Quantifying the economic impact of purchasing

By Joanna Buczkowska

Do you ever consider how your purchasing decisions impact your local community? For instance when you buy paper and pens for your office do you consider the impact those dollars have locally? The local purchasing movement started in the food and retail industries and aims to emphasize the social and environmental impact of purchasing decisions.

Procurement practices of both private and public institutions play a massive role in the economy but could also be utilized to foster local economies and job growth. However these wider economic impacts are rarely taken into account, partly due to a lack of awareness and data regarding the different economic impacts between local and non-local business purchases. Intuitively people understand that increased local economic activity and jobs lead to greater tax revenue and a stronger economic base to support other businesses and anchor institutions. Non-local companies and imports are, of course, key components of keeping prices competitive in any modern economy, but empowering and enabling local companies to capture a bigger share of their local and regional markets can provide significant benefits too. But can we actually quantify this “local” economic impact?

A recent collaboration between ISIS Research Centre, Columbia Institute and  LOCO BC on a Power of Purchasing study focused on exploring that exact question: What is the local economic impact of purchasing decisions? Using office supplies as an example, the study found that Mills Basics, a locally owned B.C. office supply company, re-circulates 33% of their revenue directly to residents and businesses in B.C., compared to 17% and 19% for their multinational counterparts (Office Max and Staples). This presents a 77%-100% economic advantage for B.C. from buying local, and an 80%-100% increase in jobs per million dollars spent.

This increased impact occurs because the local company recirculates more money to local labour, suppliers, owners, and charities. In turn, these employees, suppliers and owners spend that money on goods and services they need, some of which also come from local businesses. This study shows that  the multiplier effect of economic activity remaining in the local community is tangible. Local procurement is more than just about jobs and wealth creation, it can also be a useful economic development method to empower local capacity development and benefits ranging from greater public health to smarter growth to a stronger entrepreneurial culture.

This study demonstrates that there is a real (quantifiable) economic advantage to purchasing from local suppliers. It also validates that we need to consider the impact of purchasing decisions as they can have very significant social, economic and environmental impacts in our communities. After all “local companies form the backbone of our economy,” says Amy Robinson, Founder and Executive Director of LOCO BC, a non-profit organization that promotes, connects and supports local businesses. “We ask that businesses, institutions and consumers spend with local businesses because they support local causes, hire neighbours and help build strong communities.”

Download the Power of Purchasing Report