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March 21, 2004

"Offshoring an 'brain drain' for the US"

In an article titled "An Unseen Peril of Outsourcing" in BusinessWeek Online, columnist David Gumpert warns US companies that in sending work offshore, they are exporting crucial knowledge and might be left with precious little when faced with a crunch situation. "As we send jobs to foreign businesses, we also send critical knowledge about processes, procedures, and development. When business conditions change, a company can't just go to the other side of the world and reclaim those things. The new owners aren't likely to give them up," Gumpert says.

The article describes the case of AM Communications (AM), a Quakertown, PA-based provider of software used by cable-TV operators to monitor their systems, which has an offshore outsourcing relationship with Trivandrum, India-based Network Systems & Technologies (NeST) Group. The two companies had been working together since 1998.

In August 2003, AM filed for Chapter 11 bankruptcy. According to the BW article, 2 competing bids were received for AM's assets: one from the company's Chairman, Javad "Jay" Hassan, an Indian-born American who had worked for IBM and other companies (and who had initiated the outsourcing relationship with NeST), and another from a group of former AM employees. However, the investor who had offered the former employees backed out because he "got spooked" since he realized that "not only were the manufacturing and development services based in India, but that the company's most important knowledge -- software and engineering savvy, not to mention its development expertise -- also had departed the US".

Click Here to read the full article.