By Cristina Stanca-Mustea, Customer Operations Manager, Scoutbee
Supplier diversity. Everyone’s talking about it but there are still many questions as to what it means exactly, how best to execute it as a strategy, and why it’s good for your company to do so.
As part of our blog post series, Delving Deeper into Supplier Diversity, we’ll look at some of the different types of diverse businesses out there and why it’s in your company’s best interests to consider integrating them into your supply network. In this post, the spotlight is on minority-owned enterprises.
What is a minority-owned enterprise?
Currently, there are seven minority groupings in the U.S. – Hispanic or Latino Americans, Black or African Americans, Asian Americans, Arab and other Middle Eastern Americans, Native Americans and Alaska Natives, and Native Hawaiians and other Pacific Islanders. (Other countries are yet to create such specific frameworks to encourage and support the visibility of minority-owned businesses.) In order to become certified as a minority-owned enterprise, the following criteria must be met:
- U.S. citizenship
- At least 51% owned and operated by a minority
- Be a profit enterprise physically located in the U.S. or trust territories
- Management and daily operations must be exercised by the minority ownership member(s)
Minority-owned enterprises form one of the pillars of the U.S. economy. Currently, there are 8.2 million minority-owned businesses in the United States, employing 8.7 million people. Minority-owned businesses bring in $1.3 trillion in annual revenues.
99.9% of minority-owned enterprises with employees are small businesses. On average, minority-owned businesses make $1.2 million per year in sales, with the largest industry sector being healthcare and social assistance, making up 37% of all minority-owned businesses. Minority-owned businesses are also twice as likely to export compared to non-minority-owned businesses.
Challenges faced by minority-owned enterprises
Despite their growing significance, minority-owned enterprises face a wide variety of challenges. The hardest to quantify, all-encompassing challenge relates to the general stereotypical ideas people in business tend to assign to minority-led enterprises. For instance, if you’ve always pictured a business owner or CEO as a Caucasian man, it’s hard to put your finger on why you may feel differently about a certain business or in what ways you may behave. Subconscious bias, which is almost impossible to quantify, tends to account for the overarching challenge faced by minority-run businesses.
This challenge can present itself in a number of ways, including limited access to capital or the best terms associated with raising capital. For example, it’s much more difficult for minority businesses to get loans than non-minority businesses, particularly for enterprises with less than $500,000 in gross revenue.
Furthermore, according to research by McKinsey & Company, on average, big banks approve around 60% of loans applied for by white small-business owners, 50% by Latinx small-business owners, and 29% by Black small-business owners. The loans that minority enterprises get from lenders also tend to be smaller on average: $149,000 versus $310,000.
Other challenges faced by minority-owned enterprises include inadequate access to crucial business and information networks, different treatment by board members or other stakeholders, and difficulty attracting top talent.
The benefits of working with minority-owned enterprises
However, in spite of the difficulties they face, minority-owned enterprises bring numerous benefits and opportunities to the businesses they work with. Here, we explore just a few of them.
Lowers risk to your operations and opens doors to new revenue opportunities
Studies show that working with minority-owned enterprises reduces overall risk across your organization. It also enables you to expand your client base to a whole new demographic. According to research by the Hackett Group, working with a certified minority-owned business can add an extra $3.6 million to an organization’s bottom line. With as much as 130% return on investment for every $1 million spent on procurement operating costs, companies who work with minority-owned enterprises can quickly realize tangible competitive advantages.
If your company wants to do more business with a particular minority group, this can open the door to an abundance of untapped opportunity. It can also help you win bigger contracts and government business, as corporations, the federal government, and state agencies all want to work with minority-owned enterprises in order to fulfill compliance obligations.
Shows your company’s commitment to supporting diverse enterprises and communities
Working with minority-owned enterprises is a powerful way to declare your support. You’re putting your money where your mouth is to show that you specifically want to source products or services from diverse organizations, which in turn drives growth in the underrepresented communities they operate in and strengthens local economies.
These partnerships also have the potential to further diversity, equity, and inclusion goals within your own organization. This is important when doing business with large corporations or government agencies which have strict diversity criteria. In addition, your investors and customers will reward you for it.
Provides tax incentives
Choosing to work with a certified minority-owned enterprise will grant your company access to many tax benefits. The U.S. government provides various federal and state tax incentives, tax breaks, and potential rebates to companies who work with certified minority-owned enterprises. In addition, certified minority-owned enterprises are eligible for a reduction in tax liabilities for projects or work funded by federal and state grants and loans.
A recent study by Rebirth Analytics of over 300 privately-held minority suppliers – across seven states representing over $8.1 billion in gross revenue – showed that minority suppliers survived the lockdowns during the pandemic better than many of their publicly-traded or privately-owned counterparts. It’s clear that these companies operate with extremely high levels of resilience and can continue to be relied upon through uncertain times by the organizations they partner with.
Increased innovation and creativity
Many minority-owned enterprises are led by ambitious young professionals who have unique perspectives and valuable industry insights. They often demonstrate higher flexibility and adaptability when working with partners, and can bring inventive solutions and a fresh take on strategy and ideas to your organization. Taking advantage of these diverse viewpoints enables more innovation and creativity and can help your business expand.
As you can see, there are many persuasive reasons to work with minority-owned enterprises. Developing partnerships within this network will pave the way to new opportunities and innovations and almost certainly have a positive impact on your company’s supply chain resilience and bottom line.
Scoutbee can help you find more minority-owned enterprises in the United States and is the only solution on the market that powers a seamless integration of all data, from internal and external sources, to give you a complete visualization of your supplier base and bring these benefits – and more – to your business.
In our next post in this series, we’ll delve into the advantages of working with LGBTQ+-owned enterprises.
If you missed our post on the benefits of working with woman-owned businesses, click here.