Plugging into minority markets.

Most Americans recognize the value of the great diversity inherent in our multicultural society. Such diversity is evidenced in the makeup of the business community. Consider the following:

* The nation's 100 largest African-American industrial-service companies posted total sales of $5.7 billion in 1992, an increase of 13.9% over 1991. New-York-based TLC Beatrice International Holdings, Inc.--the nation's largest African-American-owned company--alone grossed $1.67 billion in sales in 1992.

* In 1992, assets at the nation's 25 largest African-American banks and savings and loans were $2.8 billion; deposits were $2.4 billion and loans were $1.5 billion.

* The most recent census figures showed there are over 400,000 African-American-owned businesses.

* There are over 500,000 Hispanic-owned companies in the United States with sales totaling $40 billion.

* Sales at the top 500 Hispanic companies in 1993 exceeded $10 billion.

* The most recent data showed there were roughly 400,000 Asian-Pacific-Islander-owned companies in America.

* In California in 1990, 1 of every 10 Koreans was a business owner, and 1 of every 22 Hispanics.

Impressive as these statistics are, they fail to capture the profound impact that changing demographics will have on our work force and our future business community. Consider the following demographic changes expected in the near future:

* By the year 2000, women will make up 47% of workers, minorities will hold 26% of all jobs and it is expected that white males will account for only 32% of the work force.

* During the 1990s, Hispanics will account for 40% of U.S. population growth.

* Hispanics, Asians and African Americans represent 40% of California's population. In the near future, Caucasians will be a minority population in California.

* Experts predict a rise in the number of business acquisitions by African-American entrepreneurs and a growing number of African-American ventures in computer and high-tech fields.

If these predictions become reality, how can CPA firms prepare to practice in a multicultural business environment? Specifically, how can they ensure they will be positioned adequately to provide service to these growing numbers of nontraditional clients?

THE BUSINESS ENVIRONMENT

Up to now, the primary response to diversity was to adopt affirmative action programs and provide diversity training. The focus of affirmative action has been to ensure compliance with Equal Opportunity Employment regulations directed to increasing minority employment, while diversity training attempts to increase the existing work force's sensitivity to multicultural issues. Both efforts vary significantly among companies but usually include some of these common elements:

* Providing resources and skills for effective minority hiring and development and for the retention of a diverse work force.

* Developing a reporting system to measure and monitor performance in meeting affirmative action goals.

* Ensuring that internal personnel structures help promote fair and equal treatment.

* Educating employees to understand and appreciate diversity.

* Teaching "people skills" to managers and other employees.

* Working with the community to increase society's awareness of diversity.

Note that these efforts are primarily internal and directed toward changing the existing work force's composition and attitudes. Such efforts are highly laudable and the benefits of diversity are increasingly evident in the nation's CPA firms. But these programs don't deal directly with the external business environment in which a typical firm must operate. Simply changing the composition and sensitivity of a CPA firm's staff does not guarantee that the firm will be in a position to provide services to the rapidly expanding numbers of minority businesses.

There are simple steps firms can take to position themselves to win minority business clients. (These proposals are in no way intended as a substitute for affirmative action and diversity training programs but are to be considered as external extensions of these efforts.) We suggest a fourstep strategic plan for expanding a practice to service minority-owned businesses. Each step requires increasing commitment on the part of the firm. This plan was developed on the basis of extensive interviews we conducted with the staffs of minority support groups and business networks and members of minority-owned CPA firms in the Detroit and the Los Angeles areas.

STEP 1: EXPLORING THE LITERATURE

The first and most basic approach to learning about the nature, scope and operations of minority businesses is to read relevant journals and newsletters. All major minority business segments are represented by specialized business journals. The exhibit on page 54 lists some of the more prominent publications.

STEP 2: LOCATE MINORITY SUPPORT GROUPS

The next step is to become actively involved in local minority support groups, such as minority-based chambers of commerce, business associations and trade groups. Such organizations provide a variety of services for minority business leaders and afford an excellent opportunity for developing face-to-face contacts.

Many metropolitan areas have chambers of commerce devoted exclusively to promoting business and investment opportunities in the minority community. These organizations can provide extensive information on local minority businesses, including economic reports, results of business surveys and statistics on specific manufacturing and service industries. Annual fees typically range from $200 to $1,000, depending on membership status. Members can become acquainted with minority business leaders at luncheons and special events, participate in speakers' bureau activities and receive the organizations's newsletter.

Similar opportunities can be obtained through membership in minority business associations. The Black Business Association of Los Angeles, for example, was formed in 1970 to promote economic development and self-determination in the African-American community. Its primary mission is to inform members of minority business opportunities in the private and government sectors and provide access to capital. The group publishes a bimonthly newsletter listing numerous luncheons, award programs and special events such as golf tournaments and trade fairs. The association also sponsors a series of entrepreneur-training seminars and workshops on topics such as financial planning and electronic data interchange. These programs offer an obvious opportunity to CPA firms interested in gaining access to minority markets. The annual membership fee is $500 for corporations and government agencies.

Trade groups such as the Latin American Manufacturers Association, headquartered in Washington, D.C., assist their members by organizing conferences and trade fairs, publishing trade journals and maintaining a speakers' bureau. Minority trade groups exist for nearly every type of trade or profession, including public accounting. Groups such as the American Association of Hispanic CPAs (c/o national president Carlos Perez, Deloitte & Touche, One World Trade Center, Long Beach, California 90831; telephone: [phone]) and the National Association of Black Accountants (7249-A Hanover Parkway, Greenbelt, Maryland 20770; telephone: [phone]) offer employment opportunities, referral services, continuing professional education and scholarships for minority accounting students.

There are literally hundreds of minority business associations and trade groups nationwide. In the Los Angeles area alone, we identified 44 minority business support groups. CPAs can find such groups locally by contacting the National Minority Supplier Development Council, or NMSDC (15 West 39 Street, Ninth Floor, New York, New York 10018; telephone: [phone]), as described in step 3 below.

STEP 3: JOIN NATIONAL MINORITY NETWORKS

The most systematic approach to linking up with minority business is through involvement in formal minority networks. The most extensive such network is the NMSDC and its affiliated regional councils. The NMSDC is a not-for-profit corporation whose mission is to encourage mutually beneficial economic links among minority businesses and government and private enterprise. To this end, the council conducts a number of activities including trade fairs, seminars, award luncheons, membership meetings and networking activities. It also channels working capital to minority suppliers through its Business Consortium Fund (BCF).

Perhaps the most important service the council provides to organizations wanting to network with minority businesses is an extensive database of companies certified as minority-owned and -operated. The NMSDC and affiliated councils maintain a computerized database of more than 15,000 certified minority businesses that is accessible to corporate members.

The certification process varies across regions but usually involves an initial application and processing fee, accompanied by on-site visits, interviews and vendor capability studies. The benefits of certification to minority business entities vary by region. For example, certification by the Southern California Regional Purchasing Council (SCRPC) entitles minority businesses to free listings in regional and national databases, eligibility to apply for BCF loans and participation in area trade fairs, seminars and workshops. The work of the SCRPC is supported by more than 225 major corporations in Southern California as well as numerous other support groups such as the Asian Business Association, the Latino Entrepreneurial Association and the Black Business Association of Los Angeles.

A survey of certified minority business enterprises undertaken by the NMSDC and Fortune magazine found that

* Fifty-six percent of the certified minority businesses were African American; 24%, Hispanic; 14%, Asian; and 6%, Native American.

* About one-third of the minority owners surveyed had owned or operated a business before setting up their current enterprises. Those who had not run a business had at least 10 years of work experience. Approximately 80% had managerial experience.

* About 30% of certified minority businesses reported sales over $1 million, and 15% had sales of $500,000 to $1 million.

To join a regional affiliate council, a CPA firm should contact the NMSDC for the name, address and phone number of the director in its region. Annual membership dues depend on firm size based on revenues and may be as low as $500.

The NMSDC reported that despite the fact that many minority businesses showed slight declines in sales as a result of the recession, many major U.S. corporations continued to demonstrate a commitment to minority businesses. The changing demographics of American society and this corporate commitment to minority businesses suggest a strong and growing market for accounting services among minority companies.

STEP 4: HIRE MINORITY STAFF

As a fourth stage in a minority strategic plan, firms should hire minority staff specifically to help them focus their efforts on gaining clients. While this ties in nicely with affirmative action, there are additional considerations for effectively implementing such a plan that extend beyond simply hiring qualified minority candidates.

It is imperative that firms begin with a clear idea about which minority markets they want to target, since even single minority groups exhibit considerable differences in cultural and demographic characteristics. For example, consider the Hispanic community, which is expected to be the largest U.S. minority in 15 years. Donnelley Marketing Information Services of Stamford, Connecticut, recently introduced a marketing tool that splits U.S. Hispanics into no fewer than 18 groups. Its "Hispanic Portraits" range from high-income Puerto Ricans living in single-family housing (3% of U.S. Hispanics) to low-income Mexicans living in Hispanic neighborhoods (16%). Even the assumption that a minority group speaks a common language can be deceptive. In fact, 30% of Hispanics do not speak Spanish as their primary language.

Therefore, minority hiring directed toward helping a firm engage minority clients should proceed from a carefully crafted strategic plan focused on a specific minoirty business sector. As with any strategy, a firm should attempt to maximize opportunities in its area. Information about such local opportunities is best developed by building on knowledge obtained through the literature and interaction with support groups and formal networks. Firms will be frustrated in their efforts if they ignore steps 1 through 3 and proceed directly to step 4.

MERGERS

Finally, in some situations, a firm may consider merging with a CPA firm that currently provides services to minority businesses. In many cases, such a firm will itself be minority-owned. Obviously, such an important strategic decision should be made only after due deliberation. The number of such firms in any particular area will vary, but given that African Americans, Hispanics, Asians and Native Americans make up a collective majority in 100 of the 555 cities in the U.S. with at least 50,000 residents, the number of minority-owned CPA firms can be expected to increase significantly in the future. Interviews with partners of some of the 16 Hispanic-owned accounting firms we identified in the Los Angeles area uncovered a strong interest in either mergers or joint ventures with other CPA firms.

A DIVERSE ENVIRONMENT

Dramatic changes in the demographic makeup of U.S. society along with the fact that many minorities now choose to celebrate their unique heritage means CPA firms must prepare to operate in an increasingly diverse business environment. The four-step strategic plan we have developed should help firms establish meaningful business contacts with minorityowned businesses. Implementing each step will require a progressive commitment in terms of time and resources but should position a firm for success in meeting the challenges and opportunities always inherent in change.

EXECUTIVE SUMMARY

* MINORITY-OWNED BUSINESSES are becoming an important part of the economy. To gain minority business clients, CPA firms should consider implementing a four-step strategic plan:

1. Explore the literature. Practitioners should become familiar with local minority-owned and -operated businesses by reading specialized journals and newsletters.

2. Join minority support groups. Firms can become active in local minority-based business and trade groups and take advantage of the data they compile to learn more about minority markets. CPAs also can attend meetings and special events to develop contacts with minority business leaders.

3. Participate in national minority networks. These offer CPA firms access to regional and national databases of minority business enterprises and to conferences and trade fairs.

4. Hire minority staff. CPAs can incorporate minority hiring into the firm's strategic plan by focusing on markets with the greatest potential for future growth. Firms should seek candidates with the appropriate background and language skills for specific minority business communities.

Prominent minority-market business journals

Balck Enterprise

130 Fifth Avenue

New York, New York 10011

Black Enterprise is published monthly and reports annually on the top African-American companies in its Black Enterprise 100 listing of the largest African-American-owned industrial and service companies and auto dealerships. The largest commercial banks, thrifts, insurance companies and investment banks appear in its BE Financials, BE Insurance and BE Investment Banks lists.

Hispanic Business 

[phone]

The publication Hispanic Business is published monthly and reports annually on the 500 largest Hispanic-owned companies in the United States.

Minority Business Journal

P.O. Box 3543

Pittsburgh, Pennsylvania 15230

Minority Business Journal is published six times a year and is primarily a newsletter covering personalities in the world of minority business.

Indian Business and Management

9650 Flair Drive

Suite 303

El Monte, California 91731

Indian Business and Management is published bimonthly by the National Center for American Indian Enterprise Development and is dedicated to Native American business and management news.

American Demographics

P.O. Box 68

Ithaca, New York 14851

American Demographics is published monthly and deals with a wide variety of topics about the composition of American society. It provides extensive coverage of minorities and has a business trends sections.

China Daily

China Daily Distribution Corporation

15 Mercer Street

Suite 401

New York, New York 10013

China Daily is published daily except Sunday and is china's national English-language newspaper. It carries world and national news and includes an economics and business section focusing on Asian-American business news.

Note: This list of major journals is not inclusive.

BREAK THE BARRIER

Robert Rosario of Rosario & Co., a local CPA firm serving the New York metropolitan area, believes that affiliating with a firm that has ties to a minority community is the best step for small firms. He cites two major issues for those interested in working with Latino businesspeople. The first is language capability.

"There's a large influx of business coming in from Latin America. Many of the people don't speak English well, but they are sharp businesspeople." Even people who are comfortable speaking English may prefer to do business in Spanish or may have problems to be resolved in Spanish-speaking countries, which presents a problem for practitioners who don't speak the language, Rosario says.

In addition, CPAs need to understand the subtleties of different cultures. "Among Latino businesspeople, we're immediately on a first-name basis--things are very personal. And they want to talk to me when they want to talk to me--I have to be available 24 hours a day. Just like a doctor, I get beeped constantly."

He concedes that it's difficult for those who didn't grow up in a culture to understand its nuances. "It behooves non-Latinos to associate themselves with a firm that's already doing business in the minority market," he advises.

UNDERSTAND THE NEEDS

CPAs can provide a needed service to new immigrants, according to Kikuo Nakahara, a partner in Greene & Nakahara and a managing director of IDS Tax and Business Services in Walnut Creek, California. "Non-American Asians, for example, often aren't familiar with local and other laws, so they need a great deal of handholding in terms of reminders about state and local or payroll tax requirements, licensing and other business needs. I call a client of mine a week or two before the close of every quarter to remind him of what he needs to do--and I've been doing this for years."

Bankers at Asian-owned banks, Asian chambers of commerce and groups such as the Japan Society in San Francisco that focus on relations with an Asian country are good sources of referrals to potential clients, according to Nakahara.

"It's important to remember you can't generalize about any group," Nakahara cautions. "Recent immigrants from Asia, for example, have a totally different background from that of Asian Americans."

CHANGE FROM WITHIN

In larger firms, the best advice for entering minority markets is to diversify the staff to reflect local demographics, says Carlos Perez, a tax partner of Deloitte & Touche in Long Beach, California, and national president of the American Association of Hispanic CPAs. "I believe strongly in hiring, attracting and recruiting minorities so that culturally and through their members' language abilities firms can better serve the needs of their clients," he says.

This policy makes sense because of its appeal to clients. "Minority business owners frequently prefer to have concepts explained to them in their own language. They like to do business with someone who understands their culture and the business community they're serving," Perez explains.

As part of the recruitment process, Perez encourages larger firms to establish cultural diversity programs so they can better represent their communities. He also underscores the importance of success stories who set examples for others. "For a long time, I was the only Hispanic partner here," he says. "I've taken an active role in encouraging others to enter the profession. The goal of our association is to provide programs that attract and recruit Hispanics into the profession."

CREATE GOODWILL

Firms would do well to make a goodwill investment up front when attempting to expand their practices in minority communities, according to Michael Bruno, managing partner of Bruno & Tervalon, New Orleans, the largest African-American-owned CPA firm in Louisiana. "Go into the local high schools, elementary schools, universities even, and adopt one," he counsels. "Allow employees time off to go in and become role models--not once a year or once a quarter but almost weekly." This is the kind of commitment his firm, which serves many minority businesses, makes in its area. Bruno has created a program called Professional Friends, which fosters continuing one-on-one contacts between African-American CPAs and New Orleans youths in an effort to ensure they stay in school.

He also suggests that large national firms seek joint ventures with local minority CPA firms not only on public-sector and not-for-profit projects but also on large-scale corporate engagements. Fostering such a relationship with a local firm can lead to better contacts in the community, Bruno says.