The size issue presents a dilemma for corporations pursuing supplier diversity. Clarke explains: "It's tough for a Fortune 500 company to have a small supplier in its supply chain. But Fortune 500 companies have recognized they need to have diversity suppliers. So what they are attempting to do is grow the larger suppliers." Strategic sourcing has therefore been a boon for larger, better-established minority businesses that can handle the volume and scale of business generated by a major corporate customer. As a result, a company purchasing $1 billion from minority suppliers may be channeling 60 percent of that spend through a handful of large MBEs. Meanwhile, as a study from the U.S. Department of Commerce's MBDA concluded, "Most MBEs do not have adequate size, capital, expertise and infrastructure to compete for these selective supplier positions."
The problem with concentrating corporate spend on fewer, larger MBEs, Clarke asserts, is that this thwarts the social benefits of supplier diversity. "Your smaller minority firms tend to have minority staffs, tend to be in minority neighborhoods and tend to spread the wealth within that community," he says. Larger MBEs, in contrast, may have fewer minority employees, subcontractors and executive-level managers. Thus, when larger MBEs capture the spend, Clarke argues, "the process that we are trying to enable economic flow-down doesn't happen."
A further consequence of MBEs' size is that these smaller firms may not have the resources necessary to get themselves connected to their customers. The statistical evidence in this regard is mixed. For example, Dun & Bradstreet's 19th annual Small Business Survey, conducted in 2000, not only showed that seven out of 10 U.S. small businesses have Internet access, but also that minority businesses use the Internet for business research more than small firms as a whole (64 percent versus 54 percent). It also showed that MBEs are more likely to have a Web page or site (40 percent, versus 38 percent for all small businesses). Moreover, 29 percent of MBEs surveyed reported that the Internet helped their business, against just 1 percent who reported it had hurt their business (58 percent said the Internet had no impact, and 12 percent didn't know).
Confirming the moderate level of minority enterprise involvement in the Internet, preliminary results from a survey conducted by the Tomas Rivera Policy Institute, targeting 1,673 MBEs with annual sales of about $500,000, showed that about 49 percent of the responding firms had a Web site, but only about 12 percent were actually selling products or services online. Speaking at an MBDA event in September 2000, Dr. Waldo Lopez-Aqueres, director of economic research for the institute, cited several major reasons MBEs gave for not selling online. Included in these were: the MBE's product did not readily lend itself to e-commerce; the company felt that it didn't need to sell online; the MBE lacked the necessary e-commerce infrastructure; the firm felt that it faced too much online competition; and the MBE sold services rather than goods.
"From a minority perspective, there is still limited exposure to the Web," says Eric Newton, president and CEO of InfoServices, a minority-owned information technology (IT) service provider and systems integrator for tier-one suppliers in the automotive industry. According to Newton, InfoServices and other IT-oriented MBEs have been savvy about preparing for e-business, but non-IT-oriented diversity suppliers, like small firms in general, tend to focus on their own core businesses and may lack the human resources, technology awareness and finances necessary to get enabled.
A further challenge to diversity suppliers and other small businesses is the proliferation of disparate e-procurement systems among major corporations. An MBE's customers may use different procurement platforms and different independent Net markets, and each customer may want to connect to the diversity supplier in a different way. "For a small business that has eight or 10 customers and has to interface with them through their private marketplaces, it becomes a nightmare," says Clarke.
Finally, the very nature of the Internet works against diversity suppliers because of the anonymity of the World Wide Web. "On the Net, there is no color or gender," explains Procurement Resources' Reginald Williams, adding that, as a result, "absent a focused effort to ensure the inclusion of diverse sources, most companies, when sourcing through the Net, are unable to identify whether or not they are reaching a diverse pool of suppliers."
The risk for MBEs of not getting enabled is substantial, advises Reggie Dunlop, co-founder, president and CEO of Expansionet, a Chicago, Ill.-based minority-owned B2B consulting and supplier enablement firm. The risk, of course, is simply getting left behind as corporations move toward automated procurement. "When [companies] try to reduce their supply chain, they are definitely going to get rid of the guys they are dealing with manually," Dunlop says.