New Challenge for Minority Businesses in the New Economy

Minority businesses are being affected by global competitive pressures that have forced corporations to implement radical changes in supply chain management.  Radical changes are also occurring in government procurement.

Minority business must adjust by building greater scale and capacity and by becoming professionally managed enterprises.

The “Great Recession” has saddled the national treasury with a $1.7 trillion deficit and forced government agencies to implement a new epoch of fiscal austerity.

Mobile applications have added more price pressure from customers than ever before – that is, by simply swiping a barcode with a smart phone, the consumer can identify instantly the lowest price at which a product can be purchased and the nearest location where it is the can be bought.  This is the new economy!

In this new economy, global competition and consumer intelligence are forcing manufacturers to reduce supply costs.  Original Equipment Manufacturers (OEMs) have responded by using fewer suppliers, lowering supply chain costs, requiring each supplier to have greater production and service capabilities, and selecting only suppliers who can respond efficiently and flexibly to changing demand conditions.

Likewise, public sector procurement officers are adjusting to austerity budgets by bundling contracts, using design-build solicitations and awarding construction managers at risk contracts.

This new business environment is uncharted territory for minority-owned businesses.  One example helps to illustrate the point.  In May 21, 2009 testimony before the House Judiciary Committee the president of the National Association of Minority Automobile Dealers indicated that even before Chrysler and General Motors reorganization, the number of minority-owned dealerships had declined to 1,200, from its peak of 2,000.  Following the reorganization, it was estimated that the two auto manufacturers would eliminate as many as 314 of their 475 minority dealerships.

The smallness of scale and lack of product diversity among minority dealerships were cited by GM and Chrysler as primary factors upon which their decision depended.  This example illustrates most vividly how corporate supply chain success for minority firms, given the new economy, will depend upon their ability to build greater scale and capacity.  Capacity building therefore is the new mandate of minority business development.

To meet the new challenge, minority businesses must become Professionally Managed Enterprise (PMEs).  History shows that only a small percentage of businesses will achieve the scale of operation that is typical for firms that become PMEs.

One of the most essential guides to understanding the challenges and elements of achieving PME status is a landmark book by Eric Flamholtz and Yvonne Randle (2007) Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firms.  (John Wiley & Sons: San Francisco).  The Gazelle Index’s staff strongly recommends this book.

Note: The 17 page report entitled, Economic Outlook for Minorities, Women and Non-minority Businesses in 2012 is currently available. Copies are free of charge. Simply register on this web site to get access to your free copy. A summary of the report is also available. Read More