Converging

Converging

What do telephones, truckers, clothing stores, warehouses and logistics providers have in common? They're all taking part in what may be the second great trend in the economy, beyond the ballyhooed growth of globalization.

It's called convergence, and it's coursing through the corporate world in a way companies can no longer ignore even if they are not taking part.

The economic efficiency that comes from analyzing unit costs, it appears, works on a multi-billion dollar corporate level just as well as it works at the shipment level.

The latest example comes in the industrial real estate arena, where ProLogis last week acquired Catellus Development, a $4.9 billion deal that touches directly on the logistics industry because both businesses are deeply entwined in warehouses and the logistics services that increasingly are tied to distribution centers.

Noting the irony, ProLogis CEO Jeffrey Schwartz said the deal "dramatically changes the landscape of the U.S. industrial real estate market."

In fact, both players figure prominently in the literal logistics landscape through the millions of square feet of space they control. ProLogis doubled its global development in the last two years, from $700 million to $1.4 billion, and it is spending $36 million to develop some 1 million square feet of warehouse space in Beijing.

ProLogis looks intent on using that scale for more than just taking lease payments, suggesting ambitions beyond managing owner-tenant relations. ProLogis has been more active in recent years in examining the supply chains of its shipper customers, studying distribution patterns and forecasting the direction of economy that touches their business.

That means the business of shippers, and ProLogis' scale and its approach to the market suggest the convergence of providers may also mean a convergence of services. 

The templates for ProLogis' actions are all over the corporate world. In retail, Sears and Kmart believe working under the same umbrella provides better buying power, and perhaps selling power, than competing. In telecom, voice and data services are converging and that means a service provider consolidation is underway. 

Is that any different from Yellow Roadway buying one of the country's largest regional LTL carriers or from UPS buying Overnite Transportation? Is it different from Exel buying Tibbett & Britten? Or from FedEx buying Kinko's?

In all these cases, the mergers and acquisitions produced huge scale. But they also extended the ability of the acquiring companies to provide services, to expand the things they can do for customers and to use their core business as a foundation for even greater growth.

That is what convergence is all about and it means the competitive playing field is changing. Wal-Mart no longer competes with smaller stores, really; it has pushed them aside and the competition has converged to a match between Wal-Mart, Target and the handful of others that can compete on their level.

These retailers are competing with each other by offering new services that only their scale makes possible, and they're looking for providers that can expand their services along the way. Those are the providers, in other words, that have converged.