TNT's Plans for Asia Pacific (UPDATED)
Recently, I have come across a couple articles regarding the firm TNT, and both provide different angles from which to take a look at TNT's operations in Asia. For those unaware of TNT, below is a brief summary of the firm provided via its website:
TNT N.V. provides businesses and consumers worldwide with an extensive range of services for their mail and express delivery needs. TNT serves more than 200 countries and employs over 128,000 people (over 163,500 people including the division Logistics, which is intended to be divested). For 2005 the company reported € 10.1 billion in revenues (€ 13.6 billion including Logistics). TNT N.V. is publicly listed on the stock exchanges of Amsterdam and New York.
The first article, via the Wall Street Journal of July 14, does an excellent job at introducing us to TNT's efforts in Asia. Titled "TNT Plans Aggressive Asia Growth," the article is written by Arien Stuyt and highlights some of TNT's recent business transactions and strategic direction:
"Dutch postal and express company TNT NV is targeting aggressive expansion in Asia by developing its own transportation networks, executives said. The company is restructuring after a difficult few years and is selling off its logistics business to focus on postal and express-mail expansion. The relatively immature Asian express-mail market, mainly in China and India, is expected to expand rapidly in the next few years and TNT wants to be the clear leader in the region, the company said."
The article moves on by exploring the perspective of the CEO and by highlighting the pressures surrounding his efforts:
""We are committed to grow the business, both by organic growth and acquisitions," TNT Chief Executive Officer Peter Bakker said at a recent company gathering in Amsterdam. Growth has to come from fortifying TNT's position in Europe and quick expansion in Asia, he said."
"Mr. Bakker is under pressure from investors to produce results. The company has faced two separate accounting-irregularity probes at some of its European units in recent years, which have hit the bottom line. The company also has had to exit from the logistics business after failing to keep up with more aggressive competitors, and it is being scheduled for sale in the second half of 2006. Its Dutch postal monopoly, meanwhile, is being opened to competition in 2008, and postal deregulation in other European countries offers new expansion opportunities."
So, with a number of factors coming from the core European market, in addition to a number internal problems hindering past and current performance, basically it is time for TNT to buckle down and right the ship by focusing on what it does best and using the capital gains from a sale of its logistics business to reinforce its core business--the postal and express delivery market.
"TNT wants to grow its express-mail unit 10% to 15% a year, from Euro 5.3 billion ($6.73 billion) in sales in 2005. The world market is around Euro 130 billion, and China, with $3.5 billion in express-mail revenue in 2005, is set to become the world's sixth-largest market by 2010, provided it continues expanding at an average 20% a year, according to Datamonitor, the market-research company."
The problem is that TNT's competitors are also aggressively targeting Asia and won't be looking to give up any ground:
"Mr. Bakker said this burgeoning region offers growth potential compared with the more mature U.S. market, where its competitors dominate. TNT's biggest global competitors, FedEx Corp. and United Parcel Service Inc. of the U.S. and Germany's DHL, part of Deutsche Post AG, are already vying for Asian business. The three giants split the majority of the U.S. market, making it tough for TNT to compete there."
As for FedEx:
"FedEx, with express-mail revenue of $21.5 billion for the year ended May 2006, this year said it had bought the express operations of its joint-venture partner DTW Group of China, taking over 89 depots."
As for UPS:
"Market leader UPS, with express-mail sales of $36.6 billion in 2005, acquired the package-shipping operations of Chinese partner Sinotrans Ltd., which served 23 cities in 2004."
As for Deutsche Post:
"Deutsche Post, with Euro 18.6 billion, has a long history in the region. Deutsche Post's express and air-freight service, DHL, has invested $1.6 billion in the Asian-Pacific region in the past few years to strengthen its network infrastructure and to meet the evolving demands of customers; it significantly strengthened its position in the Asian-Pacific region in 2005 with the acquisition of British logistics and freight group Exel PLC for ￡3.7 billion ($6.79 billion)."
Overall, however, "TNT, which has about 21% of Europe's express-mail market, is off to a strong start in Asia. In China it is in the final phase of takeover talks with HOAU Logistics Group, which has 12,000 employees. That acquisition would give TNT access to an express-mail business spanning the country's biggest private-road network, with around 1,100 hubs and depots. No financial details have been disclosed."
Parallel to these efforts, TNT is looking at solidifying the infrastructure necessary to attain its strategic goals in the region:
"The company is building a road network from Singapore to northern China, said TNT board member Marie-Christine Lombard, who oversees TNT's Express unit. "Our advantage is that we've soon got a network in place to deliver throughout Southeast Asia," Ms. Lombard said at a meeting at its Liege, Belgium, hub. Analysts say building a network should give TNT a strong foothold in the region. A full network could help create a "money machine," enabling TNT to keep per-unit costs down and boost volume, said Robert Tasiaux, vice president for travel and transportation at management-consultancy firm A.T. Kearney."
Mr. Tasiaux makes an important point about the risks involved in this venture:
""The question is whether your global network is dense enough to be competitive and profitable," Mr. Tasiaux said. "To ensure that, the express companies will look for acquisitions, in a market where only a handful of players has adequate size.""
Interestingly, TNT has stumbled in Japan where it was attempting to work out a partnership with Japan Post. As I have noted before, currently Japan Post is undergoing a significant number of changes that challenge the cultural and bureaucratic norms associated with a government enterprise. Personally, it seems unreasonable that Japan Post would layer on top of these dramatic changes a significant partnership with a foreign firm such as TNT. Thus, when TNT blames cultural differences as the reason for the failure to secure a partnership (mentioned further below), the details probably involve the depth of the partnership and the timing involved in building that depth. In fact, my recent write-up on Japan Post indicated that one of the key issues was ownership ratios:
As the article also comments, "the move comes after Japan Post and Dutch express operator TNT postponed a JV earlier this year, unable to agree on ownership ratios." The fact that Japan Post eventually decided on a joint-venture with a Japanese firm over TNT in the short-term indicates that perhaps Japan Post's management has yet to undergo the transformation necessary to respond to the full spectrum of business opportunities in the global arena. This is not unexpected, but will be interesting to watch as more and more Japanese companies operating abroad are becoming comfortable with letting go of traditional logistics partners based in Japan in favor of foreign firms with more competitive pricing and service platforms.
In my further opinion, Japan Post would want to take this type of partnership slow (retain majority ownership) as it developed into a private enterprise and began to ease into the new management systems and organizational structure it is now in the process of implementing nationwide:
"Still, expanding into a new market doesn't come without its headaches. TNT recently suffered a setback in Japan, which is currently Asia's biggest express market. A proposed international-delivery joint venture with Japan Post collapsed a few weeks ago, mainly because of cultural differences. Mr. Bakker said TNT isn't ready to "jump ship" from Japan Post, but he isn't ruling out looking for another partner. "It's a case of going back to the drawing board [in Japan]," Mr. Bakker said. "Of course, it's a pity that our initial plans didn't materialize, but there are still other possibilities for cooperation.""
Another foreign firm, possibly a TNT competitor, could use this as an opportunity to approach Japan Post with a more patient and long-term perspective in hand. Especially if the foreign firm attempts to understand well the changes taking place internally within Japan Post and how it is reshaping its national infrastructure.
UPDATE: On July 26, The Financial Times reported on the bidders for TNT's logistics arm:
"Private-equity investors are the only bidders left in the race to buy the contract logistics business of TNT, the Dutch mail group. The business is estimated byanalysts to be worth €1.8bn-€2.2bn ($2.3bn-$2.8bn). A short list of potential buyers includes Apollo Management, the US private equity group, and PAI, the European buy-out company.
"CVC Capital Partners has also been closely involved in negotiations, as has Blackstone, another private-equity group, but the status of their involvement is unclear."
The article goes on to detail the concerns of unions with members in the logistics arm:
"International unions have warned prospective buyers of the bulk of TNT's worldwide logistics business that they will fight to protect the employment rights of the division's 37,000 workers.
"Unions, angry that they have not been consulted over the sale, are concerned that a private-equity buyer would seek to boost returns by "making the assets sweat", costing jobs and undermining employment conditions."
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