Giant corporations might think they can handle everything in-house, but increasingly they're recognizing that they can find cost savings and increased efficiency by outsourcing very specific functions to companies that care just about that one thing. That's the thesis -- and clearly the hope -- of Eric Belcher, CEO of InnerWorkings (NYSE: INWK), a 10-year-old company that uses its technology and data to procure print and promotional materials for its clients, from store signage to direct mail. In a phone conversation this morning, Belcher shared some of the companies he's watching that are well-positioned to capitalize on this macro trend. (By the way, you can create your own personalized watchlist free from the Fool at www.MyWatchlist.com.)
"If it's a non-core function to an organization, there's likely a deep and narrow company that has invested millions of dollars and accumulated a lot of expertise that can do the job better," he said. "InnerWorkings, for one, knows how to navigate the massive and fragmented printing industry far better than our clients can." Too often, the old-school printing companies rely on "relationships and donuts" instead of cost savings and efficiencies, and outsourced firms can cut through that.
For inspiration and investment ideas, Belcher looks for fast-growing companies that rely on technology to perform highly specific tasks for other organizations. In many industries, established companies might mask inefficiencies in their operations by relying on effective sales forces; Belcher looks for the lean, low-cost provider that can get a job done more efficiently.
In the freight industry, he's keeping an eye on C.H. Robinson Worldwide (Nasdaq: CHRW) and Expeditors International (Nasdaq: EXPD), shipping logistics experts that match customers with fleets looking to fill their trucks. Since they don't own any transportation equipment themselves, they can run tight operations with spotless balance sheets. Both companies have seen their share price climb over the year, possibly an indicator that there's something to Belcher's thesis on the growing trend in matchmaking services.
He's also watching Vistaprint (Nasdaq: VPRT), a high-tech, low-cost manufacturer in a subset of an existing category -- in this case, online printing. As Fool analyst Andy Louis-Charles put it, "While Vistaprint didn't invent the online printing business, it's out to dominate it. By the company's own estimates, they are multiple times larger than their closest competitor. That's very impressive, given that the $100 billion U.S. commercial printing industry is fragmented among 35,000 different players -- with most having revenues of less than $5 million. Vistaprint has been able to grow quickly within this cluttered field by focusing on the marketing needs of microbusinesses, which the company estimates is a $25 billion opportunity (between the U.S. and Europe)." Louis-Charles points out that even FedEx (NYSE: FDX) and OfficeMax (NYSE: OMX) have given up on trying to beat the company, forming partnerships with Vistaprint instead.
Again, it's a lean organization filling a particular need using advanced technology to corral a highly fragmented market. Those, said Belcher, are the companies to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click below to start following one of the stocks mentioned above:
