There is no global supplier diversity “cookie cutter-method” for implementation. It is a mistake for companies to believe they can be successful by simply adopting a “copy exactly” approach and transporting the companies’ U.S. supplier diversity tools, processes, and policies into non-U.S. locations. While some process and policy consistency is required, supplier diversity programs must be adapted to reflect the cultural and societal norms of the geographies in which they are implemented.
Despite these regional differences in implementation, the business case for global supplier diversity is consistent. I frequently discuss this business case in the context of what I refer to as “the three C’s” of supplier diversity:
In the United States, many companies’ supplier diversity programs are built around a compliance core. These programs are designed to help ensure that the company meets compliance requirements mandated by its public-sector customers. The U.S. federal government requires that any company that provides goods and services to it, above a certain mandated minimum level, meets aggressive goals of subcontracting spend with a list of enumerated categories of underrepresented small businesses. These categories include ethnic-minority-owned, woman-owned, and veteran-owned businesses.
These compliance requirements have become pervasive over the past 50 years as many states, municipalities, school districts, and other public sector entities have developed supplier diversity mandates that mirror or closely reflect the U.S. federal requirements. Even companies that don’t source directly to the public sector may be required to adhere to these types of requirements, if they source to other private sector companies which themselves are public sector suppliers and are required to “flow down” requirements.
With limited exceptions, outside of the United States there are no similar legislative mandates requiring that companies subcontract with diverse businesses. While no other countries have identical mandates to the United States for minority business inclusion, two countries have enacted their own legislative framework to ensure inclusion of minorities or disadvantaged people. First, there is the case of South Africa and their Broad Based Black Economic Empowerment (B-BEE) legislation. Second, more recently, is Australia, which has implemented requirements for including indigenous aboriginal-owned businesses in certain contracts. In addition, while visible minorities in Canada are not included in any government scheme for protected status, they do have a government set aside for Aboriginals based on self-certification. However, absent extensive compelling mandates, supplier diversity performance has been slow to expand outside of the United States.
Those companies that have chosen to expand their global supplier diversity programs outside of the United States for compliance reasons, have done so with an aim to:
- Address existing or developing supplier diversity mandates that currently exist in regions where those companies do business outside of the United States (for example, to meet the requirements of Australia’s Indigenous Opportunities Program (IOP) or the South African Broad Based Black Economic Empowerment code requirements); or
- Remain “ahead of the legislative curve” by designing and implementing robust supplier diversity procurement policies ahead of government mandates in regions that appear to be evaluating the adoption of such mandates.
Corporate Social Responsibility (CSR)
These policies are seen to function as built-in, self-regulating mechanisms whereby businesses monitor and ensure active compliance with the spirit of the law, ethical standards, and international norms. Many companies position their supplier diversity programs as supporting CSR pillars, by:
- Enhancing the company image and brand by demonstrating commitment to high ethical standard of inclusion
- Working to ensure that the diversity of the company’s supplier base reflects that of its employee base and customer mix
- Supporting the CSR requirements of its customer in the marketplace.
These CSR drivers are not at all unique to U.S. supplier diversity programs. It can truly be said that, with these drivers in mind, …if ensuring an inclusive supply chain is ‘the right thing to do’ in the United States, it is ‘the right thing to do’ everywhere that the Company does business …
Among the most successful of U.S.-based supplier diversity programs are those hosted by companies that position the programs as a business imperative, a revenue enabler, a competitive advantage. Hewlett-Packard, for example, estimates in it’s Global Citizenship Report that in 2010 more than $10 billion -worth of business required the company to demonstrate its efforts in supplier diversity.
By working to meet contractual- and compliance-driven diversity subcontracting requirements of its customers, a company with a business-to-business (B2B) sales model can leverage its supplier diversity performance to win in the marketplace. Similarly, a company with a business-to-consumer (B2C) business model can weave its supplier diversity investments in diverse communities into its marketing and advertising and help it to create a competitive advantage across a diverse consumer base.
Collectively, these elements combine to form the business case—a set of compelling drivers for global supplier diversity expansion. Note that not every company will find each of the three important to the same degree, if at all.