The Value Proposition for Minority Business Certification

Shelia C. Hill Morgan, 
Former CEO & President,
Chicago Minority Supplier,
Diversity Council

The challenge: The need to validate 51% Ownership, Operation and Control (OOC) of their businesses is not self-evident to Minority Business Enterprises (MBEs).*

The approach: Affirm and validate; minority entrepreneurs continue to experience contract and access to capital discrimination in the market place.

The impact: Opportunity! OOC validation opens doors, improves and increases access to contracts and capital in the public and private sectors; certification provides assurance of company ownership.

Minority Business Entrepreneurs often ask the question, “Why do I need to become certified? How does certification benefit me? Am I labeling my business? Will certification limit my opportunity to secure a contract and to participate on a level playing field?”

The short answer to all these queries is: certification opens opportunities for MBEs.

In an undeniable trend, corporations have increasingly seen the value of reaching out to diverse suppliers. In 2006, AT&T reported $4 billion in revenue from bids that required diverse supplier involvement. Joan Kerr, executive director of supplier diversity at the time said of having MBE subcontractors, “It’s often a tipping factor” in winning a bid. Johnson Controls Inc., credited $6 billion worth of business it received in 2011 to its involvement in supplier diversity. In an Institute for Supply Chain Management survey of 380 corporate participants, the most cited reason for having a diversity program was “Our organization thinks it’s the right thing to do.” While the social impact is true and critical, this the economic impact of a business diversity programs is undisputable.

Before realizing the value of certification, we need to recognize the value of minority business enterprises. A heavy investment in supplier diversity is a critical contributor to generating revenue through four primary ways: inroads to new domestic markets; assistance with international markets; a reliable and nimble domestic supply chain; and a strong sub-contract bidding base.

First, MBEs represent a key to selling products and services to the minority market. The purchasing power of Minorities is expected to reach 45% of the total purchasing power in the United States by the year 2045. With their dollar value surpassing $2 trillion spent in 2015 and $3 trillion by 2030, the market is large. MBEs give buying corporations direct access to the minority market. MBEs are more likely to be located in their local communities. By contracting with an MBE, the corporation puts its name within the desired community and in front of desired consumers.

Second, contracting with MBEs reduces the risk corporations absorb in expanding internationally. Of the 82,000 minority-owned US manufacturing firms, about 14% generate sales from exports. As such, Minority-owned manufacturing firms are more likely to have global operations compared to non-minority owned manufacturing firms. More broadly, minority entrepreneurs, in doing business with their ethnic heritage countries, have competitive advantages that others do not. MBEs are more likely to have familiarity with the language, culture, officials, and market of the foreign country. MBEs extend a network to foreign government contacts and other officials and leaders who could overcome the inevitable challenges that add cost or even derail investment in foreign markets.

Third, investing in a strong supplier diversity program brings the benefits of a secure, nimble domestic supply chain. A domestic supply chain is preferred for simplified shipping and communication logistics, enabling a corporation to shorten lead times and quickly bring products to market. As U.S. demographic shift to proportionally more minority citizens, the proportion of MBE suppliers is also growing. In 2007, a gap existed where the minority adult population represented 31.5 percent of the US population but the 5.8 million minority owned businesses accounted for only 21.9 percent of all classifiable firms. These figures are beginning to balance according to the 2012 census that showed the number of minority owned businesses rose to 8.0 million, or 28.98 percent of all firms. Given the changing United States demographics, sourcing MBE suppliers is critical to maintaining domestic outsourcing.

Fourth, investing in and supporting MBEs positions a corporation to best compete on government and corporate contracts. Government contracts represent a significant market for corporations that have required MBE involvement since The Small Business Act of 1953. The Small Business Act establishes government-wide goals and requires all Federal agencies to negotiate goals annually with the SBA to ensure that small businesses receive maximum opportunity for participation in Federal contracts. To best perform and stay in compliance, a corporation with a strong MBE supplier base has an advantage, enabling stronger responses to government and non-government opportunities.

For these and other reasons, major corporations, governments, public and private sector buyers portend diversity and inclusion matters to the success of the communities we live and work in. Finding and supporting minority owned suppliers generates a positive return for a corporation’s bottom line. Yet minority entrepreneurs continue to be disproportionately excluded from public and private sector contracting. There are opportunities lost to pass through(s), fronts and ability a non-minority business to presenting themselves as minority. Opportunities lost to suppliers who do not present the benefits of MBES. The questions becomes, “How do buyers intentionally identify and validate the ownership, operation and control of businesses and ensure the business is owned operated and controlled by people of color?” Certification!

A rigorous, clinical certification process provides insurance, assurance, mitigates, limits and restricts the ability of pass through(s), fronts and any businesses where the minority owner is not in control from participating and becoming identified as minority in the diversification of supply chains.

Businesses seeking certification must submit an application with the required documentation to the certifying agency. Required documentation for certification will include, proof of ethnicity, bylaws, business licenses, organization of business (i.e. corporation, sole proprietorship, LLC, etc.) stock certificates, organizations status, resumes and various other types of information to determine the ownership, operation and control of the business. This information is critical to the certification process and validation.

Through certification, a minority owned business owner can stand proudly as a third party validated minority owned and controlled business. Only through the wellestablished and recognized process can the major corporations seeking the benefits of buying from MBEs be assured of the unique offerings of true MBEs. For any minority business owner wondering about certification, it is a critical step toward opportunity.

A minority-owned business firm is defined as an enterprise that is at least 51 percent owned, operated, and controlled by an American citizen primarily from an ethnic minority group or, in the case of a publicly-owned enterprise, at least 51 percent of the enterprise’s stock is owned by one or more such individuals. Journal of Management and Marketing Research vol 2.

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