Diverse business ownership boosts US advanced manufacturing

Manufacturing Supply Chains Lack Diversity

Recent federal laws, including the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA), have created an opportunity to strengthen U.S. manufacturing while also promoting more inclusive ownership in key supply chains. Despite this potential, significant disparities exist in the ownership of advanced manufacturing businesses.

The Laws and Their Impact

The IIJA, CHIPS Act, and IRA aim to bolster critical sectors like clean energy and semiconductors. These laws present a chance to align economic revitalization with greater inclusion in the manufacturing sector. However, political uncertainty and potential changes in federal priorities could threaten these advancements. To ensure continued progress, state and local governments, universities, philanthropic organizations, private investors, and corporations must step in to support these goals. Many states already have their own incentive programs for semiconductors and clean energy that are likely to continue regardless of federal actions.

ICIC Research on Business Ownership

The Initiative for a Competitive Inner City (ICIC) conducted a study examining Black and Latino or Hispanic business ownership within key manufacturing supply chains supported by the IIJA, CHIPS Act, and IRA. These supply chains include electric vehicles, semiconductors, clean energy, and critical minerals. The research, detailed in the report “Racial Equity in America’s New Industrial Transformation,” focuses on original equipment manufacturers (OEMs) and first-tier suppliers, which are typically larger and more technologically advanced.

Black and Latino or Hispanic Americans own less than 1% of these supply chain businesses

Analysis of 2023 Dun & Bradstreet data reveals that only 107 Black-owned and 151 Latino or Hispanic-owned firms operate as OEMs or first-tier suppliers in the 13 supply chains studied. This represents just 0.5% and 0.8% respectively, significantly below their representation in the national population (13.6% and 19.1%) and even within the broader manufacturing sector. Electric vehicle and critical minerals supply chains have the highest share of Black ownership, at 1.2%.

Black- and Latino or Hispanic-owned firms punch above their weight

Despite their underrepresentation, many Black- and Latino or Hispanic-owned manufacturers are larger than their white-owned counterparts. The median Latino or Hispanic-owned company had $2.2 million in annual revenue and 18 employees, while Black-owned firms had a median of $900,000 in revenue and 10 employees. In contrast, the median white-owned company in these supply chains had $500,000 in revenue and 8 employees.

The Payoff from More Inclusive Ownership

Increased Black and Latino or Hispanic ownership in these supply chains would lead to more manufacturers and manufacturing jobs, benefiting the U.S. economy. If ownership reached their combined population share (32.7%), it could result in 6,321 additional manufacturers and 1.1 million new jobs, representing a 31.4% increase in manufacturers and a 31.3% increase in jobs within the supply chains, and an 8.2% increase in total U.S. manufacturing employment. Even a more modest increase to match their ownership share across all U.S. employer businesses would add 1,673 manufacturers and 153,525 jobs. These are direct effects, and the new manufacturers would also stimulate job growth at lower-tier suppliers and service providers.

How Non-Federal Actors Can Promote Inclusive Business Ownership

To address the current ownership imbalance and its negative impact on innovation and job creation, state governments, local leaders, corporations, universities, and foundations can take action.

Strategies for Promoting Inclusive Ownership:

• Leverage IIJA, CHIPS Act, and IRA: State and local governments should prioritize assistance to manufacturers with plans to work with diverse suppliers and tie additional funding to their implementation.
• Encourage Inclusive Procurement: Large manufacturers should reward procurement teams for diversifying supply chains and offer better terms to firms that support smaller, diverse suppliers.
• Improve Access to Capital: Lenders should address discriminatory lending practices and support Minority Depository Institutions.
• Bolster Technical Assistance: Increase funding for organizations assisting diverse manufacturers and tailor programs to support growth in high-tech and renewable energy sectors.
• Strengthen the STEM-to-Startup Pipeline: Boost funding for STEM education at minority-serving institutions and foster partnerships between manufacturers and these institutions.

Greater racial equity in manufacturing is essential for revitalizing the U.S. economy and building a more innovative and resilient future.