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Research Stock Outsourcing Trend
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While the companies in our business services sector operate in relative obscurity, the sector deserves more attention. Here, we can find a large number of firms running wonderful, wide-moat businesses—just the kind we like to buy at the right price and hold as long-term investors.

Companies in the business services sector are almost as varied as the busi­nesses they serve. After all, the group includes firms such as Fiserv (financial institution data processing), Waste Management (waste hauling), Omnicom (advertising), and even United Airlines (air transportation). Because the business services sector is so varied, we divide it into three major subsectors based on how companies set up their businesses to make money. Specifically, we look at technology-based, people-based, and hard-asset-based subsectors. Although not all companies within the industry fit perfectly into just one of these categories, it's a useful distinction to make when you're analyzing a potential investment in business services. Despite being such a diverse group of businesses, a few major themes impact the majority of business services companies.

Outsourcing Trend

Business-to-business services have grown significantly, increasing as a percent­age of GDP from 3.5 percent in 1990 to 5.4 percent in 2001. Fueling the growth has been the popularity of outsourcing—the practice of offloading noncore tasks to third parties.

Many business services providers have essentially created markets for themselves based on this trend. Cintas, for example, has successfully convinced companies that it's better to pay Cintas to service employees' uniforms than to leave the responsibility to each individual employee or to handle it themselves. Other industries developed to fill needs that would be difficult or impossible for companies to handle internally. It is impractical, for example, for every mom-and-pop retailer to develop its own infrastructure to facilitate its acceptance of credit and debit card payments. Instead, companies such as First Data and National Processing allow retailers to tap into larger systems, the fixed costs of which can be leveraged across many clients.

Outsourcing makes sense to many business owners because it usually saves time and money, removes the hassle of dealing with noncore tasks, and allows management to focus on what's really important to the success of their company.

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