SOURCE: The Boston Consulting Group

The Boston Consulting Group

July 06, 2011 08:50 ET

Minority Business Success Essential to American Affluence and Competitiveness, but U.S. Is Woefully Unprepared for Major Demographic Shift, According to Boston Consulting Group Expert

When Minorities Become the Majority: Minority Businesses Will Become the Bedrock of the American Economy, the Primary Driver of Wealth Creation in the U.S., and the Main Value Creators in America's Corporate Supply Chain

NEW YORK, NY--(Marketwire - Jul 6, 2011) - Minorities will become the majority of the U.S. population by 2045. When they do, they will also become the majority of America's workforce, supply chains, and entrepreneurial economy. Their success in creating wealth will determine the fortunes of the nation and everyone within it.

So, if America does not make minority business success a national priority, the U.S. economy and standard of living will stumble as they run headlong into a critical shortage of skilled entrepreneurs, according to The Boston Consulting Group's (BCG) James H. Lowry, a senior advisor at the firm and coauthor of Minority Business Success: Refocusing on the American Dream (Stanford Business Books, 2011).

Yet, America is unprepared for this major demographic shift that will affect near-term economic recovery, and long-term competitiveness, he says. Outdated policies on the part of business and government ignore the problem, and in some cases make it worse: They focus on grants to minority businesses of non-essential and low-value work, and they do not provide sufficient working capital or expertise to help minority businesses successfully scale up.

"Instead, a successful program should correct shortcomings in basic education, access to capital, business management skills, and access to mainstream supply chain opportunities," said Lowry, whose coauthor is Leonard Greenhalgh, director of programs for minority- and women-owned businesses at the Tuck School of Business at Dartmouth.

America cannot restore its national competitiveness, and national competitive advantage, without paying attention to demographics and the ability of the nation's human capital to compete in the global economy. If the U.S. does not foster minority inclusion, and do everything it can to ensure their success, the impact will extend beyond the minority community to constrain gross domestic product and national affluence, the authors argue.

Lowry and Greenhalgh underscore the urgency of the issue of minority under-participation in the U.S. economy. It's a matter of demographics and national competitiveness, they say, and make the case that minority business development needs to be a national priority: the U.S. needs to start now, go big, and take an entirely new approach.

"The world has changed, and we need to adjust to the new economic realities we are seeing," says Lowry. "We've achieved some positive milestones, but minority underachievement is still a huge problem -- one that could threaten the health of our economy, not to mention America's legacy as the world's leading entrepreneurial culture."

  • National Industrial Policy is a "Must Have": The authors argue that America needs a coherent, coordinated industrial policy -- one focused on national competitiveness and led by the White House -- of which a key part would be minority business development.

  • Start-Ups Have to Survive, and Grow, to Create Wealth: Increasing available capital is just one requirement for building successful minority businesses: Those investments also need to generate long-term revenue streams and wealth creation. Minority businesses need to be developed -- i.e., have the access to the skills and resources to see them through the entire growth curve: from start-up, through scale-up.

  • U.S. Corporations Live or Die by Their Supply Chains, and Minority Procurement Mandates Don't Cut it: Competitiveness is built on successful supply chains. So it is in the interest of American companies to support and develop minority businesses. The current approach of issuing procurement mandates is not achieving results: it relegates minority businesses to low-value, peripheral work; doesn't help them build skills, scale, or financial stability; and can sometimes even hasten their demise. American business must do better, using strategies of investment, partnership, and mentorship.

  • Most Diversity Programs Are Too Little Too Late: Government and private sector support programs for minority business were built for a different era: Simple purchasing mandates and start-up help are no longer enough. New programs need to address three key challenges: access to contracts higher up in the value chain, improved availability of capital (access and cost), and shoring up a business knowledge deficit through mentorship and consulting. In addition, administrative demands need to streamlined (e.g., certification).

  • Any Rebirth in U.S. Manufacturing Because of Rising Wages in China Could be Short-lived: With the wage gap with China shrinking, and work rules in some U.S. states growing more flexible along with increased government incentives for businesses, the U.S. could experience a rebirth of manufacturing. But it could be short-lived if shifting demographics and the need to move minorities' businesses into the heart of the supply chain aren't addressed.

Lowry emphasizes that minority business development should not be driven by national guilt, or philanthropy, or sympathy -- it is a demographic and competitive necessity.

"Wealth flows out of lackluster economies into the coffers of nations that do a better job of value creation," says Lowry. "And America won't prosper without a comprehensive strategy for doing better. We cannot move forward with an ad hoc strategy that leaves half our economic engine idling."

About the Authors

James H. Lowry is a Senior Advisor and former Senior Vice President at The Boston Consulting Group. He is the Academic Advisor for the Kellogg Advanced Management Education Program, a member of the board for the Howard University School of Business, and Chairman of the Howard University Entrepreneurial Center. In 2009, he received the Lifetime Achievement Award from the National Minority Supplier Development Council. He is recognized in the Minority Business Hall of Fame.

Leonard Greenhalgh is Director of Programs for Minority- and Women-Owned Businesses at the Tuck School of Business at Dartmouth. He is the author of Managing Strategic Relationships. His work in helping minority business is reflected in the Lifetime Achievement Award conferred by the Minority Business Development Agency, U.S. Department of Commerce.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 74 offices in 42 countries. For more information, please visit www.bcg.com.

Contact Information