowledging this, Horner made a substantial commitment to
the residents: “We plan to stay and be an integral part of the community,” he promised. “Our
employees are really a family. Across the board, everyone is considered as important as the
highest executive. Lots of companies say that, but as I hope you’ll come to see, we’re rather
different from most companies.”

Seven years later, Galaxywire was thriving. Not only was the home office extremely productive,
the company had expanded considerably, opening dozens of offices across the country.
Nevertheless, top management was considering closing the Green Fork office and moving its
customer service, software engineering, and Web design units to India. The company stood to
save at least $10 million a year by doing so. Customer service employees earning $10-15 an
hour in the U.S. earn only $2-4 in India. Similarly, Web designers and software engineers
earning $60-70 an hour here earn only $6-8 an hour there.

Furthermore, new research by the Software Engineering Institute (SEI) at Carnegie Mellon
University had shown that 85 Indian software companies had received a level 5 Compatibility
Maturation Model Rating (CMM) which is the highest rating of engineering excellence. By
comparison, only 42 other organizations worldwide had achieved that rating. So management
realized that India offered a highly skilled, English-speaking workforce particularly competitive
in information technology at a bargain-basement price. And to top it off, the company could
deduct the cost of moving from its taxable income as a business expense. As a result, most of
Galaxywire’s competitors were already outsourcing to Southeast Asia. This trend was making it
more difficult for American customer service agents and IT professionals to find work. Many
were seeking new careers in non-outsourceable service sectors such as restaurants, retail sales,
tourism, construction, and teaching.

Galaxywire decided to let its employees know immediately of its intention to close the home
office before the media could get hold of the story, giving the workers 10 months notice -8
months more than federal law requires for mass layoffs. It also provided severance packages of a
month’s full pay and extended health insurance coverage for five months. However, none of the
top executives based in Green Fork would be laid off. They would move to smaller offices in
California and were likely to receive particularly high year-end bonuses as a result of the savings
outsourcing would bring.

Upon hearing the news of the closure, the workers and the city tried to find a solution that would
have allowed the company to stay and still recoup most of the money it hoped to save by moving.
With the unemployment rate still at 10 percent, the town simply could not afford to lose its
largest employer. Negotiators proposed a deal that would save the company $7 million in the
first year, $8 million in the second, and $9 million yearly thereafter. The city extended the tax
abatement for another decade, increasing the yearly reduction to 60 percent.

The employees agreed to a 15 percent pay-cut and a considerable reduction in benefits. But still,
the company would not stay. So the workers went back to the drawing board, cutting another 5
percent of their wages, slashing a third of their vacation days and doubling their health insurance
premiums. The city increased the tax reduction by another 5 percent. The resulting deal saved
the company $10 million the first year, $11 million the next, and $12 million yearly thereafter.
This time, the company took several days to review the offer seriously.

The top executives met the next day to discuss this new offer. They realized that this deal did
have a number of advantages:
1. Deciding not to move would increase employee loyalty and make good on the promise they
initially made to stay.
2. There was already a highly skilled and dedicated workforce in Green Fork.
3. The workforce in India had not been fully tested. And several companies had already
brought their customer service back from India, where the agents did not always master
American colloquialisms, frustrating many customers, especially those hostile to outsourcing.
4. If they accepted this offer, they might be able to influence other cities where their offices
were located to give them similar deals and thus avoid the risk and hassle of moving
altogether.
5. If they decided not to move, they might be able to save a good deal on marketing since
staying could provide a lucrative advertising angle such as “Galaxywire.net is working to
keep jobs in America.”
6. They could still move their executive suites to sunny California.
But there were also some potential negatives to accepting the offer:
1. There might be growing resentment in the community about Galaxywire forcing its
employees and the city to bend over backwards, creating a dangerous precedent that could
further strip the community of tax support from other businesses and lower the salaries and
benefits of employees elsewhere.
2. It seemed unlikely that the employees and city would be prepared to continue making such
extensive sacrifices indefinitely. Eventually, the workers might unionize and make things
more difficult.
These negatives made one executive suggest rejecting the offer, but make amends for breaking
the promise to stay in the community by covering tuition for employee retraining. Another
suggested exploring the possibility of staying in Green Fork, but in order to stem the tide of
negative press and morale, to accept the original offer, which seemed to preserve most of the
advantages of the second offer but without the disadvantages. The first offer would save them
close to as much as the second but also allow them to retain a truly appreciative and non-resentful
staff, and even provide the company with a potentially potent advertising campaign that could
keep Galaxywire in a leadership position in a competitive market which had suffered negative
press over outsourcing.
But by then it was time to go home and think about all the options. How should the board
decide?

PLEASE ADDRESS EACH OF THE FOLLOWING QUESTIONS IN YOUR ANALYSIS

1. Does Galaxywwire.net have a moral duty to keep its commitment to stay in Green Fork so
long as it can do so profitably? Why or why not? Is it reasonable or appropriate for a
company to make such promises and for the community to expect such a commitment into
perpetuity?
2. Does Galaxywire present a compelling reason to relocate its business to make this change?

3. Could entire white-collar professions be lost to lesser-developed countries if the outsourcing

trend continues? Would this be fair to Americans? Please discuss.

4. Should the employees simply take this loss as a valuable opportunity to seek new careers
instead of assuming they would be able to keep one career all their lives despite a rapidly
changing global economy?

5. Under what circumstances would the company’s outsourcing action be reasonable and
acceptable by any moral and ethical standard?
The Cases in Business & Society series provides fictional situations which illustrate ethical
issues in business designed to prompt discussion in college classes. This series is provided
without charge to educators for noncommercial use through financial support from the
George and Judy Write family.