SME Landscape to 2006 - The development of competitive forces in Europe

SUMMARY

The European SME market has reached a crucial period in its development.National factors such as supply competition, low tariff prices, concentration inthe generation markets and regulatory uncertainty all contribute to an uncertainfuture. Datamonitor's SME Landscape is the definitive guide to thesedevelopments and their interaction to provide strategic visibility to 2006across Europe.

Scope of this report

• This analytical report assesses the potential for competitive developmentsin Europe according to a number of pertinent factors through to 2006.
• The macro trends that affect the SME business are assessed by market toprovide the utility with a better understanding of their target market.
• Profiles of the UK, France, Italy, Spain, Germany, Netherlands &Scandinavia analyse market influences, supplier activity, & the SMEenvironments.
• Datamonitor predicts how the various country specific factors such asmarket concentration, tariffs and price movement will affect competition to2006

Research and analysis highlights

Datamonitor believes SMEs in the opening markets will not experiencesignificant competition for their business. Rather, gradual changes inpropositions to match their needs will be the order of the day, combined withbrand change, improved customer communication, and development of segmentationthrough customer data analysis.

Utilities have underestimated the rate of business start-up and failure, withconsequent impact upon credit control efforts and assessments of lifetime valuein their pricing structures.

France looks likely to have limited competitive development upon marketopening, whilst the UK and Netherlands in particular look set to have activemarkets in switching terms through to 2006.

Key reasons to read this report

• Understand the macro influences upon the SME customer to better understandhow and when to communicate with them.
• Learn the factors that will influence the rate of competitive developmentsin each market, including how individual key suppliers are expected to react
• Gain strategic visibility from Datamonitor's analysis of how and why theEuropean markets will develop over the next two years.

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY

Introduction

Market context

Macro trends in the SME landscape

Country profiles - switching context

Netherlands

France

Germany

United Kingdom

Spain

Italy

Nordic Market

Summary

CHAPTER 2 INTRODUCTION

CHAPTER 3 MARKET CONTEXT

Introduction

Key findings

The changing market

The path to profitability

Switching activity in the SME market

Profitability of the SME market in Europe

What are the key threats to profitability in 2004?

Should we expect an increase or a decrease in profitability over the nexttwo years?

Summary of market activity

Lessons to learn - the service model

CHAPTER 4 MACRO TRENDS IN THE SME LANDSCAPE

Introduction

Key findings

Creation, survival, and failure

Communicating with the SME

Channels to the customer

Creating an SME entrepreneur's profile

Customer satisfaction to date

Price developments

M&A activity - increasing market concentration

Market dominators - growth of the European player

Summary of macro influences

CHAPTER 5 COUNTRY PROFILES - MARKET DEVELOPMENTS TO 2006

Introduction

The drivers of competitive activity

Summary of competitive expectations to 2006

Composition of the Dutch SME market

Market concentration - supply and generation

Green market activity

The economic environment for SMEs

Regulatory impacts

Supplier activity

Price movement and differentiation

Organic acquisition

Customer needs

Other factors for consideration

Implications for strategy

France

Composition of the French SME market

Market concentration - generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Other factors for consideration

Implications for strategy

Germany

Composition of the German SME market

Market concentration - generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Implications for strategy

United Kingdom

Composition of the UK SME market

Market concentration - generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Implications for strategy

Spain

Composition of the Spanish SME market

Market concentration - generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Implications for strategy

Italy

Composition of the Italian SME market

Market concentration in generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Implications for strategy

The Nordic market

Composition of the Nordic SME market

Market concentration - generation and supply

Market activity

The economic environment for SMEs

Regulatory influence

Supplier activity

Price movement and differentiation

Customer needs

Implications for strategy

Datamonitor View - consolidation for the future

CHAPTER 6 APPENDIX

Definitions

Research methodology

Future readings

SPP writing team

How to contact experts in your industry

List of Tables

Table 1: Supplier switching and contract renegotiation in the SMEelectricity market, 2004

Table 2: Margin on electricity in the European SME market (2004)

Table 3: Access to finance: information in possession of bank

Table 4: Customer channel choice for switching information in the UKmarket one year into SME liberalisation

Table 5: Price expectations for 2004-2006 in the SME market

Table 6: Summary of scores - the expected vibrancy of competitive activityby European market to 2006

Table 7: The economic environment of Dutch SMEs

Table 8: Scoring Dutch competitive developments to 2006

Table 9: The economic environment of French SMEs

Table 10: Scoring French competitive developments to 2006

Table 11: Concentration of installed capacity by top three suppliers inEurope (2003)

Table 12: Net electricity prices including additional costs like chargesaccording to the Renewable Energy Sources and Co-generation Acts without VATand electricity tax index figures 1998 = 100

Table 13: Scoring German competitive developments to 2006

Table 14: Breakdown of UK SMEs by sector, 1994-2002

Table 15: Segmentation of the UK SME market by supplier sites and volume

Table 16: Electricity market shares in three segments of the UK SME market

Table 17: Customers won back by the supplier as a percentage of the SMEcustomer base

Table 18: Price increases by UK suppliers 2003-2004

Table 19: Breakdown of SME acquisition by sales channel and supplier

Table 20: Scoring UK competitive developments to 2006

Table 21: Statistics of Spanish SMEs

Table 22: Scoring Spanish competitive developments to 2006

Table 23: Breakdown of the Italian SME market by sites and spend

Table 24: Statistics of Italian SMEs

Table 25: Scoring Italian competitive developments to 2006

Table 26: Enterprise bankruptcies in Finland, 1990-2002

Table 27: Scoring Nordic competitive developments to 2006

Table 28: Criteria for qualification as an SME by the European Commission

List of Figures

Figure 1: Assessment of Dutch SME switching activity to 2006

Figure 2: Assessment of French SME switching activity to 2006

Figure 3: Assessment of German SME switching activity to 2006

Figure 4: Assessment of UK SME switching activity to 2006

Figure 5: Assessment of Spanish SME switching activity to 2006

Figure 6: Assessment of Italian SME switching activity to 2006

Figure 7: Assessment of Nordic SME switching activity to 2006

Figure 8: What have you been concentrating upon to improve or retain yourprofit margin?

Figure 9: Indicative assessment of the status of competition in the SMEmarket in 2004

Figure 10: Profitability of the SME customer for electricity in thederegulated and newly deregulating markets (2004)

Figure 11: End user prices for small, medium, large and extra largebusinesses in Europe

Figure 12: What are the key threats to profitability in 2004?

Figure 13: Should we expect an increase or a decrease in profitability inthe SME market over the next two years?

Figure 14: SWOT analysis of the mass market integrated approach to servingthe SME customer base

Figure 15: SWOT analysis of the stand-alone unit approach to serving theSME customer base

Figure 16: The current SME service approach by country - integration orstand-alone strategy?

Figure 17: % of the total business market represented by new start-ups

Figure 18: Comparison of annual birth and death rates within industrialactivities

Figure 19: Comparison of annual birth and death rates within theconstruction sector

Figure 20: Comparison of annual birth and death rates within the servicesector

Figure 21: Business survival by country of SME since creation

Figure 22: The approach to the customer must be guided by their particularprofile and preferences with regards to channel

Figure 23: Forms of communication used by SMEs in Europe

Figure 24: Market concentration in electricity generation by nationalmarket 2003

Figure 25: Market concentration in electricity supply by national market(2003)

Figure 26: The major players in the SME market in 2004 and 2006

Figure 27: Summary of scores - the expected vibrancy of competitiveactivity by European market to 2006

Figure 28: Development of competition in the Netherlands 1998-2004

Figure 29: Composition of the Dutch SME market by industry

Figure 30: Assessment of the Dutch SME switching market to 2006

Figure 31: Development of electricity liberalization in France

Figure 32: Composition of the French SME market by industry and spend

Figure 33: Development of competition in the French market - industrialsuppliers moving in

Figure 34: Assessment of French SME switching to 2006

Figure 35: Switching activity in the German market (2003)

Figure 36: Composition of the German SME market by industry

Figure 37: Market domination by four suppliers in Germany

Figure 38: Development of pricing with the progression of competition

Figure 39: Budgetary focus of Stadtwerke for acquisition and retention

Figure 40: Assessment of German SME switching activity to 2006

Figure 41: Composition of the UK SME market by industry

Figure 42: Segmentation of the UK SME market by supplier sites and volume

Figure 43: A range of hedging positions have been taken by players activein the SME market

Figure 44: Evaluation of suppliers' SME strategies to 2005-06

Figure 45: Winners and losers in the UK SME market to 2006

Figure 46: Assessment of UK SME switching activity to 2006

Figure 47: Development of Spanish electricity liberalisation

Figure 48: Composition of the Spanish SME market by industry

Figure 49: Regulatory communication initiatives in Spain

Figure 50: Price changes in the regulated tariffs in Spain, 1997-2003

Figure 51: Gas Natural's planned commissioning of CCGT plant (MW)

Figure 52: Assessment of Spanish SME switching activity to 2006

Figure 53: Breakdown of the Italian SME market by sites and spend

Figure 54: Market share of retailers 2002

Figure 55: Power generation by utility (2003)

Figure 56: Edison's position in the Italian electricity and gas markets

Figure 57: Edison's plans for growth in electricity to 2007

Figure 58: Assessment of Italian SME switching activity to 2006

Figure 59: Breakdown of the Nordic SME market by industry

Figure 60: Market concentration in supply and generation in the Nordicmarket

Figure 61: Distribution of Norwegian service industry electricitycontracts

Figure 62: Distribution of Norwegian non-energy intensive manufacturingindustry electricity contracts

Figure 63: Assessment of Nordic SME switching activity to 2006

Figure 64: Summary of expected SME switching activity in Europe to 2006