European electrical contractors have much in common with their U.S. counterparts, sharing many similar opportunities and challenges. However, they also are grappling with a unique historical situation, participating in the ongoing construction and powering of a “New Europe”—the expanding European Union (EU) of nation-states. Still, some of the issues they are contending with may have implications for the U.S. marketplace.
The European Association of Electrical Contractors, or AIE—the acronym for the organization’s name in French, Association Européene de l’Installation Electrique—is a group of 21 individual national federations headquartered in Brussels, Belgium (see sidebar “About AIE” page 61).
These member associations collectively represent approximately 175,000 contractor firms employing a work force of 900,000 and having a combined annual sales volume of 60 billion Euros ($79.2 billion), according to general secretary Evelyne Schellekens, the chief staff executive of the organization.
There is an even greater percentage of small (less than 10 employees) firms in Europe than in the United States—91 percent as opposed to 63 percent here—and only 1 percent of the companies there have 50 or more employees.
Overall, contractor companies in each of the countries are involved in residential, industrial and commercial projects, high- and low-voltage power transmission and distribution, lighting installation, telecommunications and specialty work such as home automation, industrial central management processing, and specified engineering and maintenance, including periodic follow-up inspection.
Interestingly, some European electrical contractors also are involved in both the sale and repair of retail household products, including lighting, major appliances and entertainment equipment.
According to Schellekens, in a recent AIE survey, the top priority market/issue mentioned by respondents from a sampling of 16 member associations was energy management (see Figure 1).
On a scale of one to five, seven member federations—Austria, England, Finland, France, Italy, Luxembourg and Spain—ranked this as their highest prioritized market (see Figure 2). This is reflected in a number of member-association studies, indicating smaller energy consumers—the bread-and-butter customers of the majority of electrical contractors—will become more of a factor in demand-side management projects.
Products that will be specified and installed for these customers include automatic breakers with metering devices to measure voltage and current, allowing for real-time monitoring of individual circuits.
In addition, the electrical contractor is seen as assuming increasing responsibility as a systems integrator, acting not only as installer but as on-site adviser.
But Schellekens cautions successful participation in this and other developing markets will require substantial expenditures of time and money for training in the new technologies involved.
After energy management, the survey graded eight other markets, the next three in order of priority being smart homes and offices, renovation for safety and comfort, and photovoltaic installations.
But two other categories in the survey deserve attention: smart aging and telemedicine.
The term “smart aging” refers to smart housing for senior citizens, which would allow individuals of advancing age to reside at home thanks to new electrical and electronic technological assistance, such as entry access and control, automatic cooking switch-off, stair-elevators and security surveillance. Six countries—Austria, England, Germany, Luxembourg, Norway and Sweden—rated this market as a four on a scale of one to five.
The next step, “telemedicine,” is aimed at increasing the autonomy of people with an illness or disability, so they can access medical advice and transmit self-administered test results, thus interacting in various ways to complement traditional home nursing care. Austria, England, Germany and Norway gave the highest score in this category, a three, to this market.
Taken together, European electrical contractors view these two catagories as their fourth-largest market opportunity.
But perhaps the major focus—and headache—for the electrical contractor in Europe over the last two to three years has been keeping up with the barrage of directives coming out of EU offices in Brussels relative to energy-related and environmental issues.
Typically, these regulations are issued in relatively generic terms, but all member countries are required to incorporate these parameters into their own existing national legislation. And builders, electrical contractors, distributors and manufacturers are expected to understand and meet these new requirements by EU-specified deadlines.
There are a number of EU directives in various stages of development and discussion in Brussels, essentially having to do with energy efficiency, that could impact member companies of the Electrical Contractors Association (ECA), according to its director, David Pollock. The federation represents the interests of approximately 3,000 member companies in England, Wales and Northern Ireland (the Scottish association has its own separate membership in AIE).
The Waste Electrical and Electronic Equipment (WEEE) Directive and the Directive on Reduction of Hazardous Substances (RoHS) are the most visible of these and represent a difficult challenge. The two directives essentially govern the life cycle of electrical and electronic equipment and components, delegating to the industry what has been called a “cradle-to-grave product stewardship.”
But there are a number of gray areas in the legislation, including what products fall under its scope, how take-back costs for recycling of products should be charged, and whose responsibility this is.
It would be important for electrical contractors in the United States to take note of these two European regulatory developments and their possible repercussions here. A number of states, California and Massachusetts in particular, are well on the way to enacting legislation based on EU models.
“We are running out of time to make our voices heard on the RoHS and WEEE issues, since a growing number of proposed restrictions in various states will soon have us reacting to regulatory mandates that may or may not have taken into account industry guidance. We either have to lead or get out of the way and suffer the consequences,” said Evan Gaddis, president of the National Electrical Manufacturers Association (NEMA).
So the U.S. contractor would be well advised to weigh in on these issues with distributors and other suppliers.
But meanwhile, whatever the variables in different European countries, there is one constant over there—failure to comply with the EU statutes carries stiff financial penalties, and members of the electrical industry legitimately are concerned as to what their liability may be.
In addition, ECA’s Pollock notes, there is the Energy End-Use and Efficiency Directive, which is aimed at reducing energy usage in buildings by 9 percent over a nine-year period starting in 2008. The complication here is that a new breed of commercial entities known as energy supply companies (ESCOs) being formed may, in many cases, replace the general contractor as the partner of the electrical contractor.
As with other EU directives, the details of this arrangement remain unclear and may involve leasing agreements between a building owner, the ESCO, and/or the electric utility, and might include design, specification, installation and ongoing maintenance. The final working models, while as yet a matter of speculation, could have radical effects on how the ECA member companies conduct business.
Work force worries
The Norwegian and Finnish associations within AIE generally have had more success in dealing with EU regulatory issues than some of the larger countries, but a major problem they foresee is finding enough qualified workers.
The Norwegian federation of electrical contractors—Foreningen for EL og IT bedriftene (NELFO)—represents approximately 2,600 companies, most of which continue to profit from the country’s strong economy driven largely by its dynamic North Sea oil industry.
“Last year was a very busy time for Norwegian electrical contractors,” said Jostein Skree, association director. “Those working within the oil and gas and the shipbuilding industries were experiencing peak business, and we anticipate that 2007 will see significant increases across the board in commercial, government and residential building projects.”
But the long-term problem that has begun to trouble the country’s construction business in general is a slackening supply of skilled labor. Norway recently has been recruiting workers from some of the new EU member countries in Central Europe, Poland in particular.
While the electrical contractor has not yet been significantly impacted, a possible trickle-down effect is a matter of some concern.
In Finland, a similar problem exists, but accentuated by a decades-long demographic situation. The Finnish birthrate has been low and is expected to remain that way for the foreseeable future; there is no major immigration to the country, and the work force is aging. In addition, on the educational front, the preferences of the younger people are business, medicine, law, pure science and the arts. As a result, technical schools have fewer graduates, and the number of young electricians coming into the job market is not sufficient to offset the vacancies resulting from retirement.
Approximately 2,000 companies belong to the Finnish electrical contractors’ federation—Sähkö-ja teleurakoitsijaliitto (STUL)—and despite the labor force challenge, the organization’s director, Olli-Heikki Kyllönen, believes the industry has definite growth opportunities.
“Our biggest single market is residential work, and this will continue to grow due to the continuous population migration to the larger cities,” he said. “Renovation and expansion of existing housing is growing at a faster rate than new construction, and both heavily involve state-of-the-art technologies that are inherently more profitable for the contractor.”
Kyllönen notes that margins continue to be driven down in traditional electrical installation work, but projects involving information communications technology, home automation, security surveillance and energy efficiency are growing in demand and in profitability. But the key to these profits lies in keeping up with the technology.
Follow the fast technology
“The biggest challenge for electrical contractors in Germany, as elsewhere, is to follow the fast technology changes, mainly in building automation and then to be able to explain to the customer the huge potential benefits involved,” said Ingolf Jakobi, director of Zentralverband der Deutschen Elektro- und Informationstechnischen Handwerke (ZVEH), the country’s massive national federation serving two constituencies.
ZVEH represents the interests of 76,000 electrical and information technology contractor firms, 72 percent of which have less than 10 employees and 1,600 electrical machinery building companies. ZVEH members post a combined annual volume of 31 billion Euros—half of the total figure for all countries belonging to AIE.
Jakobi believes the opportunities are there for contractors who focus on energy-saving technologies such as heat pumps and photovoltaics and who combine the requisite technical expertise and marketing ability to sell their residential and commercial client bases on these products.
In Germany, new governmental regulations stipulating minimum energy-efficiency standards for new and existing residences will facilitate these efforts.
Generally, throughout Europe, whatever the specific national challenges or the implications of new EU legislation, the future for the electrical contractor will hinge on learning the new electronic systems technologies as quickly as possible and adapting existing business models to present the customer with a unique value-added selling proposition. Not too much different from here in the United States, is it? EC
QUINN reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached at 203.323.9850 or firstname.lastname@example.org.