Distributors have a lot to be concerned about these days, according to INDUSTRIAL DISTRIBUTION's 58th Annual Survey of Distributor Operations (p. 44).

For starters, the movement of manufacturers to China and other countries is increasing at an even faster pace than many had believed. Distributors told us they have lost a substantial amount of business because of these moves, and they don't expect the problem to get better in the future. In fact, half of the nearly 800 respondents to the survey said they expect more of their customers to move to China in the years ahead.

Distributors also report that they have many difficulties confronting them in 2004. They include: the economy (44 percent); price competition (43 percent); customers going out of business (42 percent); increased operating costs (34 percent); manufacturers selling direct (26 percent); and finding more qualified employees (17 percent).

Despite those concerns, distributors tell us they are optimistic about this year. Nearly 85 percent of the respondents said they expect to record higher sales this year. Most of these optimistic distributors expect sales to grow up to 20 percent, despite the Iraq War and the cost of oil.

Distributors intend to grow their busi-nesses in a variety of ways, particularly by selling more products to existing customers. A third of the respondents said growth would come through sales over the Internet. It doesn't appear that growth will come from reverse auctions. Only a small number of distributors said they had participated in such auctions, and those that did viewed the experience as "unfavorable." Others said they had no intention of participating in such auctions.

Surprisingly, there were mixed signs about the importance of integrated supply in the industrial markets in the years ahead. About half of the respondents said it will grow in importance, and 28 percent disagreed.

Close to 55 percent of distributors said their customers are looking for innovative solutions that are different from those in integrated supply contracts. Clearly, distributors believe their customers are looking for new ways to partner with them.

This annual survey is the largest done of the industrial distribution sector. If you would like a copy of the report, which contains an overview by Mark Dancer, vice president of Pembroke Consulting, please go to our Web site at www.inddist.com, or call Alice Yu Miller at (617) 558-4504.

jkeough@reedbusiness.com