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Why diversity is important to consider in supply contracting

Why diversity is important to consider in supply contracting

Minority-owned businesses play a small but important role in the overall economy. They have an estimated $400 billion economic impact and are responsible for sustaining 2.2 million jobs. And as U.S. demographics shift rapidly, these businesses are expected to continue to grow exponentially and there is a need for supply contracting. For example, the number of minority-owned businesses grew nearly 50% between 2002 and 2007, nearly three times as fast as U.S. businesses as a whole.

Still, minority-owned businesses have an uphill battle to fight to gain market share and to position themselves to be competitive in the broader marketplace. The portion of total revenue generated by these businesses represents more than 50% of the business population, but these businesses generate only about 6% of total revenue. This reality underscores the importance of diversity in supply contracting. Let’s explore the important roles that diversity plays in creating a more robust, healthy supply contracting process for everyone.

  1. Diversity among suppliers increases competition in the marketplace: The less competition you have in the marketplace, the more you’re likely to encounter rising prices. Thus, minority-owned businesses can significantly increase the size of the marketplace, providing the competition needed to keep prices from rising—and perhaps even to drive down prices.
  2. Minority suppliers are at a competitive disadvantage: The reality is that the vast majority of major supplier contracts go to big, well-known firms. In fact, less than 0.1% of firms are responsible for generating about 60% of all annual U.S. business revenue. Hence, it’s important to consider offering a leg-up to these suppliers in an economy where the odds are overwhelmingly stacked against them.
  3. Contracting with diverse suppliers can come with valuable tax advantages: Businesses that are classified as Minority Business Enterprises allow the companies that do business with them to receive federal tax breaks for procuring material, parts and supplies. Businesses that use minority-owned contractors to supply labor or services to a project funded by federal or state grants or loans also can qualify for reduced tax liabilities.
  4. Contracting with minority-owned businesses can improve your standing to win future contracts: Many government agencies look favorably on businesses with a track record of contracting with diverse suppliers. The federal government believes so strongly in the value of minority-owned businesses that it has created a special program that helps these suppliers increase their competitiveness for sole-source contracts (up to $4 million for goods and services and $6.5 million for manufacturing). When your business is open to contracting with diverse suppliers, the government is more likely to reward you with future contracts.

At CenterPoint, we are proud of our distinction as a minority-owned business and are committed to using this standing to create more diversity within your supply base—and ultimately help save you money. From firsthand experience, we know that minority suppliers are at a competitive disadvantage, and also that they increase competition in the marketplace, offer valuable tax advantages to businesses that contract with them, and improve a business’s standing to win future contracts.

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