minority business development
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Minority Business Minority Business DevelopmentDevelopmentin Clevelandin Cleveland
Prepared for the Cleveland FoundationPrepared for the Cleveland Foundation
August 29, 2005August 29, 2005
john a. powellExecutive DirectorKirwan Institute for the Study of Race & Ethnicity, Ohio State Universityhttp://www.kirwaninstitute.org
Roger Clay Jr. PresidentNational Economic Development& Law Centerhttp://www.nedlc.org
22
Purpose of this StudyPurpose of this Study
Identify strategies for The Cleveland Identify strategies for The Cleveland Foundation to improve its minority Foundation to improve its minority business development approachbusiness development approach
33
MethodologyMethodology
– Analysis of national MBE trends Analysis of national MBE trends – Identify best practicesIdentify best practices– Analysis of minority businesses in Analysis of minority businesses in
Cleveland & Cuyahoga CountyCleveland & Cuyahoga County– Interviews with stakeholdersInterviews with stakeholders
44
Presentation OverviewPresentation Overview
MBE development mattersMBE development matters Economic and geographic analysisEconomic and geographic analysis What What isis and what and what isn’tisn’t working in working in
Cleveland?Cleveland? Community leader perceptionsCommunity leader perceptions Best Practices among Best Practices among
IntermediariesIntermediaries Emerging OpportunitiesEmerging Opportunities ConclusionConclusion
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Why Does MBE Why Does MBE Development Matter?Development Matter?
MBEs will become an increasingly MBEs will become an increasingly important factor in local, regional important factor in local, regional and national economiesand national economies
Minority businesses tend to hire non-Minority businesses tend to hire non-white employees at a higher rate white employees at a higher rate than do majority businessesthan do majority businesses
66
National MBE TrendsNational MBE Trends The number of minority owned businesses is The number of minority owned businesses is
growing faster than the rate for all U.S. firmsgrowing faster than the rate for all U.S. firms
Growth in Number of Firms
0
10
20
30
40
50
1992 to 1997 1997 to 2002
Perc
en
tag
e I
ncre
ase
MBEs
All Firms
17% of all companies in the U.S. were 17% of all companies in the U.S. were owned by minorities in 2002owned by minorities in 2002
77
Yet, A Decline in National Yet, A Decline in National Market Share for MBE’s 92-02Market Share for MBE’s 92-02
0%
1%
2%
3%
4%
5%
6%
7%
1992 1997 2002
MBE: % ofNational MarketShare
88
1997-2002 – Sales up nationally for 1997-2002 – Sales up nationally for African-American- and Hispanic-African-American- and Hispanic-owned businesses, but down in owned businesses, but down in
OhioOhio
22%
30%
22%
13%-8%
-8%
-10%
0%
10%
20%
30%
40%
Nation Ohio
All BusinessesAfrican American Owned Bus. Hispanic Owned Bus.
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Description of Cleveland’s Description of Cleveland’s MBEs MBEs
Sales and receipts of African Sales and receipts of African American-owned businesses grew by American-owned businesses grew by 284% from 1992-1997. 284% from 1992-1997.
Larger MBE's are doing relatively well Larger MBE's are doing relatively well compared to other metropolitan compared to other metropolitan regionsregions
Most Hispanic or Latino MBEs are Most Hispanic or Latino MBEs are non-certified and disengaged from non-certified and disengaged from the regional economythe regional economy
1010
0
10
20
30
40
50
60
70
80
90
100
0 2 4 6 8 10 12 14
Poly. (All Firms)
Poly. (MBEs)
Firm Firm ExpansioExpansion Raten Rate
Number of YearsNumber of Years
Num
ber
of
Num
ber
of
Em
plo
yees
Em
plo
yees
70
75
80
85
90
95
100
5 to 9 10 to 19 20 to 49 50 to 99 100 & Over
Number of Employees
All FirmsMBEs
Average Average Credit Credit RatingRating
1111
Industry ConcentrationIndustry Concentration
Industry Strength of Cleveland's African-American-owned MBEs Compared to Nation
0
0.5
1
1.5
2
2.5
3
3.5
Construction Wholesale Trade Financial Services Manufacturing
Mar
ket
Sha
re R
atio
of
Indu
stry
Com
pare
d to
Ove
rall
Mar
ket
Sha
re
Cleveland PMSA
U.S.
1212
Size by IndustrySize by Industry LARGE:LARGE:
– Wholesale TradeWholesale Trade– ManufacturingManufacturing
SMALL-to-MID-sized: SMALL-to-MID-sized: – Retail TradeRetail Trade– Financial ServicesFinancial Services– ConstructionConstruction
Micro OR SMALL-to-MID-sized:Micro OR SMALL-to-MID-sized:– Professional ServicesProfessional Services
Growth: Financial Services were the only Growth: Financial Services were the only sector where the proportion of MBEs over $2.5 sector where the proportion of MBEs over $2.5 million in sales grew from 2000 to 2004million in sales grew from 2000 to 2004
1313
Credit Rating by IndustryCredit Rating by IndustryIndustry by Credit Rating, Percent of MBEs with Credit
Rating Over 80
40
50
60
70
80
90
1414
Geographic DistributionGeographic Distribution
Our analysis looked at the Our analysis looked at the geographic location of MBE’s and geographic location of MBE’s and how they were located in respect to how they were located in respect to other regional trendsother regional trends
1515
Where Where are are
MBEs MBEs locatedlocated
??
1616
MBEs by Sales VolumeMBEs by Sales Volume
1717
MBEs by Change in Sales Volume MBEs by Change in Sales Volume 2001-20052001-2005
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What is Working in What is Working in Cleveland?Cleveland?
Targeted technical assistance, business Targeted technical assistance, business networking, mentoring, and supplier networking, mentoring, and supplier diversification effortsdiversification efforts
Mainstream lending institutions compete for Mainstream lending institutions compete for MBE lending MBE lending
Cleveland has best practice community Cleveland has best practice community development financial institutions and development financial institutions and community development venture capital community development venture capital fundsfunds
Good support from universities and collegesGood support from universities and colleges
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What is not working?What is not working?
ExclusivityExclusivity CompetitionCompetition Informal business networkingInformal business networking Need for more accountability and Need for more accountability and
measurable outcomesmeasurable outcomes Need for programs to monitor and Need for programs to monitor and
take advantage of public take advantage of public procurement programsprocurement programs
2020
Community Leader Community Leader PerceptionsPerceptions
Structural challenges to MBE developmentStructural challenges to MBE development– Limited social capitalLimited social capital– Racism and weak political environmentRacism and weak political environment– EconomicsEconomics– Public educationPublic education
Institutional based challengesInstitutional based challenges– Difficulty in accessing capitalDifficulty in accessing capital– Need for more cooperation and specializationNeed for more cooperation and specialization
Individual based challengesIndividual based challenges– Limited skill sets; talent; and strategic visionLimited skill sets; talent; and strategic vision– Tendency toward life-style businessesTendency toward life-style businesses
2121
Best Practice for foundations funding Best Practice for foundations funding MBE development – a MBE development – a
comprehensive approachcomprehensive approach
Targeted Business Development AssistanceTargeted Business Development Assistance Well-planned Business NetworkingWell-planned Business Networking Research, Advocacy & Public Policy Research, Advocacy & Public Policy
formulationformulation Community development financingCommunity development financing Promotion of regional climate to support Promotion of regional climate to support
MBEsMBEs
2222
Emerging OpportunitiesEmerging Opportunities
1.1. Strategic partnershipsStrategic partnerships
2.2. National trend toward supplier National trend toward supplier diversitydiversity
3.3. Strong and emerging sectors locallyStrong and emerging sectors locally
4.4. New public sector affirmative New public sector affirmative procurement programs – especially procurement programs – especially Cuyahoga CountyCuyahoga County
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More Emerging More Emerging OpportunitiesOpportunities
5.5. Ohio’s new Minority Business Venture Ohio’s new Minority Business Venture Capital Tax Credit ProgramCapital Tax Credit Program
6.6. Large land bank of the City of Large land bank of the City of ClevelandCleveland
7.7. New workforce development strategiesNew workforce development strategies
8.8. Local market gaps for small-businessesLocal market gaps for small-businesses
9.9. Retail and Services in the growing Retail and Services in the growing Latino communityLatino community
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RecommendationsRecommendations
The Foundation should serve as a The Foundation should serve as a funder and convener of funder and convener of intermediaries working to promote intermediaries working to promote and develop MBEand develop MBE
Support for MBE intermediaries Support for MBE intermediaries serving various parts of Cuyahoga serving various parts of Cuyahoga County, in addition to Cleveland County, in addition to Cleveland
Provide multi-year grantsProvide multi-year grants
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RecommendationsRecommendations
Fund intermediaries that:Fund intermediaries that:– Articulate measurable goals and outcomesArticulate measurable goals and outcomes– Coordinate and cooperate with other Coordinate and cooperate with other
intermediaries funded by the Foundationintermediaries funded by the Foundation– Partner with diverse stakeholders to Partner with diverse stakeholders to
support minority businessessupport minority businesses Develop a tracking system to monitor Develop a tracking system to monitor
the health of minority businessesthe health of minority businesses
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RecommendationRecommendation
Support the following:Support the following:– A clearinghouse intermediaryA clearinghouse intermediary– Technical assistance and professional Technical assistance and professional
development grants to intermediariesdevelopment grants to intermediaries– Research and evaluation to support Research and evaluation to support
the continued refinement of MBE the continued refinement of MBE servicesservices
– Public policy formulation and Public policy formulation and advocacyadvocacy
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RecommendationsRecommendations Support for multi-organizational and Support for multi-organizational and
regional strategies that target regional strategies that target specific industry sectorsspecific industry sectors
Support for micro-enterprise and Support for micro-enterprise and small-business development small-business development strategies that target industries with strategies that target industries with the most potential to grow to the the most potential to grow to the next levelnext level
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ConclusionConclusion
• The Cleveland Foundation has a The Cleveland Foundation has a strategic opportunity to take its strategic opportunity to take its MBE promotion and development MBE promotion and development to the next level, with the to the next level, with the combination of the intermediaries combination of the intermediaries in place and many exciting, in place and many exciting, emerging opportunities.emerging opportunities.