March 24, 2004

An Unseen Peril of Outsourcing

The lesson of this story: We need to understand that, 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.

First, a little history. Late in the summer of 1998, a mutual contact hooked up Javad "Jay" Hassan, an Indian-born American who had worked for IBM and
other outfits, with Alvin Hoffman, the largest shareholder of AM Communications (AM), a small, publicly-held company based in Quakertown, Pa., that
developed and owned software used by cable-TV operators to monitor their systems. AM, which began in the mid-1970s installing lines for cable-TV
systems, had seen its ups and downs -- and fiscal 1998 (ended March 31) was one of its down periods. Sales, which the previous year had been $16
million, came in at around $9 million, due to the loss of several key customers.

"The company was about broke at the time," recalls Hoffman, a stockbroker by profession, who invested what he estimates to have been around $8 million
of his own money in AM Communications after becoming involved in 1987. By 1998, things were so grim he feared a distress sale or bankruptcy if he
couldn't find a savior.


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