Prof. Monder Ram

Supplier diversity initiatives aim to offer underrepresented businesses like Ethnic Minority Businesses (EMBs) the same opportunities to compete for the supply of quality goods and services as other qualified suppliers. Defined in this way, the idea of supplier diversity fits well with the Corporate Social Responsibility (CSR) agenda and the promotion of equal opportunities, greater social inclusion and good race relations. Moreover, the concept of supplier diversity is in tune with the rhetoric of ‘think small first’ in respect of public sector procurement and the encouragement of local economic development through public purchasing. While Supplier diversity is gaining momentum in the UK, the process is slow and fraught with challenges. The UK still has some catching up to do with the US, where the concept has been well established over the last 40 years or so.

However, it has to be noted the US is not a pioneer in supplier diversity by accident. There are two major forces at play that foster supplier diversity on the other side of the Atlantic: the public policy tradition and the pace of demographic change in the US. As CREME’s research shows, the legislative framework, along with demographic developments, provide the basis of a ‘business case’ for supplier diversity in the US.

The origins of many supplier diversity programmes within US companies can be
attributed to US public procurement legislation, with the government playing an active role in shaping opportunities for ethnic minority entrepreneurs. Government programmes targeting minority-owned businesses have been in operation for over four decades. Born out of the racial troubles in the later 1960s and early 1970s, these initiatives were encouraged and supported by a legislative framework designed to promote greater civil rights through a policy of ‘affirmative action’, where the aim is to compensate for past discrimination by having ‘set-asides’ for disadvantaged groups. In essence, the US federal government’s efforts to increase minority business participation in public-sector procurement have reduced discriminatory barriers by expanding market access for historically excluded minority businesses.

In addition to a supportive legislative framework, the US is undergoing a demographic transformation. Ethnic minorities, who now represent approximately 26 per cent of the US population, are expected to represent nearly 50 per cent by 2050. Moreover, there is a rapid numerical expansion of EMBs in the last decade (168 per cent). This, along with increased purchasing power and a buoyant consumer trend make minority communities appealing markets for corporate America.

Hence, corporations are led by strong legislative and demographic forces to engage with ‘fit’ minority suppliers. They turn to supplier diversity intermediaries that maintain databases of EMBs and possess good knowledge of their members’ capabilities and needs. On this point, supporting mechanisms aided by the legislative context in the
US, such as longstanding data collection on EMBs, facilitate certification of minority businesses that look for opportunities to supply corporations. This enables intermediaries that foster supplier diversity to build up comprehensive databases of minority suppliers, which in turn solves one of the major problems that corporates have with engaging with supplier diversity, i.e. getting access to credible minority suppliers.

By contrast, legislative and demographic forces that favour supplier diversity in the US are less potent in the UK. The affirmative action legislation in the US is at odds with the principle of ‘equality of opportunity’ embedded in UK and European law. Corporate supplier diversity programmes in the UK do not seek to positively discriminate in favour of specific types of businesses like minority suppliers; rather they aim to ‘level the playing field’ so as to allow all firms, regardless of size, gender or ethnicity of the owner, to have an equal chance of winning businesses. Notwithstanding the amended Race Relations Act 2000 which promotes equality of opportunity and good race relations in all aspects of public authorities’ activities, including procurement in the UK, there are major obstacles to the promotion of supplier diversity. These relate to competition rules that constrain the public sector’s ability to positively discriminate in favour of specific groups of enterprises, based on characteristics such as location, firm size or the ethnicity of the business owner. In the current regime, any intervention needs to be justified in terms of market failure in the tendering process. The influence of EC Competition Policy rules is compounded by changes in the nature of buyersupplier relationships in the corporate sector, with rationalisation of the supplier base being favoured, which militates against supplier diversity.

Further, when we look at the demographical dynamics, although the ethnic minority
population in the UK is growing rapidly, especially in certain metropolitan areas like
London, Bradford, Leicester and Leeds, it is still under 10 per cent at a national level.
Consequently the ‘business case’ for including minority suppliers is attenuated. And although the government has expressed its commitment to monitoring the ethnicity of business ownership, still in the UK there are no comprehensive databases of minority suppliers. In addition, certifying minority businesses, which constitutes a fundamental function of supplier diversity intermediaries in populating databases of minority businesses in the US, proves very difficult in the UK. Hence, identifying and registering ‘fit’ minority suppliers so that corporations can engage with them is particularly challenging in the UK.

Overall, as CREME’s research programme on supplier diversity indicates, the fact that the ‘triggers’ of demographic change and legislation are less potent in the UK than in the US means that corporate engagement with supplier diversity is expected to be slow. However, on the bright side, there is evidence that public and private sector organisations are beginning to embrace the concept more seriously, as corporate social responsibility and diverse markets become increasingly important.

Nicholas Theodorakopoulos and Prof. Monder Ram, Centre for Research in Ethnic Minority Entrepreneurship (CRÈME), Leicester Business School.