What can corporations do to promote minority business development?
11/9/2010, 8:38 p.m.
The national convention of the largest minority business organization in the world, the National Minority Supplier Development Council (NMSDC), met in Miami last month. There were more than 8,000 attendees representing minority businesses from around the world together with representatives from most of the 3,500 corporate members of the NMSDC. Also, our regional councils like the Greater New England Minority Supplier Development Council (GNEMSDC) were at the event. After meeting with my colleagues, my corporate members and our certified MBEs, I have one question whose answer is important not only for those corporations that were there, but also for corporations that were not. That question is: What can corporations do to promote minority business development?
The simple answer is for corporate America to buy more from minority businesses. There is a very long way to go before minority businesses get their share of the business to business market. In speaking with corporate members around the country, the typical proportion of “spend” with minority businesses by large corporations is between 2-5 percent. Any company or organization spending more than 5 percent is considered in our network to be a major player in the minority business world. So buying more is a critical answer to the question. But there is even more that corporate America must do to acknowledge the reality of business in 2010.
One major change that has impacted corporate spend with MBEs is the fact that many large companies over the past decade have found it difficult to increase their profits by raising their prices. There are only a few industries that have had the ability to raise prices and profits, such as oil, entertainment and some luxury goods. Most industries have been faced with intense competition and lower prices. These include technology, housing, clothing and food. The effect of this change is that corporations have adopted a strategy called “strategic sourcing,” which has led them to seek higher profits by lowering their costs. Some of those cost reductions are the result of outsourcing production and supplies to global sources where costs are significantly lower. The world is flat.
As a consequence of strategic sourcing, corporations have reduced the number of suppliers and demanded more from them. The result for minority businesses is less opportunity for those MBEs that are not globally competitive. So buying more is not as easy as it sounds. This is no time to make excuses for corporate America, quite to the contrary. There are some specific steps that they can and must take if they want MBEs to continue to grow.
First, corporate America must work with minority entrepreneurs and organizations like the GNEMSDC to identify divisions of companies, and large suppliers whose owners are willing to sell to minority entrepreneurs. The large minority firms of the future will be the non-minority divisions of major corporations today. Such transactions and strategies are easier to do than to grow a significant business from scratch. There are a number of minority entrepreneurs who have honed their skills and are ready and able to take on the challenge of these ownership transfers. There is also substantial money around to finance these types of transactions. In addition, companies like this will have a ready supply of customers who are looking for large scale MBEs. The key to this strategy is for corporate America to invite us into the room when these transactions are being considered. So, before selling to the usual suspects or just closing a division down, consider a conversion to minority ownership.