7 minute read 16 Jul 2019
Photograph of male Maori builder

The role of corporate purchasing in social change

Procurement as a game-changer for Māori socio-economic prosperity

The global movement toward uplifting indigenous socio-economic prosperity via procurement is gaining traction in New Zealand. Public and private sector businesses are well positioned to effect positive change for Māori using this lever, however are not currently equipped to do so. The challenge for New Zealand business is to extract that value and to deliver it to where it is needed.

Whilst cost and convenience will continue to be a determinant in awarding contracts, international experience tells us that the broader benefits of including social targets in procurement processes are becoming better understood. Procuring goods and services from indigenous businesses has proved to deliver multiple positive outcomes. Some of these include:

  • Driving a more competitive market
  • Creating sustainable apprenticeships and employment in traditionally disadvantaged communities
  • Creating training opportunities and increased career prospects for at-risk indigenous youth
  • Improving economic and social outcomes for the wider community
  • Enhancing staff satisfaction and organisational identity
  • Driving innovation through new partnerships and service models
  • Improving supply chain disclosures (where stakeholders demand greater disclosures around supplier diversity and improved community outcomes).

The New Zealand business landscape also lends itself to the realisation of those outcomes. Indeed, procurement from Māori businesses supports the government’s priority to increase equity through enabling and accelerating Māori economic activity[1] and to lift Māori (and Pasifika) wellbeing. Unless adopted and tailored effectively however, those efforts will likely lose critical impact.

In recognition of the flow-on effects from indigenous procurement, governments around the world, including in Australia, Canada, the United States and South Africa are providing economic and strategic support for departments that award procurement contracts to indigenous businesses.

In Australia, the Federal Government's Indigenous Procurement Strategy has resulted in more than 12,000 contracts being awarded, representing over AU$2 billion in goods and services since it began in 2015.  

While New Zealand’s efforts to capitalise on the benefits of social procurement lag behind some parts of the world (for example, Australia, Canada, the United States and South Africa), evidence of some change is however slowly becoming apparent[1]. In the absence of clear understandings of those benefits and a commitment to act, we will continue to lag. In so doing, our failure to deliver on our obligations to indigenous New Zealanders will endure.

Speaking ahead of a supplier diversity conference in Auckland in May 2019, The Southern Initiative social entrepreneur Tania Pouwhare told media that countries such as Australia are seeing an exponential increase in the number of thriving indigenous businesses. This is largely a result of supplier diversity clauses built into government procurement requirements. Procurement contracts won by indigenous businesses therefore play a significant role in the creation of sustainable employment and economic development opportunities in their communities. 

This is the flip-side to welfare. And it builds on the innate skills within our people and brings them into the mainstream economy.
Tania Pouwhare
Social Intrapreneur, The Southern Initiative team, Auckland Council

Given the value of supplier spend in New Zealand, what can organisations do to direct a larger portion of that spend towards Māori suppliers? 

Total value of procurement contracts 2017-18

NZ$661 billion

The total annual supplier expenditure by NZ business and government in 2017-18 according to a Stats NZ Enterprise Survey

Engage with Supplier Diversity Agencies

Globally, supplier diversity agencies such as Supply Nation in Australia certify suppliers that meet certain criteria, including being owned by indigenous people and supporting local communities. The agencies create databases of certified suppliers and connect them with a network of corporate members. Outside the success of the Australian program, South Africa’s supplier diversity agencies have facilitated more than R$74million (NZ$7.5million) of business to their certified suppliers. Crucially, corporate member firms reported generating 133% higher returns on their procurement operations than companies that do not focus on supplier diversity.

Regulate procurement policies

The United States, United Kingdom, Canada, South Africa, Malaysia and Australia all have policies that mandate, or encourage the awarding of Government contracts to disadvantaged or minority groups. The policies include mandatory set-asides for fixed dollar amounts or a percentage-of-spend, with certain groups (including indigenous populations) being given preferential treatment in the contract award process. These policies have had varying levels of success for indigenous outcomes, summarised as follows:

  • Increase in percentage of government and public-sector contracts being awarded to indigenous firm
  • Increase in participation of indigenous businesses in the economy, thus enabling indigenous businesses to become more established and successful
  • Economic value generation - in the United States minority-owned businesses are: twice as likely to export goods; export leaders in 14 key industry sectors; three times as likely to have international operations; six times as likely to transact business in a language other than English; contribute $US1 trillion to the American economy and; directly account for 7.2 million jobs
  • Social value generation - in Australia for every dollar of spend with indigenous businesses, $4.41 of economic and social value was created through (for example) reinvesting in their communities or providing training to their staff
  • Increased employment for indigenous communities - in Australia it has been shown that aboriginal businesses employ 30 times the proportion of indigenous people than non-aboriginal businesses
  • Lack of indigenous suppliers or capable indigenous suppliers for certain contracts
  • Negative impact of companies or passive partners where the company appears to be indigenous but delivers limited or no benefits for indigenous communities 
  • Criticism for benefiting indigenous business owners at the expense of indigenous communities at large
  • Companies falsely claiming to be indigenous or falsely claiming to employ indigenous workers with limited government monitoring, leading to repercussions for non-compliance
  • Lack of consistency and rigour around how social outcomes are quantified, thus rendering it difficult to evaluate bids and determine value
  • Accusations that preferences restrict competition, thereby impairing economic efficiency and raising the cost of procuring goods and services
  • Public opinion that affirmative action creates a culture of entitlement, complacency and mediocrity in indigenous businesses

 

The New Zealand experience

In the absence of a regulated procurement policy or recognised supplier diversity agency, indigenous procurement approaches, and (including social procurement generally) are not well established in New Zealand. 

Often opportunities in New Zealand amount to suppliers providing apprenticeship placements in their businesses to relatively small numbers of Māori. Whilst not to be discouraged, such arrangements are sometimes compliance driven, rather than implemented for their ability to deliver sustainable social benefits. Furthermore, given the limited number of individuals able to benefit under this approach, opportunities to increase capacity and capability and enhance career progression pathways for Māori and Māori businesses are not always available. 

Mechanisms to effect positive change for Māori

Challenged with using social procurement as a tool to effect positive change for Māori, New Zealand businesses have a suite of mechanisms available to them. Some of these are:

  • 1. Introduce a Māori procurement framework

    In creating positive social impact for Māori, procurement frameworks that support effective engagement with Māori supply businesses must be developed. At present, the continued focus on the cost-minimisation functions of procurement and lack of understanding of the broader benefits on offer currently act as a handbrake to the realisation of those benefits. 

  • 2. Create a unified, whole-of-organisation approach

    Improved social outcomes for Māori should be embedded in a businesses’ purchasing strategy and therefore be reflected in a Māori procurement framework. Category management, sourcing processes, contract templates and evaluation methodologies that support these improved outcomes (and can be easily applied by procurement personnel) should be incorporated into the framework.

  • 3. Develop authentic partnerships with Māori

    The development of authentic and effective partnership strategies with Māori (tangata whenua / local iwi or tribes and other Māori interests in the areas in question) are necessary. This will, amongst other tangible benefits, allow a business to best understand and deliver on the aspirations of those communities. Anything short of this will compromise the ability of those outcomes to be achieved or be sustainable.

  • 4. Understand and engage with "Māori businesses"

    In addition to requiring primary contractors to sub-contract Māori supply businesses, provide employment, scholarships, training, apprenticeship or other like opportunities, purchasing organisations should themselves engage with Māori supply businesses directly to build the necessary relationships. To enable this, a definition of “Māori business” must be agreed upon, perhaps taking learnings from the Supply Nation definition which requires businesses to be 51% owned, managed and controlled by indigenous people before it can be certified. 

Summary

New Zealand business should accept the challenge to effect better social outcomes for Māori via enhancement of their procurement functions. To do this will begin to bring us into line with countries who are successfully achieving just that. In fact, when considered alongside our Treaty of Waitangi obligations to Māori as well as  CSR responsibilities, taking on this challenge should not only act as a catalyst for positive change, but also put as at a distinct advantage over many who are currently walking this path. 

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Related topics Corporate responsibility Corporate responsibility Government and Public Sector Diversity, equity and inclusiveness Inclusive growth
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