Outlook on Europe

Most delegates gathering in Malta in June for the 51st General Assembly of the European Union of Electrical Wholesalers (EUEW) were downright bullish in their expectations that business this year would be as good, if not better, than 2005.

“Last year was the first truly successful year for us since the recession that started in 2001,” said Markku Nihti, EUEW president and CEO of Elektroskandia Oy, part of the Hagemeyer Group. “Sales of the member federations topped 30 billion euros (approximately $37.7 billion), a growth of 6.8 percent over the previous year. First-quarter results for 2006 indicate similar strength and perhaps even double-digit growth for the year.”

But Nihti cautioned that this growth was tightly linked to the dramatic increases in copper prices. For example, the value of cable sales in Finland rose 28.6 percent last year. He also cautioned delegates about troublesome issues confronting the European electrical market, including what he called “the perennial hot potato” — the European Council's Waste Electrical and Electronic Equipment (WEEE) directive. WEEE is a European Union (EU) directive intended to promote environmentally safe disposal or recycling of electrical and electronic waste, but its implementation is still being resolved by each of the 25 countries in the EU.

Nihti also welcomed Poland, the newest electrical wholesaling federation to join EUEW. The country is the first of the former Soviet bloc nations to be represented in the group and the one with the largest customer base (population 38.5 million) among those countries.

Operation Electric Dragon

There's growing concern among national federations about increased counterfeit electrical products entering European markets. “Before 1990, counterfeit products were typically luxury goods, fashion apparel, pirated CDs and Rolex watches,” said David Dossett, chief executive of the British Electrotechnical and Allied Manufacturers' Association (BEAMA). “But while these items may undercut the brand manufacturer's business and reputation, they aren't going to kill anybody. Counterfeit electrical products are a different story. If an electrical wholesaler sells a hazardous counterfeit product, the company could be culpable for killing a customer.”

Approximately 85 percent to 90 percent of electrical counterfeits originate in China, Dossett said, and the products involved are mainly circuit breakers, fuses, accessories such as plugs, sockets, and switches and — even more troublesome — safety components such as residual circuit-protection devices. Many counterfeit circuit breakers are visually identical to the brand originals but have no safety elements inside — they are simply push-button switches. Dossett also cited the case of a confiscated shipment of 600A fuses where the fuse element had been replaced by copper straps. “This was literally just a bomb waiting for a fault to trigger it,” he said.

To combat this incursion of lethal fakes, BEAMA set up an anti-counterfeiting committee in 2000. It initiated a project in China code-named “Operation Electric Dragon.” Working in cooperation with Chinese police and customs authorities, representatives of 15 major electrical manufacturers, each armed with power of attorney, have seized more than 10 million products in factories or at international trade fairs in China. The typical scenario, according to Dossett, is that the BEAMA investigators arrive at the police offices at 8 a.m. with evidence on a particular target, and Chinese authorities will have hit the factory and seized the fakes by 10 a.m.

Commenting from the electrical wholesaler's perspective, Gilles Deraison, executive vice president of Rexel and president-elect of EUEW, said approximately 80,000 fires each year in France are traced to electrical causes, and many people think counterfeit products cause many of the fires. It's estimated that perhaps 1 percent of electrical goods passing through the French supply chain are counterfeit and that the amount of counterfeit products is growing 20 percent annually. Deraison believes there must be a pan-European effort to assure legal resolution of counterfeit suits within 12 to 18 months of filing suit, by freezing assets of the importers charged and by developing a realistic structuring of stiff fines as a meaningful economic deterrent.

Numbers by Nation

The executive directors of the EUEW-member federations at the annual meeting in Malta expressed optimism that 2006 would continue the winning streak that began last year and provided these snapshots of electrical-market conditions in each country.

Austria

The Austrian gross domestic product (GDP) was up 2.1 percent in 2005 and is currently running at 2.3 percent. Last year, electrical wholesalers enjoyed a 6.85 percent gain in sales, and they are anticipating even better results in 2006, according to Barbara Anton of VEG, the Austrian electrical federation. The product sectors they see as most profitable are data communications and lighting. As is the case with many of the federations, VEG continues to grapple with the WEEE directive. The association believes visible fees on invoicing are undesirable, with the exception of those for lamps, refrigerators and HVAC devices.

Belgium

The Belgian market grew 8 percent in 2005. The strongest performance by product sectors came from wire and cable (up 15.5 percent), installation materials (up 7.9 percent), and lighting (up 6 percent), said Bruno Van der Stappen of ICGME, the Belgian electrical federation. On the basis of first-quarter reports, overall growth was 14 percent, causing distributors to optimistically expect another impressive year.

Finland

The Finnish GDP grew 2.1 percent in 2005 and is expected to go up 3.5 percent this year. Electrical wholesalers enjoyed an 11.7 percent sales increase in 2005 — the second highest in EUEW. Sales for the first four months of 2006 were up 15.3 percent, although distributors attribute much of this to price increases in copper, other metals and plastics. Tarja Hailikari of SSTL, the Finnish electrical federation, said these increases have inflated cable prices that for the most part have been passed along to customers.

The Finnish federation signed contracts with four leading software companies that provide systems to designers and installers, and these customers can now directly access SSTL datasheets, which include 180,000 products. The organization is also working with importers and manufacturers to increase the number of items in its catalog and to build links to these companies' product documentation.

France

Since mid-2004, the electrical wholesaling market has grown steadily at a rate of about 4 percent to 5 percent, according to EUEW president-elect Gilles Deraison of FGMEE, the French electrical federation. This is largely attributable to a boom in residential construction in the southern and western parts of France that's linked to the French government's tax incentives for accessible housing. Installers have also booked orders six months in advance, so distributors expect 2006 will be another strong year.

Due to the global energy situation, energy-efficient electrical products account for a larger portion of the typical distributor's product portfolio. Public lighting is a growing market as cities and counties have become more involved with this issue. FGMEE believes effective compliance with the WEEE directive and combating counterfeiting are the two greatest challenges facing member companies.

Germany

General business conditions have improved somewhat in Germany, and most analysts predict a modest rise in the economy. The increase in the national value-added tax from 16 percent to 19 percent at the beginning of next year should help improve business conditions, according to Hans Henning of VEG, the German electrical federation.

Electrical distributors saw 4.7 percent growth in 2005 sales, and they expect a 2006 sales increase of up to 10 percent, largely due to rising copper prices. The European Union's new Energy Using Products (EuP) directive could significantly stimulate business in Germany.

Italy

The overall economic situation in Italy is essentially level, but electrical wholesalers expect their business to improve moderately over last year's 4.2 percent growth in volume, said Emmanuele d'Alo of FNGDME, the Italian electrical federation. FNGDME wants to refine the existing product classification system and revise guidelines for electronic data interchange (EDI) documentation to increase efficiencies in purchasing and delivery processes.

Malta

The country's GDP grew 1.5 percent in 2005, and it's expected to increase by 2.7 percent this year. According to Joseph Attard of EIA, Malta's electrical federation, association members had an 8.3 percent increase in sales last year and project a 7 percent increase this year due to continuing strong construction, export and retail.

Norway

Analysts predict a slowing of the Norwegian economy after an unprecedented 25 years of strong growth, which has been linked primarily to the profitability of the offshore oil industry, said Jens-Dag Vatndal of EFO, the Norwegian electrical federation. Electrical wholesalers saw 2005 sales increase 8.6 percent. For the first four months of 2006, sales were up 7.5 percent. Norwegian distributors expect renovation of nonresidential buildings to be the most profitable market sector this year. One of the most successful and efficient waste programs for electrical and electronic equipment in Europe, Norway's program is reportedly capable of collecting more than 90 percent of these materials.

Poland

SHE, the Polish electrical federation, includes seven companies with 128 locations that account for about 25 percent of the country's greatly fragmented electrical wholesaling market, according to Ryszard D'Antoni, the association director and president of Alfa-Elektro, a Sonepar company. Member sales were approximately $363 million in 2005 and are expected to grow substantially as the overall Polish market economy continues to develop.

Portugal

The Portuguese GDP saw lackluster growth of only 0.3 percent in 2005, and construction activity was off 3 percent. Although electrical wholesalers had a 1.9 percent gain in sales, the modest increase was attributed to the price of copper, not a growth in sales, said Daniel Ribeiro of AGEFE, the Portuguese electrical federation. The sale of installation materials was down 3 percent. Portugal's electrical distributors are not optimistic about this year. Construction is expected to be flat or negative, and little promise exists for any public or private industry investment that would benefit electrical wholesalers.

Spain

Spanish wholesalers saw 8.5 percent sales growth last year, largely driven by a 10.7 percent increase in installation materials business, said Pedro Torres of ADIME, the Spanish electrical federation. He said most Spanish electrical distributors are confident this growth will continue through 2006.

Sweden

Business conditions in Sweden are quite favorable, with construction up and strong growth expected to continue in the retail sector. Electrical wholesalers reported a 12 percent sales increase in 2005, the highest in EUEW, said Björn Högborn of SEG, the Swedish electrical federation. Although this was partly attributed to the price hikes in raw materials mentioned earlier, there were also significant increases in power-supply system investment and residential construction. This positive pattern is expected to continue through this year.

On a negative note, many large corporations are increasing their direct business with suppliers, especially those with factories in the Far East. Swedish distributors see this as a serious threat to the traditional supply chain that could result in a loss of business and decreases in margins. The federation is working on database improvements in environmental information exchange and standardization of product-data formatting between suppliers and distributors.

Switzerland

The Swiss economy continued to pick up speed in 2005, and there is little sign of a slowdown this year, with GDP growth of 2.3 percent expected. This activity is broadly based and driven by private consumption, capital spending and foreign trade, according to Jörg Reimer of VES, the Swiss electrical federation. For 2007, Swiss GDP growth of 1.3 is forecasted. Electrical wholesalers had a 7 percent sales increase last year, with plugs, sockets and switches posting a 9.6 percent advance. Interestingly, the share of e-business as a percentage of in total volume was up some 30 percent. Similar overall sales results are forecast for 2006.

United Kingdom

In 2005, the UK's GDP rose 1.9 percent; inflation was up 2.4 percent. The United Kingdom's electrical distribution market saw a sales increase of 4 percent last year. Currently, it's 6 percent ahead of last year's performance, according to Nigel Ellis of Electrical Distributors Association (EDA). The WEEE directive remains a challenge because the government has not yet passed any legislation on this matter, so manufacturers and distributors remain uncertain as to what they will be expected to do and what processes and mechanisms will be needed to do it, Ellis said.

John Paul Quinn is a free-lance writer and international communications consultant based in Stamford, Conn. He can be reached at (203) 323-9850 or via e-mail at [email protected].