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Teemu RaitaluotoStrategic industry analysis – Finnish electricity supply industry analysis
20.3.2016Department of ManagementFaculty of Business studies
01.05.2023 2
Strategic industry analysis – Finnish electricity supply
industryContents:• Introduction• PESTEL framework• 5 forces framework• Strategic groups and
positioning• Summary
University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis
01.05.2023 3University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis
Introduction• The electricity supply market consists of many activities• The total market is around 15 billion euros
– There are a couple of incumbents that dominate the market– Highly legislated and controlled market– Necessity in nature– Local monopoly in each region
• Total of 155 companies were studied using Orbis, individual company websites, journals, and market reports. The author also draws insight from his own previous experience
• The aim was to study the industry– Its factors of profitability– How the market is arranged
PESTEL framework• The industry is highly affected by all of the aspects of PESTEL
– Environmental concern about global warming has lead to strict climate policy• EU targets drive the development
– The Economic growth is the main industry growth driver• Prices of raw material vary and affect profitability of business• Taxes are imposed by the government on electricity (and emissions)
– Trends in social environment drive businesses towards using renewable energy sources, while demanding social responsibility
– New experimental green technologies are emerging– Emissions are regulated and licenses are required
• Law requires reasonable pricing of electricity
01.05.2023 University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis 4
Political• Climate policy• Subsidies• Agreements
Economic• Economic growth• Cost of raw materials• Taxes
Social• Social responsibility• Sustainable development
Technological• Emerging technologies• Cleantech• Solar• Wind
Environmental• Global warming• Emissions• Waste• Weather conditions
Legal• Emission limits• Requirements• Licences• Regulations/directives
5 forces analysis• New entrances are deterred by high initial capital investment
requirements and legislation• Bargaining power of suppliers is limited by world market
prices of raw materials and high amount of suppliers• Buyer power is limited by the necessity nature of electricity
– Switching costs are low– Some parts of the value stream have local monopolies
• Threat of substitutes is low, because electricity is not replaceable– Transmission and distribution can only be done by conducting
electricity• The rivalry among existing competitors is limited to certain
parts of the value chain such as selling and marketing– Some activities are monopolised (main grid transmission)
• Mostly distribution• However, the monopoly power is limited by legislation
– Electric market law (Sähkömarkkinalaki)
01.05.2023 University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis 5
<-20%
-20-10
%-10
-0%0-1
0%
10-20
%
20-30
%
30-40
%>40
%0
20406080
Operating margin %
# o
f co
mpa
nies
Strategic groups and positioning
• Attractive profits are made by some• Market share does not cap profitability• Capital intensiveness requires high ROA• Strategic groups and strategy can be chosen
– Focus– Energy source– Service level– Ownership– Technology– Selling and marketing– Social responsibility
01.05.2023 University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis 6
0% 5% 10%15%20%25%
-40.00
-20.00
0.00
20.00
40.00
60.00
Market share
Ope
rati
ng
mar
gin
%Attribute Range ExampleFocus Broad – Narrow Fortum – FingridEnergy source Renewables – Non-
renewablesVattenfall – PVO Lämpövoima
Service level Broad – Narrow Fortum Asiakaspalvelu – Imatran Seudun Sähkö
Ownership Public - Private Fortum – Imatran Seudun Sähkö
Technology Emerging/experimental – Mature
Wello – Fortum
Selling and marketing
High – Low Fortum – Imatran Seudun Sähkö
Social responsibility High – Low Fortum – PVO Lämpövoima
7
Summary• Highly legislated industry that is slowly changing• Towards greener technology and new innovations• Positions in the market are like to be already fulfilled
and protected by cities, government, or municipalities• The are no superior differing terms of competition to
achieve superior profitability• Asset utilization must be kept high• Social responsibility has to be accounted for • Following industry trends is a must• 5 forces favour the supply industry, but is restricted
by law
01.05.2023 University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis
801.05.2023 University of Vaasa | Faculty of Business studies | Finnish electricity supply industry analysis