Here's a core fact in distribution: To be a distributor, you must have an arrangement with a supplier to warehouse and sell that manufacturer's product. The agreement normally contains specific territorial bounds—exactly where you, the distributor, are franchised to sell the manufacturer's product.

Even back in the "good old days," the system was challenged. The squabbles included who gets the credit for a sale into a certain territory; pressure for one distributor's new branch to take a valued line into a geographic area already covered by another distributor; and disputed credit for purchases destined into a local territory made by a far-off corporate headquarters through another distributor.

Some suppliers have been more diligent than others in patrolling these territory boundaries, and some distributors have been more creative than others in making a sale and pushing the boundaries.

But the market has become more crowded with both distributor outlets and manufacturer brands, leading all parties to poke holes in the boundaries with new ways to get product to market. New channels of distribution from outside the electrical industry have emerged as strong competition, often holding their own franchise to the same physical territory the distributor claims. Within the electrical industry itself, national accounts selling, catalog sales and product specialists with a national focus change the picture further. An active gray market in electrical products bends the rules yet more.

Now there is the Internet. As electrical manufacturers and distributors rush to get on this electronic commerce highway, where information (now) as well as orders and payment (soon) zap from coast to coast in minutes, several questions come to mind. As Managing Editor Doug Chandler wrote in an Electrical Marketing article recently, "Two key questions are, in an environment where communication and interaction between end users and manufacturers will become much easier, will there be any need for intermediate steps of distribution? And, if so, how might the Internet change the roles those intermediaries play? Another question is, will distributors with the global exposure an Internet presence provides agree to be bound by geographic franchises issued by their suppliers?" He concluded on both counts that "companies venturing into cyberspace are trying to preserve the advantages of existing arrangements while keeping an eye out for new opportunities."

Why do I get the feeling these new opportunities will win out? In part it has to do with the Internet's vastness, directness, lawlessness (if that's the right word) and anonymity. In part, the feeling comes from the realization that so many holes have been poked in the system by other forces that it's collapsing like a tire with a slow leak.

The value of a franchise would seem to be even more important than ever. In some product lines, a distributorship lives and dies (sometimes literally) by the line it carries. In some geographic markets, brand preference may be so strong that if you don't carry the brand, you don't get much in the way of sales. Distributors have also been reducing the number of lines they carry to cut transaction costs. This makes each remaining line more valuable to the distributor than before. Other distributors press for partnering and exclusive distribution arrangements. Such notions underscore the value of the local franchise in the eyes of the distributor.

The rise of the Internet may be bringing dramatic focus on the viability of distributor franchises, but the fact remains that forces have been straining and penetrating the boundaries for decades. Just how much value does the franchise concept—especially the territory bounds part—still hold? Or is the value of a different type these days? Do the old rules still work? Can they be adapted to the new electronic age? These are just the first questions that will surface as this industry moves into the age of electronic commerce.

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