Outsourcing in New Dot-Com World Is Big Business.

ONE characteristic of the New Economy is that functions that traditionally had been handled in-house are now being increasingly outsourced. And that trend is readily apparent by scanning the list of the 100 fastest growing private companies in Los Angeles.

Well represented on the list are companies that make their money by providing contract services to other businesses. Outsourcing, of course, is nothing new -- it's been around at least since the days of the Kelly Girl.

But these days, firms are becoming increasingly specialized in a particular niche, and contracting out more and more business functions. In addition to using temporary employment services, companies pay outsiders for such functions as sales promotion services and supply-chain management.

SQA Services Inc. found its way to No. 5 on the list of fastest growers due to its strength as a supplier specialist.

"We are definitely in a niche, but our expertise is in supply quality management," said Alex Gill, executive vice president of Rolling Hills-based SQA Services. "It's our core competency, and for (our clients) to do it themselves they would have to employ a large number of these specialists."

In today's economy, it seems, every company has a core competency. Every company has a specialty, and it isn't just a passing fad.

David Lewin, a professor at the Anderson School at UCLA, said there is no doubt that outsourcing is growing, and with good reason.

"I do think we are continuing to see quite a strong trend toward outsourcing across a variety of business functions," he said. "The pressure stems from a push for increased performance in business. Globalization is a contributing factor. Technological change. Deregulation. It's a combination of factors."

For Boeing Satellite Systems, an El Segundo-based division of the Boeing Co., the reason for turning to SQA is relatively simple: it affords additional flexibility in getting inspections performed on Boeing's satellite component suppliers.

"One supplier may go bad tomorrow and we need to increase oversight on them," said Eugene Jaramillo, Boeing manager of quality supply. "The advantage right now is not having to hire a body that we might have to lay off in six months."

Supply quality management has its origins in the defense industry -- a jet fighter can't afford a part failure. And SQA has been able to build on that defense/aerospace base by adding clients in other sectors.

Among its other clients are telecommunication giant Lucent Technologies Inc., cell phone maker Eriksson and automaker DaimlerChrysler AG, for which the company recently completed an audit of the automaker's own supply quality management operation.

"We found that the types of people they were using were straight out of college," Gill said. "You need to use a qualified specialist (to conduct quality-control inspections)."

SQA certainly has no shortage of such specialists. It maintains a database of some 4,000 independent contractors, often engineers who have retired early, with expertise in various fields and locales. The 30 specialists it assigned to undertake the DaimlerChrysler audit spent six full months examining the supply chain for the automaker's 2001 models, he said.

Such extensive jobs can sure generate plenty of revenue.

SQA, which was founded in 1995, has experienced 643 percent revenue growth over the last three years, and recently opened offices in Paris and Sao Paolo, Brazil.

Meanwhile, computer hardware maker Hewlett-Packard Co. has turned to the No. 20 company on the list, Carson-based New Age Electronics Inc., to provide specialized distribution services.

New Age, which has seen revenue grow from $288 million to $748 million over the last three years, will ship HP's Pavilion line of personal computers and notebooks to customers who order those products from the various e-commerce Web sites that offer them, said Alison McMahon, channel development manager for HP's line.

"When a customer goes on to a Web site and orders a PC, that order goes to New Age. New Age ships it out with documentation that makes it appear as if it's coming directly from that (e-commerce) company. We are referring to it as a virtual warehouse," she said. "The dot-coms don't want to stock inventory."

New Age also will bundle packages of HP equipment for various retailers, such as Costco Wholesale Corp.

"Perhaps (the retailers) want to run a bundle -- a CPU, printer and monitor. They want to put a rebate in it. HP does not have time to open the box and put that printer cable in. They will ship that product to us and we will do that," said Lee Perlman, the company's chairman, chief executive and co-founder.

New Age also distinguishes itself from a traditional distributor because it does not take title to the goods it ships.

The 12-year-old company, which is moving into new, larger headquarters, also has warehouse/distribution operations in Florida and Michigan that are moving to larger facilities.

"We will do over $1 billion in business this year. Companies use us because they want to be in the business of research, design and development of a product," Perlman said. "This (distribution) is not their core competency."

Michael Napoliello Jr., president and co-founder of U.S. Marketing & Promotions, has ridden a similar specialization wave to astounding success. The company's revenues grew 737 percent over the last three years, and it was just bought in April by Omnicom Group Inc.

It built itself into one of the leading promotional marketing agencies in the country, with 20,000 independent contractors in its database to call on. That means if you've ever been offered a roasted chicken garlic sausage on a cracker at a local supermarket, USM&P may have been behind the promotion.

The company also develops promotional campaigns for national brands such as Hormel Foods Corp. and Procter & Gamble Co., and organizes event marketing for clients at community gatherings such as jazz festivals.

The company has found that, with all the clutter in the advertising world today, providing product samples to the target audience can still be the best way to promote a product.