Minorities currently constitute about 29 percent of the U.S. population, according to year 2000 projections from the U.S. Department of Commerce, which classifies minorities as everyone but non-Hispanic Whites. The Commerce Department projects that over the next 50 years the share of the minority segment of the population will rise to about 47 percent, and by 2025 minorities will constitute majorities or near-majorities in many states.
More to the point — and to the corporate bottom line — minority buying power in the United States, already at $1.33 trillion, will rise to between $4.32 trillion and $6.08 trillion over the next 45 years, according to the government. "The minority population," a Commerce report states, "may contribute to ... as much as 70 percent of the total increase of purchasing power from 2000 to 2045."
According to a joint report from the Milken Institute and the Commerce Department's Minority Business Development Agency (MBDA) entitled The Minority Business Challenge: Democratizing Capital for Emerging Domestic Markets, business-ownership trends are set to follow a similar pattern. The authors point out that the number of minority-owned firms, currently at 3.25 million, is growing at a rate of 17 percent per year, six times faster than the growth rate for all firms. Also, sales at minority firms are growing 34 percent per year, or greater than twice that of all firms; and sales per employee at MBEs are growing at a rate of 16.5 percent annually, versus 7.9 percent for Fortune 500 companies. "Minority businesses are a driving force behind growth and will be a major segment of the U.S. economy in the 21st century, as a transition to a more diverse demographic majority emerges," the report concludes. However, minority business owners are still underrepresented compared to all businesses, and MBEs have less access to investment capital, the report notes.
These trends have prompted a range of corporations to examine supplier diversity initiatives as a way of increasing their market share among minority communities. By 2000, U.S. corporations were buying nearly $45 billion in goods and services from MBEs, according to the National Minority Supplier Development Council (NMSDC), which is a 29-year-old organization that links Corporate America to minority businesses.
Admittedly, these initiatives, which got their start in the late 1960s, have been, for the most part, slow to spread. A 1997 study by the Center for Advanced Purchasing Studies revealed that U.S. corporations were directing just 3.5 percent of their purchases to MBEs. Reginald Williams, CEO of Procurement Resources Inc., a 28-year-old consulting firm that advises corporations and U.S. government agencies on diversity initiatives, puts the figure at about 4.3 percent today (including purchases from women-owned businesses). Williams calls that level "abysmal," and he cites data showing that 80 percent of America's corporations have yet to introduce a supplier diversity initiative.
"Companies must generate a pool of suppliers that mirrors the customer base that purchases their products and services," says Williams. By partnering with diversity suppliers, Williams explains, corporations "are able to infuse economic stability into their own markets. The companies that have not yet understood this are going to be behind the curve, because market leaders are leveraging these relationships in supplier diversity as a means of enhancing market share."
The e-Procurement Conundrum
Even as corporations have looked (to whatever extent) to supplier diversity as a possible tool for expanding revenues, recent years have also seen a move to cut costs by implementing e-procurement programs. These e-commerce initiatives have presented diversity suppliers with a host of new challenges.
First, e-procurement, like strategic sourcing, has put an emphasis on long-term agreements, preferred suppliers and strategic partners, therefore benefiting primarily larger suppliers with broader offerings and more robust services. But U.S. Census data show that the overwhelming majority of MBEs are small or midsize firms, with just 1.2 percent of MBEs bringing in greater than $1 million in annual revenues in 1992 (the most recent year for which data is available). "Minority businesses typically don't have anything to leverage to become a strategic partner," says Kenton Clarke, president and CEO of Computer Consulting Associates International Inc. (CCAII), an MBE that supplies contract information technology (IT) staff to large corporations.