Improving supplier diversity in China

Minority Supplier Development in China (MSD China) focuses on minority supplier development, which is a facet of supplier diversity. 

Supplier diversity is a relatively new concept in China. As a result, a lot of entrepreneurs, government officers and procurement executives don’t necessarily know what it is. We need to spend a lot of time explaining the concept to them.

But, unlike our MSD counterparts in the US, UK, Canada, Australia and South Africa, a lot of small and diverse suppliers in China do not speak English. This makes it even more difficult for them to communicate with potential customers.

MSD China faces other challenges, most notably, the absence of compulsory legislation to support supplier diversity in the country. In addition, it is also hard to identify minority suppliers because it is difficult to know the nationality of business owners through public registration information held by China’s Industrial and Commercial Bureau.

At present, the organisation tries to identify diverse suppliers based on recommendations from the government’s State Ethnic Affairs Commission, as well as through introductions from its corporate members.

However, with the reform of non-governmental organisation regulations, MSD China cannot continue to depend on the government’s support here and we are having to consider ways of identifying diverse suppliers without the government’s assistance.

Aside from these identification and regulatory issues, it is also difficult to match diverse suppliers with businesses because there is a gap between suppliers’ abilities and purchasing organisations’ expectations.

A major task for us over the coming months and years is to build a series of training sessions for minority suppliers to help them improve their abilities and bridge that gap step-by-step.

MSD China has hosted several training sessions around leadership, risk management and building capacity, which have been attended by more than 100 small businesses since 2014.

Despite these difficulties, MSD China has made significant progress since it was established in 2008. These include:

• Gaining support from 20 multinational corporations.
• Certifying 91 minority suppliers.
• Encouraging large organisations to spend more than 30m yuan minority business enterprises.
• Hosting eight annual conferences and nine training conferences.

Defining a minority supplier in China

There are three types of minority supplier:

1. Minority-owned Enterprises (MBEs) located in the People’s Republic of China and at least 51% owned, operated, and controlled by one of China’s ethnic minority group members. They are for-profit enterprises.
2. MBEs in an ethnic minority region. Such organisation must be registered and have its principal office in one of China’s ethnic minority regions. Covering 64.5% of China’s total territory, the officially approved Chinese ethnic minority autonomous regions include five autonomous regions, 30 autonomous prefectures, and 120 autonomous counties, as well as 1,256 autonomous townships. The business must also be wholly owned and controlled by Chinese citizens, a corporation, a community or an organisation. At least 30% of the total employees also need to be of an ethnic Chinese minority.
3. Minority craftsman who belong to one of the 55 ethnic minority groups of The People’s Republic of China. These individuals possess a professional technical certificate issued by the government.

Support from western businesses

MSD China corporate members pay a membership fee to support our daily operations and sponsor our annual conference. They also send their procurement executives based in China to attend our match-making events and conferences as well as arrange volunteer lectures and visit MBEs to help build capacity.

Levels of investment in minority suppliers

Although most local enterprises recognise the benefits of the concept, few of them actively follow it because of the absence of relevant legislation in the country.

Future development

Although MSD China has made progress, There is still a long way to go. Due to the specific national conditions in China, we need to make more efforts to drive minority supplier development to the heart of businesses and their procurement functions in the country. In a long-run, education and training programmes will be our top priorities to try and achieve that.

Procurement Leaders members have access to a Primer on supplier diversity.