TCS Daily

Buying Into Tech

By Dominic Basulto - January 14, 2004 12:00 AM

High-profile technology M&A deals, such as Oracle's $7.5 billion hostile takeover bid for PeopleSoft, may steal all the headlines, but the best technology-related M&A deals of 2004 may be those that do not involve traditional technology companies located in places like Silicon Valley, Seattle or Boston. Instead, these deals will involve forward-looking corporations located within the US heartland that are attempting to tap into newly created markets, acquire innovative new technologies to shore up an ailing core business, or expand globally in a low-cost, low-risk fashion. On the last business day of 2003, for example, logistics and supply chain specialist FedEx announced the $2.4 billion acquisition of Kinko's -- a move that brilliantly highlights how companies can use technology to build competitive advantage on a global basis.

While some skeptics may view FedEx as nothing more than a package delivery company and Kinko's as nothing more than a place to make cheap photocopies, the reality is that FedEx has long been recognized as an e-business superstar. For five consecutive years, Wired Magazine has named the company as one of the 40 most innovative companies in the USA. Unlike other large corporations that floundered when creating an Internet strategy during the late 1990s, FedEx was at the forefront of leveraging technology to improve its position as a logistics and supply chain specialist. With the creation of its new FedEx Institute of Technology in Memphis, the company is dreaming up new ways to streamline and define the supply chain. Most interestingly, FedEx has been careful to define the supply chain as widely as possible -- it is more than just planes, trains and automobiles. It is also about radio frequency identification (RFID) tags, mobile networking technology, and artificial intelligence (e.g. 24/7 customer service representatives).

Kinko's hasn't exactly been a technology slouch, either. In addition to rolling out new services such as videoconferencing and digital media solutions, the company recently inked a deal with T-Mobile USA to install Wi-Fi hotspots at 1,100 of its retail centers by April 2004. In essence, it means that the mobile office worker can now tap into a wireless network, create and edit electronic documents, and then deliver these documents instantaneously anywhere in the world via the Internet. Since FedEx will soon have convenient drop-off locations at every Kinko's retail location, this hypothetical office worker could just as easily ship the physical document anywhere in the world -- including manufacturing plants in China or R&D facilities in India. Just as easily, a FedEx delivery truck could implement Wi-Fi solutions in order to boost productivity or create 24/7 Internet access.

A link-up between FedEx and Kinko's is at least a partial realization that the volume of physical document delivery within the U.S. has likely reached a natural peak. While nobody is predicting the rise of the 'paperless office,' it is simply a fact that FedEx is hard-pressed to boost revenue in its core business of delivering packages within established markets in the USA and Europe. Bits and bytes now matter as much as packages and parcels -- the digitization of the U.S. economy means that document delivery must be digital as well as physical. With the ubiquity of Internet access and the ease of sending electronic documents in standardized formats such as PDF, why pay $15 to send the document overnight when you can send it instantaneously for free?

Thus, the acquisition of Kinko's is about more than just acquiring 1,200 new retail outlets for FedEx shipments -- it is about access to a new source of potential growth in the document management and electronic document delivery space. For FedEx, the move marks another step in the company's search for new revenues and new markets. For Kinko's, the move is yet further evidence of the company's transformation from a "traditional copy center operator into a global, digitally-connected provider of an array of valuable business services." The big question, of course, is whether FedEx has learned from its ill-fated experimentation with electronic document delivery (ZapMail) twenty years earlier.

Moreover, the acquisition is further proof that FedEx is intent on building a digital global supply chain that extends into fast-growth markets. Kinko's already has 110 overseas locations in places such as China and Korea and a retail store format that is highly scalable; FedEx has a global brand name and unmatched success in designing delivery options for both small business and huge corporations. Anyone watching the FedEx Orange Bowl [or any other college football bowl game in early January] had an early preview of FedEx's expansion plans for Asia in 2004. In fact, one commercial was entirely in Chinese, except for the final scene, when a harried factory worker is able to placate his fuming boss with the utterance of a single word: "FedEx." The company's China strategy is already coming into focus -- over the past year, FedEx posted 40% growth in the region and announced plans to create a new regional hub in Shanghai and serve 320 cities throughout China within the next five years.

Without a doubt, the holiday season has been a busy one for FedEx. In addition to delivering more than 3 million packages a day during the holiday and sponsoring the Bowl Championship Series, the company now seems well on its way to digitizing its supply chain with its $2.4 billion acquisition of Kinko's. For CEOs who are looking for ways to build competitive advantage and boost revenues -- not cut costs and jobs -- the FedEx/Kinko's deal offers a glimpse of how technology can alter the landscape of traditional business strategy.


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