Holding Their Own
After the U.S. Supreme Court set limits on a 30-year tradition of
affirmative action in awarding contracts, many felt that minority
businesses would face grim times. But those firms have managed to
defy the most downbeat predictions. And by turning to the booming
private sector, they have found new ways to thrive
By Ron Stodghill II/Detroit
There were many at the time who thought the Supreme Court
decision in Adarand v. Pena would drive a stake through the
heart of America's minority-owned businesses. In 1995 Adarand
Constructors, a Colorado company that installed highway
guardrails, sued the U.S. Department of Transportation for
awarding a contract to a minority-owned company even though
Adarand's bid was lower. The case was widely considered a test
of the nation's sincerity about affirmative action. So when the
court upheld Adarand's claim, the conventional wisdom was that
black entrepreneurs had finally come to Armageddon.
Happily, the doomsday scenario has proved wrong. No doubt,
Adarand v. Pena has made it tougher for minority firms to
compete. The decision upended an affirmative-action policy in
minority contracting that dates back more than 30 years, to the
Johnson Administration. But even though federal procurement
officials now have less incentive to seek out minority
businesses, those firms, operating in the best economic climate
America has known in decades, have generally managed to defy the
most downbeat predictions. And their most loyal customers are no
longer governments; they are in the private sector, from the Big
Three automakers to Carolina Power & Light to AT&T.
For the past decade, Big Business has been pushing aggressively
to respond to changing demographics in the marketplace. Indeed,
corporations are increasingly targeting predominantly
African-American, Latino and Asian urban areas as well as ethnic
markets overseas, experts say. "It's a business imperative for
many companies if they want to retain or expand their market
share," says Harriet Michel, president of the National Minority
Supplier Development Council.
Michel's organization is proof of the new ways that minority
business has woven itself into the American tapestry. It is
funded by more than 250 major corporations to foster links
between private purchasers and minority suppliers. For the past
several years, council officials have reported growing
commitments from many FORTUNE 500 companies, including JCPenney,
K Mart and Sears Roebuck, which helped drive purchases from
minority businesses to more than $33.4 billion last year, up from
$86 million when the council was founded 26 years ago. Even more
important, corporations have upped their minority share of
procurement spending from once token amounts to between 3% and 5%
of their overall purchasing budgets. With increased spending has
come increased respect. Last month nine of General Motors' 620
minority suppliers were honored as Suppliers of the Year by the
company's worldwide-purchasing organization.
This points to further good news: there are enough suppliers out
there to meet the demand. Not long ago, it was doubtful that
there were sufficient minority businesses muscular enough to
supply huge corporate inventories. But corporate downsizing in
the late 1980s provided the seedbed for a wave of savvy,
well-connected minority entrepreneurs. The U.S. Census Bureau
reports that the number of minority-owned businesses rose 60%, to
2.1 million, between 1987 and 1992. Most experts anticipate a
continuing trend of rapid minority-business formation. Says
Alfred A. Edmond Jr., executive editor of Black Enterprise
magazine: "The vast majority of minority business, like most
firms in America, are either doing business with other businesses
or with consumers."
There is also a thriving new sector of minority middlemen who are
helping that process along. Take, for example, C. Ottley
Strategies, a minority-owned market-development firm in New York
City. Four years ago, Active Transportation, a truck-hauling
company based in Louisville, Ky., acquired a major trucking firm,
making Active one of the largest African American-owned
businesses in the U.S. Seeking to promote stronger name
recognition and impressed by the firm's reputation in fostering
corporate ties between African-American, Asian and Caribbean
communities on the one hand and corporate giants such as Chase
Bank and Avis on the other, Active sought out Ottley. The
development company gave the Active deal media attention by
arranging a signing ceremony in New York City.
The marketing firm was founded in 1993 by Charlotte Ottley, a
former executive producer at ABC- and NBC-owned TV stations, who
definitely knows how to network. "It's all personal and
professional contacts," she says. "Firms like mine have to have
the confidence of the community and the acceptance of corporate
America." Ottley's continuing challenge is no different from
that of any entrepreneur in a highly competitive marketplace. But
to do battle against bigger firms angling for her clients' media
dollars, she is in the business of developing creative approaches
to plug clients into potentially lucrative ethnic markets. One
Ottley-inspired program: a seminar at Chase's headquarters with
the local chapter of 100 Black Men that was broadcast live over
an African-American radio station.
The fact that the private sector is booming doesn't mean that
government set-aside programs for small businesses have vanished.
Truth be told, however, the Republican-dominated Congress has
tried to make that happen. The most recent measure, put forth
last year by Republican Congressman Charles Canady of Florida,
would have prohibited preferential treatment based on race or
gender in federal activities. The legislation stalled in the
House, and Canady doubts he will reintroduce it this session.
But while the Clinton Administration has publicly supported
affirmative-action programs following a government-wide review in
the wake of the Adarand ruling, most of the efforts are focused
on eliminating bureaucratic obstacles that discourage loan
applicants. The Small Business Administration, which oversees and
coordinates minority contracting with federal agencies, reports
that the amount of federal procurement dollars going to so-called
8(a) firms has remained just about constant at around $6.4
billion over the past three years. Vice President Al Gore
recently added some vigor to what observers call a "mend, not
end" strategy when he announced that $1.4 billion in SBA loan
guarantees would target African-American firms, with civil rights
organizations encouraging applicants and helping them navigate
the labyrinthine approval process. "The money, for the most part,
has always been there, but it's not an easy process for business
owners to get to," says Leona Barr-Davenport, president of the
Atlanta Business League, which represents some 300 small
businesses owned by African-Americans, Hispanics and women. And
some people find the current climate for minority business
chillier. "We're having a much rougher time in the federal
contracting world," laments Sam Carradine, executive director of
the National Association of Minority Contractors.
Still, the issue of government subsidies and other set-asides
remains politically charged. "It is important to recognize the
history of discrimination against blacks and other minorities,"
Canady says. "But we will not solve those issues by the
government sorting people by race and gender." Some
minority-business veterans view the SBA and set-aside programs
as overly paternalistic and perhaps more trouble than they're
worth. George Bellinger, a former business owner, is a
substance-abuse consultant, but for nearly 25 years, until 1994,
he headed his own company in Connecticut, Bar-Pat Manufacturing.
The business was heavily involved in government contracts,
making, among other things, helicopter parts and
lightning-ground cables for NASA. In 1988, buoyed by government
8(a) support and solid relationships with the U.S. Navy and Air
Force, the company was ranked among the top 100 black industrial
and service companies by Black Enterprise. But the end of the
cold war exposed Bar-Pat's overreliance on Pentagon orders.
"After the Wall came down, they began canceling contracts for
the military, and when we went looking for commercial contracts,
it was all in the Pacific Rim, and we went out of business,"
Bellinger says.
Stories like Bellinger's are making minority businesses even more
wary of hitching their success to the vagaries of government. For
many, though, the prospect of snagging huge federal and municipal
contracts is too tempting to pass up. For example, the Wisconsin
state legislature authorized $160 million in public funds toward
a new baseball stadium in Milwaukee, with 25% of the funds for
development, construction and professional services earmarked for
minority businesses and 5% for female-owned companies.
The commitments represent a big improvement over the handling of
the city's last major project--the Bradley Center Arena, where the
Milwaukee Bucks NBA team plays. When the arena was built 12 years
ago, the absence of minority contractors and employees sparked a
bitter feud. "No black folks or other people of color got any of
that," fumes city alderman Fred Gordon, who feels that even
today, minority firms often get just "table scraps."
But for Dorothy Rowe, 52, of Atlanta, minority set-asides were
far more than that. In 1993 she and her family started Rowe
Concessions, a vending-machine-supply company that now has 30
employees. They got a big boost from the city of Atlanta with
contracts to supply municipal buildings and the city-run airport
with vending machines. The contracts end in 1999. "I don't want a
handout. Just level the playing field," Rowe says. "People in
charge of procurement are going to deal with people they know
socially."
C. Robert Kemp, CEO of the Los Angeles Community Development
Bank, also believes that set-aside programs are still essential.
Since 1996, his small bank (current assets: $48 million) has
offered capital, lines of credit and basic services to
businesses in South Central and East Los Angeles. "By enlarging
the procurement pie," he says, "it has made it possible for
everyone to be a part of the economy. In fact, the increased
competition made better products and services." That's a
color-blind mantra if ever there was one. --Reported by
Patrick Cole/ Los Angeles, Sally B. Donnelly/Washington, Greg
Fulton/Atlanta, Erik Gunn/Milwaukee, Emily Mitchell and Adrianne
Navon/New York
Where To Look For Opportunities and Information
Minority Business Development Agency A bureau of the U.S.
Department of Commerce created to foster minority-business
growth. 202-482-3007. www.mbda.gov
Minority Business Enterprise Legal Defense & Education Fund
Defending and promoting minority enterprises in the marketplace.
Washington. 202-289-1700. www.mbeldef.org
National Association of Minority Contractors A trade association
for minority construction contractors. Washington. 202-347-8259
National Minority Supplier Development Council With headquarters
in New York City and 42 regional councils, it links mainstream
corporate America and minority-owned businesses across the
country. 212-944-2430. www.trainingforum.com/ASN/NMSDC/
Small Business Administration A federal agency assisting
business development of minority-owned firms, geared toward
government contracting. 800-827-5722
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