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Symposium 2014

Solution for Global Supply Chains and Sustainability

The Challenge

The Rada Plaza fire in a clothing manufacturing plant in Bangladesh gave the world a sordid picture of the global supply chain at its worst. The owner of the plant became a poster child for GVC (Globa ...

The Rada Plaza fire in a clothing manufacturing plant in Bangladesh gave the world a sordid picture of the global supply chain at its worst. The owner of the plant became a poster child for GVC (Global Value Chain) players in emerging economies—large country-based companies with resources to gather labor pools of low-skilled, poorly-paid workers who are just grateful for any job, even in the most hellish work environment.

Diversifying the global supply chain through involvement of women entrepreneurs worldwide

Given the fact that small business underpins every economy of the world, the engagement of suppliers with excluded groups expands an emerging cadre of SMEs, for which inclusion in the global supply chain not only enables their own businesses to move up to the next level, but also provides the base for sustainable local economies. There are already existing efforts by corporations and governments, from whose experiences solutions can be extracted. The challenge is to scale up these efforts by engaging more companies and countries in existing initiatives. The GES can create a forum to exchange these best practices from the public and private sectors, as well as to create awareness of the economic and social value of expanding supply chains, whether in developed, emerging or developing economies.

Private Sector Initiatives: several major US companies are now engaged in supplier diversity efforts, in order to widen their pools of contractors and service providers. In doing so, their global subsidiaries should be able to source goods or services from local SMEs, including, in particular, female-owned enterprises. Companies like Walmart, Coca-Cola and Goldman Sachs have allocated a certain percentage of their supplier contracts to businesses owned by women worldwide, and this allocation is a crucial part of their efforts to promote corporate social responsibility. In particular, these efforts are focused on expanding the share of women-owned enterprises in different parts of the world. These initiatives have also been widely touted in the media, so that each company’s branding is enhanced. This may not be a primary goal of these initiatives, but their effects are a net positive for these companies.

A closer look at these initiatives shows the scale of the projects. Recently, six major US companies that include Walmart, Coca-Cola, IBM, ExxonMobil, among others, pledged to award $1.5 billion in contracts to women-owned enterprises between 2013 and 2018. These sourcing commitments are combined with programs to train women entrepreneurs to improve their businesses and their own skills in managing them. Coca-Cola’s 5X20 program aims to “empower” 5 million women entrepreneurs across their value chain, while Walmart targets one million women for training. Meanwhile, the Anglo-Dutch consumer goods company Unilever in 2012 launched a similar blend of capacity building that also targets 5 million women while committing to help them grow their businesses. Both Unilever and Coca-Cola touted their partnerships with UN Women in announcing these projects, clearly signaling their understanding of the global impact of such projects.

Goldman Sachs was an early proponent of this idea through their “10,000 Women” program, which provided business and management education to female entrepreneurs in 43 countries. Acknowledging that financing of female-owned businesses for growth remains a hurdle, Goldman Sachs partnered with the International Finance Corporation in 2013 to raise $600 million that will be channeled to banks in several countries for loans to female entrepreneurs.

Similar efforts toward supplier diversity have yet to be adopted by companies in Europe and other parts of the world, but the efforts summarized above show the private sector’s capacity in expanding their global supply chains by opening up their supplier networks to include previously excluded groups. In so doing, they enable these small/medium enterprises to grow. While the projects mentioned above target female-owned businesses, the same companies have similar initiatives for minority-owned enterprises in the US.

Public Sector Initiatives: Governments can also play a role in diversifying their supply chains, as they are often the biggest contractors for goods and services. It’s one of the major reasons why Fortune 500 companies have a major presence in Washington, DC—to lobby for such contracts. To get into the government supply chain is not easy, but those businesses that manage to do so, whether large corporations or SMEs, are ensured a certain measure of stable growth.

Due to pressure from women’s business groups, there was an effort on the part of the US government during the Clinton Administration to target 5% of government contracts to female-owned enterprises. Unfortunately, even that modest goal was not reached. To date, only 3% of such contracts go to female-owned businesses. Anecdotally, many female entrepreneurs find the application process arduous and the chance to compete against long-standing suppliers difficult given mostly-male procurement officers who are used to dealing with contractors whom they know.

The Samoan government, however, decided to take a more aggressive approach toward widening their supplier network to include more female-owned businesses. Basically, each ministry was tasked with allocating at least 5% of their procurement contracts to enterprises owned by women. This mandate also came with training for female entrepreneurs on how to apply for such contracts, educating them even of the availability of such an opportunity, while informing different government agencies on how to implement the program. The rationale behind this initiative was to expand the share of businesses owned by women while opening up government procurement to include a new network of suppliers.

The South African government took a different direction, by providing a financial incentive to companies that expand their supply chain to include previously excluded groups. A law called the Broad-Based Black Economic Empowerment (BBBEE) Act, revised in 2013, gives points to companies for having 60% black people and 30% black women on their boards and in their senior management. Additional points are given for supplier diversity—for contracts given to black and female-owned enterprises. Companies seeking government contracts, whether at the provincial or federal level, are evaluated on the basis of their score on Black Empowerment Code measures.

What the Samoan and South African governments have shown with these initiatives are two different ways that the state can promote supplier diversity, and in so doing, expand the economic inclusion of previously underrepresented groups of SMEs, whose growth, in turn, can provide jobs to a wider pool of citizens. These efforts, along with those of the private sector mentioned previously, merely open doors to economic opportunity, but the capacity-building of SMEs to enter corporate or government supply-chains is the key factor in ensuring the success of such programs.

Irene Natividad, President, Global Summit of Women, USA