Update on Europe

The new euro and the specter of new regulation are the sea changes now lapping at the warehouse doors of European electrical distributors.

The delegates gathering on the Baltic for the 44th General Assembly of the European Union of Electrical Wholesalers (EUEW) had weighty issues on their minds as they cruised from Helsinki, Finland, to Stockholm, Sweden, and back again in the first nationally co-hosted, shipboard annual meeting of the 13- nation confederation.

The impact of the new euro currency on electrical industry pricing across Europe, and what is perceived as a tightening scrutiny of competition in the wholesaling industry by national governments and the European Union (EU) itself, were two of the subjects earnestly discussed both during the program and after hours by the seafaring delegates.

While the euro is becoming more and more a daily fact of life in the EU, some questions and uncertainties exist as to how it will ultimately affect pricing in an electrical wholesaling community that is short on distances and now has fluid borders and a common currency base.

Distributors participating in a special workshop session on the anticipated effects of the euro on the industry generally agreed that there had been little influence seen thus far, but that few suppliers have issued price lists in euros, so it is still premature to discuss "europricing."

They also concurred that the euro will accelerate the trend toward the economic dissolution of national boundaries, causing wholesalers and suppliers to adopt truly European strategies in an effort to minimize costs.

Regulatory focus on competition in the wholesaling industry is a matter of some concern, largely because electrical distributors maintain that it has never been made clear to them what individual governments or the EU stipulates that they do-or not do. A case in the Netherlands has already resulted in a finding against Dutch wholesalers and their national federation.

Meanwhile, in Norway, regulatory authorities have sequestered records of a number of electrical distribution companies, including seizure of materials from the residences of executives.

Distributors from Portugal report they are still awaiting a ruling by the Portuguese Competition Authority on the Code of Practice for Electrical Distribution that was approved last year by the country's wholesalers and manufacturers. Perhaps critical to the outcome of these and other cases will be the direction and emphasis of the new EU Competition Act coming from Brussels and expected to become effective throughout the union by March 2000.

But electrical wholesalers are doing business, if not as usual, at least as best they can. Here is a brief survey of developments in various national markets: Finland. Reporting for the Finnish Electrical Wholesalers Federation, executive director Markku Waltari stated that the Finnish economy remains strong with the gross domestic product up 4.9% in 1998, but this is expected to slow to 2.5% to 3% this year. Meanwhile, interest rates are low and inflation is well under control.

The Finnish electrical distribution industry saw an impressive growth of 8.5% in 1998, despite a 2.6% decline in overall pricing. For the first part of this year, the growth rate was still holding at 8.1% with data network products showing an explosive growth of 94.4%, and switch panel sales up 14.8%.

Austria. Coming off a totally flat year in 1998, the industry reported sales down 20% in the first quarter, and Austrian federation president Benedikt Bittmann cited declining prices and a generally unfavorable economic environment as the essential causes.

France. From a comprehensive business perspective, 1998 was the best year of the decade in France with a 3.2% increase in GDP and a 6% increase in business investments. Construction levels were the highest in 10 years, with 93,000 new homes sold, and the number of new building licenses issued was up 61%. In addition, a highly favorable trade balance resulted in exports exceeding imports by some $25.5 billion.

Electrical wholesalers experienced a healthy growth rate of 4%, according to French federation director Michel Nicolas, largely due to the aforementioned building activity, but also due to significant industrial plant expansion and the introduction of sophisticated products for datacommunications and other high-end niche markets.

Germany. An overall sense of economic insecurity continues to plague Germany, which is still struggling with the problems associated with reunification and is facing other difficulties simultaneously. Horst Beckers, director of the German Electrical Wholesalers Federation, noted that the relatively new Social Democrat government has initiated a number of tax changes, including environmental duties. Further, a 3% mandated wage increase is expected to increase unemployment since an increasing number of German manufacturers are moving their production facilities abroad.

Electrical wholesalers, bound to local markets, obviously cannot compensate for increasing costs by moving their business locations out of the country, Beckers observed, reporting also that construction is weak, and sales volumes and gross margins are both down. And to make matters worse, some German manufacturers are questioning the viability of the wholesaling channel itself.

Italy. The Italian electrical distribution sector grew 5.5% last year, but no meaningful increase is anticipated for the rest of this year, according to Rodolfo Bellantani, president of the Italian Electrical Wholesalers Federation. In fact, sales for 1999's first quarter dropped 10% to 15% and prices are down. With industrial equipment sales and residential construction representing close to 70% of the Italian wholesalers' revenues, there is some optimism that a new law stipulating the upkeep of residential structures supported by tax allowances may provide a boost going into the year 2000. However, overall high taxes and the possibility of rolling periods of recession may well offset such areas of opportunity.

United Kingdom. Nigel Ellis, director of the Electrical Distributors Association, described the U.K. market as flat and went on to note that there has been a great deal of acquisition activity in the manufacturing sector of the industry. One of the major forces in the British cable industry, Delta, has been acquired by Netherlands-based Draka; similar acquisitions have occurred in the lighting area.

The Netherlands. General economic numbers were positive for the past year, the GDP up 3.7%, inflation at 2%, and interest rates at an historic low of 4.5%. Responding to these conditions, electrical wholesalers realized an increase in sales volume of 8.2%.

Norway. Norway's robust electrical distribution growth pattern continued in 1998 with a strong increase of 9%, but no growth is expected this year, in the estimation of Jens-Dag Vatndal, director of the Norwegian Electrical Wholesalers Federation. The primary cause for this is the decline in construction activity that is expected to continue into the year 2000.

The industry has also had to deal with new regulations for the recovery and disposal of electrical and electronic products and components. Another dampening factor is the drop in North Atlantic oil prices that has caused the major companies in this field to reduce costs, cut production, and plan for cutbacks of the workforce.

Portugal. In 1998, the Portuguese electrical wholesaling industry saw 6.5% growth in sales volume, but all indications point to a slowing of the market in the near future. Primarily, this will be tied to a weakening of the construction sector and to an emerging movement to relocate industrial operations out of the country.

Spain. A construction boom described as "an absolutely exceptional phenomenon" continues to set the economic pace in Spain, with the demand for electrical goods and services increasing by 15% over the past year, and still continuing strong, according to Pedro Torres of the national federation.

Additionally, there has been an encouraging falloff in bad debts and a considerable reduction in payment periods, long historic problems in this national market. These factors, coupled with an overall stability in interest rates (3%) and inflation (1.7%), have positioned Spanish electrical wholesalers for what they hope will be ongoing growth into the new millennium.

Sweden. Having registered negative growth numbers for the past several years, the Swedish electrical wholesaling industry is hoping that the situation has bottomed out, reported Hans Lofgren, director of the Swedish Electrical Wholesalers federation. But building is still down, as is repair and reconstruction. In the estimation of business and industry, much of the sluggishness in Sweden's economy is due to the ruling Social Democrats' having to compromise on all issues with their coalition partners, the Greens and the Communists.

Also, a new law regarding electrical and electronic waste disposal, similar to that in Norway, is expected to cost electrical wholesalers a great deal at the bottom line. And electric utility companies have begun actively selling off large stocks of wire and cable on the open market.

Switzerland. After two years of negative growth described as "miserable" by Jorg Reimer, executive director of the Swiss Electrical Wholesalers Federation, distributors achieved a 3.4% increase in annual sales in 1998.

But, as in so many other countries, the bellwether construction industry has yet to show significant signs of recovery. In fact, 1998 saw building activity at its lowest level of the past decade.

Also, a major DIY chain called OBI has opened a branch for Swiss contractors that is certain to affect pricing levels in that quarter of the marketplace.