When COVID-19 first started hitting the world hard, it impacted the fundamental driver of much of the world’s growth: the supply chain. Lockdowns had yet to come to the United States, but 70% of companies were already assessing their supplies to determine what was locked up abroad. In the decades prior, lean supply chains had been the key to doing business across. Now, after months of supply chain disruptions bad enough to reach the general public’s awareness, firms need to adapt. The troubles of the pandemic are not over. Not for individuals, and certainly not for businesses either.
Last year, 97% of businesses worldwide were impacted by pandemic-related supply chain disruptions. At the same time, 81% of businesses reported lower demand for their products. These factors combined led to 76% of businesses reporting reduced revenue with an average of a 23% decline. For many businesses, losing 23% in revenue is the difference between operation and shutdown. With small businesses “at the mercy of larger retail buyers and suppliers” according to Avinandan Mukherjee, Dean of the Lewis College of Business at Marshall University, they face increased risk from the pandemic-induced recession.
Already, the ills facing many businesses have been terminal. 60% of company closures during the pandemic are now permanent. The hardest hit businesses were those owned by racial minorities and those operating in high-rent zip codes. In the first two weeks of the pandemic, 65% of small businesses in high rent zip codes laid off staff compared to 30% in lower rent areas. From February to April, minority business ownership declined almost twice as much as did Whites. Black Americans were the worst hit, losing 41% of their small businesses in a two-month time period.
These closures are more than just a tragedy for the individual owner or a bad sign for the economy. They’re also a setback for racial equality. Minority owned businesses are vital to equalizing the wealth gap between White Americans and communities of color. According to Robert Fairlie, Professor of Economics at the University of California, Santa Cruz, these firms are important to “local job creation, economic advancement, and [erasing] longer-term wealth inequality.”
A great shame of when these businesses closed is that summer 2020 brought public outcry for racial equality and diversity in all areas of life, especially among the younger generation. 7 in 10 millennials chose to shop with brands demonstrating diversity and inclusion in 2020, and over half of Americans aged 18 to 34 said they would never want to work for a firm that failed to speak out during the protests. Companies who stayed silent risked the loss of both customers and future employees. Many promised greater diversity in the future. The time has come for them to follow through.
Diversity isn’t just a trend; it’s a winning business strategy. Diverse suppliers and workforces in the local area lead to flourishing communities, more product innovations, new patent filings, and more citations on patents. For the 1 in 3 companies unprepared to move beyond diversity compliance, their inflexibility is a liability for the future.