Our nation's economic prosperity depends on the full engagement of all its citizens. We remain committed to the promise of diversity and inclusion. -- Joset Wright-Lacy, President, NMSDC
Some corporations have been questioning the importance of minority-owned businesses to their commercial relationships and supply chains. Yet, NMSDC President, Joset Wright-Lacy explains in this essay, it's become increasingly clear that diversity and inclusion fuel growth for businesses as well as for the economy at large.
Earlier this year I had the opportunity to participate in a Martin Luther King Day celebratory march in Raleigh, North Carolina. The event was very well attended, with a mix of young and old, black, white, and brown, able and disabled. I was especially heartened to see a large contingent of black fraternities and sororities, including college-age "Greeks" for whom Martin Luther King exists only in the stories of their elders. As my husband and I walked on that brisk and sunny day, a placard that read "The Fierce Urgency of Now," a phrase from Dr. King's famed "I Have a Dream" speech, caught my eye. It resonated with me to the core.
In my work with the National Minority Supplier Development Council (NMSDC), I have recently felt a deep sense of urgency as corporations begin to question the importance of minority-owned businesses to their commercial relationships and supply chains. The refrain is, "What is the 'value proposition' for minority supplier development?" That is, of what value is it for corporations to pursue stronger relationships with minority business enterprises (MBEs) in their supply chains? The question itself is deeply troubling, because it suggests both a belief that minority suppliers have to make a "special case" for inclusion in business opportunities and an assumption that minority suppliers can't deliver service, value, and quality. This kind of thinking can lead to the placement of artificial barriers in front of minorities and usually leads to excuses for dropping support for supply chain diversity when corporate budgets are cut.
This is shortsighted, as there is clear and strong evidence that working with minority-owned suppliers provides business benefits for both buyer and supplier. Moreover, these relationships have a beneficial impact not only on local communities but also on the national economy. In fact, the state of minority-owned businesses is a critical measure of the nation's economic health. NMSDC prepared a study in 2014 that illustrated the economic impact of certified MBEs. 1 The study found that MBEs in the United States generate more than $1 billion in economic output every day. That equates to nearly $401 billion annually, in direct, indirect, and induced output effect. Taking a closer look, NMSDC-certified MBEs were directly responsible for more than $139 billion in sales of products and services offered to customers. The increased purchases made by certified MBEs from their suppliers produced indirect output of $116 billion. And the employees and families of certified MBEs contributed significant induced output by purchasing $145 billion of goods and services from other merchants within the United States. By the same calculation and methodology, in 2014, NMSDC-certified MBEs were responsible for the maintenance or creation of more than 2.2 million jobs and generated more than $48 billion in tax revenue to local, state, and federal governments.
While we are awash in news about the state of the U.S. economy, we often fail to recognize that MBEs are part of the nation's growth equation. Think about $1 billion in daily economic output: that's money in the hands of workers and their households that represents the ability to pay for cars, clothes, travel, college educations, and more. And most important, in some minority communities it represents an opportunity to buy a new home, and to move away from grinding poverty and blighted neighborhoods.
The more jobs consumers have and the more wages they earn, the more they are able to participate in the economy, whether that means buying healthy foods or snacks, durable goods or over-the-counter drugs, life's essentials or entertainment, even cars and houses. We cannot expect to have a truly robust economy unless everyone can participate. Putting people to work at good wages is good for what ails the American economy. Corporations that understand this macroeconomic principle are figuring out ways to make sure MBEs have the opportunity to participate in job creation so minorities can participate in the economy.
Minority supplier development drives growth
There is no question that a contract with a minority-owned business is more likely to create a job for a minority individual. This will become more important as U.S. demographics shift and minorities constitute a greater percentage of the population—more than 50 percent by the year 2045, according to current projections. If that demographic group does not have access to well-paying jobs, the U.S. economy will suffer. It calls to mind the words of President Richard M. Nixon, who in 1969 signed an Executive Order creating the precursor to NMSDC, the Office of Minority Business Enterprise: "The opportunity for full participation in our free enterprise system by socially and economically disadvantaged persons is essential if we are to obtain social and economic justice for such persons and improve the functioning of our national economy."
Many corporations and minority suppliers have been engaged in this work for more than 40 years. Yet minority-owned businesses supporting the nation's supply chains still face obstacles that other suppliers do not experience, because minorities' personal and family wealth is dramatically less than that of non-minority entrepreneurs, and there is less opportunity for minorities to fund their own businesses. The NMSDC's 2015 "National Survey on Access to Capital Among Minority Business Enterprises" shows that minority suppliers lack access to early-stage, growth, acquisition, and expansion financing on the same terms and conditions as non-minority suppliers. 2 This is due in part to historical and statistical discrimination as well as to unconscious biases and cultural resistance, but also, as the report says, to "several key internal factors, including lack of a growth-oriented exit strategy, lack of knowledge, lack of engagement, MBE certification requirements, and negative perceptions about institutional funding sources."
To help its certified MBEs overcome these barriers, NMSDC is working on key educational goals in such areas as knowledge of financing options beyond bank loans and exit strategies that satisfy private equity and venture capital requirements; outreach and engagement goals focused on strengthening relationships between investors, corporations, and MBEs (for example, through the annual NMSDC Conference and Business Opportunity Exchange, which draws more than 6,000 participants); and certification policy goals that permit MBEs to raise venture capital or private equity without endangering their status as minority-owned businesses.
Often, minority suppliers must demonstrate their ability to "ramp up" production to meet a company's national procurement needs, overcoming both the internal and external barriers to their ability to win contracts. In a corporate environment where "old boy network" relationships sometimes predominate in the supply chain, MBEs may lack access to opportunities even to demonstrate their qualifications and show their capabilities to corporate decision makers. And yet despite these barriers, both internal and external, minority entrepreneurs are still more likely to start a business. NMSDC's 2014 "Economic Impact Report" cites a joint report from the Milken Institute and the Minority Business Development Agency that suggests that the number of minority business owners in the United States (an estimated 3.3 million when the report was published) is growing at a rate of 17 percent annually—"a staggering six times faster than the growth rate of all firms." 3
This, then, is the "value proposition" of minority supplier development: it fuels economic growth. "Diversity and inclusion" is not just a catchphrase—it actually contributes value to the corporate bottom line. This is a principle that's long been known but is not always recognized by corporations that don't understand the potential benefits. Quoting from a Wall Street Journal article, now 10 years old: "When a company announces a relationship with a minority supplier, investors and analysts tend to file that news release under 'social good' and move on. But companies that seek out such business relationships see financial benefits, too. New research from Atlanta business consultant Hackett Group shows that companies that 'focus heavily on supplier diversity' generate a 133 percent greater return on procurement investments than the typical business." The article goes on to point out that minority suppliers "may price their products and services better than larger competitors or operate more efficiently" and "also can create sales opportunities for companies that use them, meaning they are benefiting the bottom and top lines." 4
More recent reporting and company statements add to the evidence. Consider, for example, this quote from Susannah Raheb, supplier diversity leader for Lockheed Martin Corporation, in the publication Inc.: "We value and leverage the agility, ingenuity, and new perspectives we gain when partnering with small businesses to help us solve a wide variety of challenges and drive affordability into our products, which is a priority for us. ... If there is a more efficient way to do something, we want to know about it. Having a diverse supplier network is one way we leverage a broad spectrum of expertise." 5 The retailer Macy's, on its web page describing the "Importance and Value of Vendor Diversity," notes that its programs "help us present distinctive assortments of unique merchandise in our stores—setting us apart from the competition and making our stores the 'go-to' destination for shoppers wanting fresh and exciting choices. Additionally, working with a wide spectrum of vendors helps Macy's support the economic health of the communities where we do business." 6 And, to return to the Hackett Group for a contemporary analysis, "On average, supplier diversity programs add $3.6 million to the bottom line for every $1 million in procurement operation costs. The high return on investment is undeniable. ... A positive ROI that boosts socially conscious reputation should push supplier diversity to the forefront of business strategy." 7
Now is the time
There is no time like the present to forge links between minority business owners and opportunities in corporate America.
That day in 1963, when Martin Luther King spoke the words I saw on the placard during the march in North Carolina, it was in part "to remind America of the fierce urgency of NOW. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism." It may be, as Dr. King said, that minorities live "on a lonely island of poverty in the midst of a vast ocean of material prosperity." But, he added, "We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation." And finally, as Dr. King observed—and as I observed at the march in Raleigh—many people have come to realize that the economic destinies of all citizens, both those who are in the majority and those who are minorities, are tied together.
Now is the time for corporations to affirm their commitment to minority entrepreneurs who live in the communities and among the consumers that they serve, not only because it is the right thing to do, but indeed to ensure their own corporate financial well-being and the country's social prosperity.
1. Scott Anthony Vowels, Ph.D., "Economic Impact Report: The Effects of NMSDC Certified Minority Business Enterprises on the U.S. Economy," National Minority Supplier Development Council (2014).
2. Calvin Cooper, Ian Blount, Ph.D., and dt ogilvie, Ph.D., "National Survey on Access to Capital Among Minority Business Enterprises," National Minority Supplier Development Council (2015).
3. Vowels, "Economic Impact Report."
4. Steven D. Jones, "Benefits of Supplier Diversity May Go Beyond 'Social Good,'" The Wall Street Journal, August 21, 2006.
5. "Why Supplier Diversity Is Good for Everyone," Inc., April 25, 2016.
6. Macy's Inc., "Importance and Value of Vendor Diversity."
7. Lyndsey Clark, "The Profit of Supplier Diversity," Diversity Best Practices, December 1, 2015; citing R. Stanton, "The Hackett Group takes fresh look at supplier diversity," MBN USA, January 10, 2015.