At a time when a sluggish economy is struggling to get out of first gear and policy-makers are desperately looking for ways to get more people into work and help the private sector to flourish, they could do worse than look at the experience of the UK's Ethnic Minority Businesses (EMBs). A new survey published today paints a picture that many of us working with SMEs and suppliers from the BME community know all too well: EMBs are not winning nearly enough contracts with the UK's large corporates as well as public sector, many decision-makers responsible for short-listing potential suppliers look unfavourably on businesses run by those from the BME communities and a lot more needs to be done to show case BME suppliers. The upshot is a huge missed opportunity for both suppliers and both private and public sector.
The new report, from the Social Investment Consultancy and commissioned by Minority Supplier Development UK (MSDUK) - which brings together BME suppliers with some of the UK's large corporates - finds that there is a missed opportunity because the UK's EMBs are failing to win contracts with the UK's biggest businesses. The reasons for this are multiple - representing what amounts to a market failure whereby either EMBs are ill-equipped and unaware about potential opportunities or big corporates overlook BME suppliers - usually a combination of the two. But the one issue, specifically highlighted by the report's authors is damning: more than a third of large UK corporates admit that they expect EMBs to be "behind the standards of their current suppliers". There is no doubt a very wide variety in the quality of BME firms, in the same way that there is a wide variety in the sorts of services and goods 'suppliers' offer. But what we do know is that EMB suppliers are actually outperforming in the market.
The Department for Business itself found that EMBs are doing better than the average firm: they're more likely to have hired additional staff in the previous 12 months and have been more resilient against the economic downturn. In fact, BME suppliers are increasing their workforce by 4% per year: far above the national average of just 2.5%. What's more, according to the survey of over 100 firms, 64% of EMBs predicted in excess of 20% expected revenue growth in the next two years! The sample may be small - but the growth rates are huge - and if replicated throughout the whole of the UK would paint a picture barely recognisable at a time of austerity: innovative, nimble firms that are growing turn over and staff. All this in an environment in which they continue to be overlooked by established firms! The potential for expansion is vast.
What's more, many EMBs are disproportionately located in areas of low income, low employment and low educational attainment, so they can be really powerful engines for change in their communities: as a vehicle for job creation, increasing income levels and acting as role models for others. In fact many embody the idea of the Government's 'Big Society'. According to the Office for National Statistics, the unemployment rate among 16 - 24 year olds from ethnic minorities is 30%, in comparison to 21% for white youth. But in the past 12 months, 66% of surveyed suppliers have offered work placements, internships or apprenticeships for young people in their community. While the EMBs surveyed were found to be active community participants: 82% regularly volunteered - twice the national average - with a further 57% of business leaders acting as mentors to other entrepreneurs: a staggering level of best-practise sharing and nurturing of new market entrants.
Both in the private sector and the Government, for that matter, more needs to be done to embed the principle of supplier diversity. This is not about positive discrimination but it is about making the market function better. Making sure that where BME suppliers exist that they sell themselves well and, for their part, the corporates on the look out for suppliers ensure they shortlist those who have the potential to deliver the best value goods and services. I dare say Government procurement also needs a shake-up to help address regional economic imbalances and create jobs in deprived communities. EMBs are not the silver bullet but they are part of the solution.
The Government must take a lead and do much more to encourage big corporates to reach out to EMBs and just as importantly it should review its own procurement practises to ensure equal access for minority suppliers. If it did then companies that are being overlooked have the potential to deliver both social change in their communities and provide pecuniary benefits to the UK's largest corporates. If we can get this message out there, it has the potential to be a win-win. In the last six years MSDUK has helped BME suppliers win an estimated £25 million in contracts with large corporates. If our own model can be repeated nationally, ensuring more BME suppliers come to the attention of people responsible for short-listing suppliers then we may very well see BME communities helped and economic growth supported. I hope today's report begins to increase understanding about this little-known market failure and what can be done to address it.