Minority and small business suppliers face two challenges: 1. Building greater scale and capacity, and 2. Improving management efficiency. In the new business environment of intense global competition, corporate suppliers must have greater scale and capacity to be successful.
Global competition has forced corporations to transform their supply-chain operations by using fewer suppliers, managing supply chain costs more closely, requiring suppliers to have more production and service capabilities, and demanding that they respond efficiently and flexibly to changing market conditions. To satisfy these demands, minority suppliers must scale their operations and execute more efficiency. Corporate mentor protégé programs are extremely helpful in this regard.
Corporate Mentor protégé programs can help minority firms build capacity in the following ways:
- Their primary focus is to assist in building greater scale and capacity
- They improve the management efficiency of suppliers
- They create supply chain opportunities for minority companies
- They enhance the value contribution of suppliers to the corporation
- They improve supplier retention rates
- They provide technical and management assistance to suppliers
- They provide business resources to suppliers
- They assist in broadening supplier networks
- They create long-term business alliances between corporations and minority suppliers
- They improve the market share of minority suppliers
- They enhance corporate penetration of diverse markets
Improving management efficiency is the starting point for building greater scale and capacity. All small businesses, and especially minority-owned businesses, encounter great difficulty when it comes to graduating from the early stages of business development, i.e. the start-up, entrepreneurial and early growth phases. The most important stage of business development is reached when a company becomes a professionally managed enterprise.
Businesses at this stage will have well-defined organizational and management structures; financial, budgeting, inventory and accounting controls; established human resource policies, practices and procedures; marketing, advertising and forecasting protocols; and the full range of policies and practices that provide the infrastructure for successful growth. These are precisely the kinds of skills that corporate mentor protégé programs can provide.
In their book entitled Growing Pains (2007), Flamholtz and Randle identify the multiple challenges associated with becoming a professionally managed enterprise. They note how difficult it is for firms to transition beyond the entrepreneurial and startup phases. The challenge usually occurs for service firms whose revenues range between $3.3 million and $30 million and for manufacturing firms with revenues between $10 million and $100 million.
The Size Deficit of Minority Firms
To examine this issue we used data on 30,160 small business concerns that were listed with the federal government’s Central Contractor Register (CCR) in 2007. Among these businesses were 19,387 non-minority-owned firms (64.3%). And 11,603 minority-owned firms included the following groups: 3270 firms owned by Asian and Pacific Islanders, 4274 firms owned by blacks, and 3229 firms owned by Latinos. Each firm had at least $1000 in revenue annually.
The average revenue of the forms was $4,496,226 for non-minority-owned firms, $4,240,907 for firms owned by Asian and Pacific Islanders, $3,030,724 for firms owned by Latinos; and $2,598,429 for firms owned by black Americans. Generally, the revenue of these firms was about four times that of all small businesses in the country.
The need to scale is a challenge confronting all small business owners, but it is particularly acute for black Americans. The size of businesses operated by blacks is smaller than that of all other racial and ethnic groups. For example, the percent of firms that have reached the professional management stare for each group is as follows (recall that service firms must have revenues between $3.3 million and $30 million and manufacturing firms $10 million and $100 million): all minority owned firms, 9.3%; non-minority-owned firms, 14.0%; firms owned by blacks, 6.2%; firms owned by Asian and Pacific Islanders, 11.9% and firms owned by Latinos, 10.7%.
Corporate Mentor Protégé Programs
Corporate mentor protégé programs are important because they help minority suppliers crossed the bridge to become professionally managed enterprises. They also create new opportunities in corporate supply chains.
In a recent national survey of minority, women and non-minority owned small businesses (the Gazelle Index), about two thirds of the business owners in each group indicated that improving management efficiency was “the most important factor” in achieving their business objectives. The percentages of CEOs in each group were as follows: 68.6% of women, 63.4% of men, 70.8% of blacks, 67.2% of Latinos, and 62.4% of whites (see Figure below).