$290 Billion Dollar Opportunity to Close the Wealth Gap: Will Companies Prioritize Diversity Spend?

New Michigan Minority Supplier Development Council research shows that an increased corporate commitment to minority business spending could close the gap in 15 years.

A report commissioned by the Michigan Minority Supplier Development Council assessed the growth rate of minority business enterprises and determined the gap that remains in revenue parity for MBEs.

Here are the findings https://minoritysupplier.org/333-years/.

The overall findings from the report suggest increasing supplier diversity remains a significant challenge, and achieving parity would bring a significant boost to the overall economy. One analyst estimated that increasing diversity spending to parity with white owned businesses would add $290 billion in overall wealth to communities of color.

By 2045, people of color are projected to make up more than 50% of the US population making access that allows MBEs to compete to supply products and services is paramount.

Large companies, municipalities and state agencies are finding it challenging to achieve their company goals as it relates to diversity spending. Here are some strategies that organizations can use to bolster their supplier diversity program and increase spending with minority owned businesses.

Create viable pools of minority owned businesses. Spending with Minority Business Enterprises (MBE) requires the availability of qualified diverse owned businesses. The largest barriers to the creation of viable minority business enterprises are.

1. Access to capital. Traditionally, Black and Hispanic owned businesses have lacked access to capital that fuels many high-growth industries. In 2020, Black and Hispanic businesses received only 2.6% of all venture funding. According to the Michigan Minority Supplier Development Council report, improving access to capital for MBEs can accelerate revenue growth and may reduce the time to parity by as much as 25%.
2. Access to customers. Corporations and anchor institutions can commit to increasing the inclusion of MBEs in their sourcing activities. More customers for MBEs will increase revenue which provides the resources for companies to increase their capacity.
3. Access to knowledge and networks. Strategic expertise and technical training are significant impediments to MBEs being competitive in the marketplace. With the proper training, mentoring and access to business networks, MBEs will begin to develop more competitive and sustainable businesses.

Make a long term commitment to spend targets. The average minority business enterprise spending (when spending with public companies is included) is 3.29%. This average must increase 4–5 times current levels to between 13%-16% to achieve revenue parity with white owned firms. According to the report, if all corporations commit to growing their MBE spend percentage by 1% every year, the time to parity is reduced to fewer than 15 years.

Commit to diversity spending goals across all categories in the organization. We often here the term “low hanging fruit” as it relates to diversity spending in areas such as construction, low-growth manufacturing, catering/food services, or janitorial services. These are easy targets to pad the stats for supplier diversity programs, but often tend to be in low margin and low growth areas of the economy. Corporations should commit to procuring from MBEs in high-growth, high-margin areas of the economy, such as advanced manufacturing, technology and professional services.

Partner with organizations to tie diversity spending to existing community initiatives. By 2045, people of color are projected to make up more than 50% of the US population. In order to ensure economic prosperity in all populations, organizations should use data driven measurements to connect supplier diversity programs to the well being of local communities.

Using data published from the United States Census Bureau, Supplier.io reports, spending with minority owned businesses will have to increase by 400 to 500% in order to be at revenue parity with white owned businesses.

Genesis Block is committed to partnering with organizations with the aim of increasing diversity spending and providing solutions to successfully implement supplier diversity programs.

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