HELP MAKE HISTORY AS A FOUNDING ARCHITECT OF THE NAT ION ’ S FIRST EVER DIVERSE SUPPLIER CONSORTIA LED BY AMERICA ’ S LARGEST BLACK - OWNED FIRMS BUILDING CAPACITY THROUGH COLLABORATION U.S. CARIBBEAN BUSINESS COUNCI L USCBC AND THE POWER OF COLLABORATION Scaling a business is not the same as growing a business. Growth is defined as hav- ing a higher turnover, whereas scaling is a means for widening profit margins. If your overhead increases at the same rate as your growth, you’ll only ever make the same profit. The challenge of scaling is to increase growth at a much higher rate than your costs, and thus deliver ever increasing profit margins! Economies of scale describe relative cost advantages associated with large volumes of production that lower a company’s cost structure, and a consortium network is fundamentally posi- tioned to create such advantages since fixed overhead costs are spread over the production volume of all member - firms. Scale economies can create a positive feed- back loop in a network as it expands, resulting in lower average costs and greater efficiency. This enables businesses to undercut rivals and acquire greater market share! Introduction The actual catalyst for this groundbreaking project to implement a nationwide minority supplier con- sortia and selecting U.S. Black - owned suppliers to beta - test its pilot was a 2016 research paper by a Hofstra University professor, which painstakingly identifies critical factors relating to “large” black - owned business success and failure. It is perhaps the only academic work to date that focuses exclu- sively on this niche segment of the market with in - depth analysis on firm growth and decline across industry categories and survival rates over a forty - year period! One of the most salient points consist- ently recognized by the author is the relative size of “large” Black - owned U.S. firms in comparison to their largest mainstream competitors. He emphasizes that the largest Black - owned firms are in fact relatively “ small” and that almost all the firms on the Black Enterprise Top 100 list are privately - owned and thus dwarfed by Fortune 500 and other companies whose equity consists of publicly - traded stock. He goes on to further state that “ being Black - owned and also truly large is simply not possible .” Survival Rates The fortunes of Black - owned businesses are as dependent upon the strategies and performances of the corporations and constraints of government agencies that contract them. Thus, revealing how crucial the need to both strengthen supply chain positions and diversify sources of revenue stream is to the future long - term survival of the entire segment, as demonstrated by the research data below: Table 1 Shows the Mid - sized Black - owned firms companies that survived one, two, three, and four decades respectively Black Enterprise 100 Survival Rates – 1974 to 2014 Source: America’s Largest Black - Owned Companies: A 40 - Year Longitudinal Analysis, Sonfield. 2016 The number of BE 100 businesses that survived over the twenty - year period from 1994 to 2014 was on- ly 11 out of the original 100. Thus, 79% of the 1974 BE 100 companies fell off the listing within ten years and 95% were gone within twenty years! There are three basic reasons for these low survival rates. First, the majority of the 1974 companies simply went out of business. Second, some of the companies on the earlier BE 100 listings fell below the #100 position in later listings, as larger and fast- er - growing firms passed them by. And third, some of the most successful and largest BE 100 firms were acquired by mainstream majority - owned companies and thus lost their Black - owned status. While better positioned to succeed than their smaller Black - owned counterparts, large (or more accu- rately mid - sized) Black - owned firms are still challenged more intensely to survive than their mainstream competitors nonetheless. The reason is globalization, and these businesses are especially vulnerable to changing markets. Therefore, in order to successfully compete in the 21st century, a more diversified customer base and much broader reach is required. The good news is: chances for successful achieve- ment of these last two ambitions greatly increase when stakeholders aggregate into a consortium. A consortium network (or consortia) can help mid - sized suppliers scale up and expand their market and production capacity in order to qualify for multi - billion dollar procurement contracts from buyers in both the private and public sector, and also recruit the most skilled and specialized talent on the market. However, large diverse suppliers of scale are not grown organically but instead strategically created to serve a specific purpose. Collaboration at such a level requires strategized coordination by a third - party. THE CHALLENGE Bringing down the cost of the supply chain to improve productivity and profit is the most important de- cision for manufacturers. According to Deloitte’s most recent annual CPO survey, consolidating spend (36%), supplier collaboration (28%), and business partnering (27%) were rated by organiz ations as the “top three” priorities for the next 12 months. Subsequently, nearly every “procurement transformation program” or conference speech from a new Procurement Director or CPO lately emphasizes reducing supplier numbers, aggre- gating, and leveraging spend. Large corpora- tions in general have similarly moved to re- duce the number of their suppliers and now buy from fewer and larger companies with greater operational capacity as a strategy to consolidate procurement spend. Source: Deloitte Global CPO Survey, 2021. THE SOLUTION According to research by Boston Consulting Group, large minority - owned businesses, or “businesses of size” - defined as those with at least $100 million in revenues - are the key to: • generating meaningful, lasting, and higher - paying jobs for minorities • providing major corporations and government with cost - competitive and highly capable suppliers • giving procurement opportunities to smaller minority - owned businesses • developing more large businesses and enabling young minority entrepreneurs to identify growth prospects • creating wealth for minorities By focusing on businesses of size, minority suppliers can close the gap with their competitors in the broader business community and emerge as players in the global economy. (BCG, Diversity 2005) Consortium A consortium is an association of at least two or more enterprises that are autonomous, geographical- ly dispersed, and interact in a heterogeneous operating environment toward a common business ob- jective(s). Increased margins and decreased overhead are permanent features of its operation which, when in horizontal collaboration in supply markets, is called a supplier consortium — and lead to un- precedented organizational growth opportunities for its members! The core purpose of any consorti- um (plural: consortia) is to deliver a competitive advantage for its members that they cannot achieve in the market as independent operators. U.S. Caribbean Business Consortia (USCBC) would employ a system, method, and computer program for governing a consortia via an algorithm network that pro- vides critical information like forecasts, orders, and inventory status for multi - tiered vendors to obtain commitments in real time. This helps reduce stock levels, maximize fill rates, and boosts productivity. Funded via an equity - based membership, USCBC is structured for control by an executive board, a chief executive officer to coordinate operations, and a chairperson to lead the initiative as expressed in a membership agreement. Clusters When consortiums are geographically concentrated within a particular region/location, they are called commercial clusters Clusters, like consortiums, can include suppliers, multi - nationals, distributors, and related firms that may compete with one another but also benefit from cooperation since it can reduce market barriers and create strong synergies for all members, like the ability to create volume leverage in order to secure the best price with large orders and generate cost savings. Furthermore, when these commercial clusters reach a critical mass of competitive success within a particular indus- try, they evolve to become procurement (or industry) clusters In Switzerland, the cluster is watches; while Silicon Valley is a well - known cluster region for technology. Procurement clusters enhance productivity and spur innovation by bringing together competing firms, specialized talent, technology, information, and academic institutions in these regions, while allowing suppliers the opportunity to deliver economic development to the local minority communities they serve. Close proximity of di- verse supplier clusters to the largest Fortune 1000 corporations can yield even greater opportunities for diverse sourcing and larger pools of specialized talent, not to mention account for most of the em- ployment and employment growth within each region. Clusters create an environment which enable other types of cooperation, in particular cluster networks. Such networks allow for decentralization from the command hub and development of new routes of offer (Figure 2). Hub - and - spoke cluster , so - called because prime suppliers and their specialized sub - contractors are spread all around an industry market leader like spokes on a bicycle wheel ( Figure 1). This type of in- dustry cluster is characterized by the “leader firm” - usually a corporate customer - acting as the central hub exerting a dominant position and market power over mid - sized and small supplier tiers arrayed in a network hierarchy of procurement category “spokes.” The customer deals solely with the 1st tier preferred/prime supplier which functions as systems integrator to fulfill the procurement contract by managing all the lower - tiered (smaller) suppliers beneath it so that a maximum level of efficiency can be maintained. Thus, instead of multiple leaders all trying to do the same thing, the hub model cre- ates a hierarchy where centralized coopetition, procurement best practices, and technological devel- opment can all be cost effectively diffused back through the supply chain, allowing customers to re- ceive increased fulfillment capacity without expending new resources! Hubs and nodes is a geographic model that builds upon cluster theory by linking supplier consortiums from different regions to fulfill elements of an industry's value chain. A constant feature of this model are “traded clusters,” or suppliers to a national or international industry leader, typically a Fortune 1000 customer, producing products and services that compete beyond the borders of the regional economy (Figure 3). Traded clusters result in higher productivity, as growth is unconstrained by the size of the local markets. All this enables the hub (USCBC) to help its member - firms select consortium partners from anywhere in the country (“nodes”) based on factors such as expertise and lowest cost for best profit investment ratio, for example, rather than proximity. TIE SUPP R 1 LIERS Figure 2. Each “ node ” can represent a Black - owned “ procurement cluster, ” as detailed in the magnifying glass image in Figure 1. USCBC — operating as a nation - wide central hub — communicates electronically to and between all U.S. regional clusters from its headquarters, and when geographic proximity between regional clusters is eliminated, as in a multi - site consortia, network or- chestrators like USCBC are critical to the coordination among suppliers across tiers for various stages of production. U.S. Procurement Cluster Regions Figure 3. Strategic Industry Aggregation For a company aggregation, industry is defined as the demographic market that its members serve. The “market” in this case is procurement spend . A company aggregation becomes strategic when its members are aggregated around a trade marketing theme that facilitates exponential growth, driven via cross - marketing and shared costs. Improved access to financial capital is a common motivation for organizations to aggregate, but for mid - sized enterprises, the pursuit of specific business objec- tives, such as increased capacity for new customer acquisition, is more often the catalyst. Each com- pany in an aggregation is better positioned in the market to receive an explosion of new customers and added income streams now that their industry viability is enhanced through direct benefits like: • Greater efficiency . Industry - wide promotion of standardized quality control and automated sys- tems that provide major cost reductions, improved product development speed and quality, and enhanced flexibility , all boost market impact to potential customers. • Cross - fertilization . Innovation and the transfer of experience and market intelligence between suppliers within procurement spend categories as well as across clusters. • Raised Market Presence . Greater capacity improves chance of success at bids for larger contracts. By combining resources, member - firms from the same “industry” can receive centrally - funded brand promotion at a reduced cost, enabling greater market penetration, particularly in export markets. • Project Matchmaking . Consortia - backed public - private partnerships for multi - million dollar infra- structure projects in the United States and the Caribbean. Resource for key contacts in project finance and government sponsored programs. • Collective buying power. Command discounts on operating expenses where cost synergies might exist, for example, in employee health plans, legal, accounting and tax services, research and de- velopment (R&D), financial services, distribution, bookkeeping and payroll services, and HR - marketing for recruitment of highly specialized talent. Other opportunities to leverage collective buying power include group ticket purchasing for industry trade shows and events, as well as joint- ly prepared market research reports to share expert knowledge. Since none of the companies in a strategic aggregation want to change the way they traditionally inter- act with their clientele, the process of producing all of the above benefits must be virtually invisible to their current staff and seamless in its operation. This forms the basis of the “ network orchestrator ” definition. With no day - to - day managerial role in any of its affiliated member companies, the consortia instead provides administrative oversight, macro - logistics management, member/network support, and risk management parameters using a new set of technologies that support and automate these functions. Every organization within a consortium remains independent to execute their normal busi- ness operations with which the consortia does not interfere in any way. (Members may even elect to collaborate with a firm outside the consortia network if determined to be in its competitive best inter- est.) Proprietary tools embedded in the system enable the consortia to create and implement the cross - marketing methods and other processes with little if any changes to the way participating com- panies currently conduct business. Observing the principles of Strategic Industry Aggregation, we sim- u l a t e t h e e n v i r o n m e n t o f a c o n g l o m e r a t e b y c r e a t i n g a “ o n e - s t o p s h o p ” f o r B l a c k - o w n e d p r o c u r e m e n t spend across all categories: from product distribution to IT solutions, healthcare, security, warehous- ing, hospitality, etc., by providing structure, systems, technology, and cross - marketing methods. The Network Effect • The application of the “Network Effect” for the BME with minimal resources can create a huge advantage in ability to scale, since, as more customers are acquired, greater value is created ; such as when a strategically aggregated supplier is the recipient of a new cross - marketed cus- tomer, it shares a percentage of the sales revenue from that customer with the consortia peer from which it was originally sourced. This way, cross - marketing creates two additional streams of income for aggregated companies: earned revenue from new customers sourced from con- sortium peers and passive revenue from existing customers that are cross - marketed. • Network scales faster as it lowers its customer acquisition cost or “pull.” • Product/service costs decrease as production volume increases (with acquisition of new cus- tomers as part of a network) Plus, costs are easier to control and maintain, making your product/service more affordable. This affordability factor attracts more buyers and the entire cycle repeats itself, gradually causing many, if not most of the businesses in the consortia to all share the same customers! • Retain customers. Lower your costs to maintain the volume of the customer base. Compromise huge profits in the short - term in order to sustain growth in the long - term. Figure 4. The Multiplier Effect Network - based business models yield, on average, the highest return on invested capital, produce the largest profit margins, and generate the most revenue growth. As a result, market value per dollar of revenue is 2 - 4 times greater than for traditional organizations. All stakeholders of a networked or- ganization, regardless of industry, are more profitable, scale faster and have lower marginal costs. Further, the performance differential (a/k/a The Multiplier Effect ) is surprisingly large due to the new rules of strategy being ushered in based on network versus firm - centric business models. (See below figure from a 2016 study used to analyze 1,500 companies and 4,000 inputs.) Researchers identified 4 primary business models: 1. Asset builders – (e.g., manufacturers, distributors, retailers) 2. Service providers – (e.g., consultants, bankers, attorneys) 3. Technology creators – (e.g., biotech, health tech, fintech) 4. Network orchestrators – (e.g., social, business, financial) Figure 5. Source: Wharton School of the University of Pennsylvania’s SEI Center for Advanced Studies in Management, Libert and Beck. 2016 Conclusion USCBC best resembles a supplier association that automates the diverse spend process for govern- ment and corporate customers of the Black - owned business sector. It aggregates buyers and sellers. But instead of just a single customer, the entire market benefits from sellers (suppliers) having greater access to more buyers, and buyers’ expanding sources of Black - owned procurement spend ! USCBC is also responsible for promotion of its member’s goods and services offshore. We identify emerging economies in the Caribbean and educate our members about federal government funded programs and services that help create and protect markets for U.S. businesses in the region. The United States is the Caribbean’s largest trading partner and, in turn, the Caribbean is the United States’ sixth largest trading partner, with $35.3 billion flowing between them each year. The Caribbe- an region as a whole represents a $369 billion market (World Bank 2020) of about 27 million people who collectively imported over $21 billion of U.S. goods in 2018! And since public procurement spend in the region is estimated at $15.5 billion annually, we strive to incorporate our network into these foreign governments and institutions to obtain procurement contracts for our members to supply their goods and services to the region. The U.S.−Caribbean Business Council believes that a stronger supply chain fuels growth in industry segments and, as a result, will propel the Black - owned business sector forward. Our mission is to rep- resent the collective interests of our member - firms, for whom we promote fair and non - discriminatory treatment and offer market information as well as public policy advocacy that improves their compet- i t i v e s t a t u s i n t h e g l o b a l m a r k e t T h e C o n s o r t i a c r e a t e s m a r k e t p l a c e l i q u i d i t y a n d reduces transaction costs . It creates value by matching buyers with new sellers, standardizes systems, and reduces sourc- ing time by centralizing supplier information such as: certifications, credit checks, electronic catalog- ing of supplier goods and services, and performance evaluations. Is Joining a Supplier Consortium Right For Your Business? (take a moment to consider these important questions) 1. Is your company's growth hampered by a lack of people, capital, or other assets? 2. Would you like to bid on a request - for - proposal (RFP) that has specifications beyond your compa- ny’s capacity to fulfill? 3. Are you reluctant to ask a large customer about its future plans for fear that your organization may not be able to step up to the answer? 4. Does your company have the potential to be a segment or industry leader if given access to addi- tional resources? 5. Is its competitiveness limited by an inability to attract top talent with competitive pay and benefits? 6. Is your company limited by a lack of access to the latest technology? 7. Is it forced to pay small volume prices for practically everything? 8. Would you like to acquire more customers in new markets offshore? 9. What is the likelihood that your per share earnings multiple will be higher than the industry aver- age upon your exit or retirement?