Business Report: Holding Their Own

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."