Ethnic Minority Entrepreneurship
Abstract and Keywords
This article reviews the existing theoretical and empirical literature on ethnic entrepreneurship. It primarily focuses on empirical research conducted in Britain and the United States. It examines the definition of ethnic entrepreneurship and evaluates the forces affecting entry into ethnic entrepreneurship, entrepreneurial survival and success, as well as the factors underlying the heterogeneity in entrepreneurial behaviour and performance among ethnic minority groups.
Ethnic entrepreneurship has attracted the attention of an increasing number of scholars from a range of different disciplines in recent years. This is attributable to three main factors. First, there is growing evidence that ethnic minorities tend to have high self-employment rates and own a significant proportion of businesses in most western industrialized countries. In the UK, average self-employment rates among ethnic minority groups are at least 2 percent higher than the 11 percent rate among the White population (UK Office of National Statistics (ONS), 2004). In the US, minorities owned just over 3 million businesses or nearly 15 percent of all US firms in 1997, compared with 7 percent in 1982. Of the 3 million ethnic minority-owned businesses, 615,222 had paid employees and, on aggregate, generated more than US$591 billion in revenues, created over 4.5 million jobs, and provided about US$96 billion in payroll to their workers (U.S. Department of Commerce, 2001). The significant economic contribution made by minority-owned businesses has led western policy-makers to regard self-employment as a promising route for ethnic minorities to create employment, achieve economic and social advancement, and also be accepted by the majority community.
At the same time, there is growing concern about the heterogeneity in the economic performance of ethnic groups, and the need for policy to address the differential rates of self-employment and economic success among different groups, since ethnic entrepreneurship is a viable response from ethnic minorities to economic restructuring. In the UK, for instance, the self-employment rate among the (p. 581) Chinese and Pakistanis is around 20 percent, compared with 12–13 percent among Bangladeshis and Indians, and 6–7 percent among the Black African and Caribbean population (ONS, UK, 2004). In Germany, ethnic minorities generally display low self-employment rates, the only exception being the Turkish population which shows a high propensity toward self-employment (Constant et al., 2003). Asians own a disproportionate share of all US companies. While they comprise 4 percent of the US population, they own 4.4 percent of all US companies (US Census Bureau 2001). In contrast, Blacks and Hispanics account for 12 percent and 13 percent of the population but own 4 percent and 5.8 percent, respectively, of all businesses. Moreover, Asian businesses are larger, with average annual revenues of $336,200 compared with $155,200 for Hispanic companies and $86,500 for Black-owned companies. Asians, including Chinese, Indians and Pacific Islanders, have started nearly 600,000 businesses in the US during the wave of immigration in the last two decades. There are 10,561 Asian-owned companies in the US for every 100,000 adults, which is nearly twice the rate for Hispanics, and more than thrice the rate for Blacks.
Thirdly, it is possible to argue that with the increasing globalization of the world economy, entrepreneurial ethnic groups are likely to assume greater significance in the years ahead, as they become more mobile, build global networks that are strengthened by faster and cheaper communications technology, and conduct global business and trade among themselves.
Despite these trends that highlight the growing significance of ethnic minority entrepreneurs, the exact concept of ethnic entrepreneurship and the factors that stimulate it and influence its survival and success remain controversial. This may be due, in part, to the fact that empirical studies have focused on the experience of specific groups, rather than a comparison among different minority groups.
This chapter reviews the existing theoretical and empirical literature on ethnic entrepreneurship. It primarily focuses on the empirical research conducted in Britain and the United States. It examines the definition of ethnic entrepreneurship and evaluates the forces affecting the entry into ethnic entrepreneurship, entrepreneurial survival and success, as well as the factors underlying the heterogeneity in entrepreneurial behaviour and performance among ethnic minority groups.
21.2 Definitions of ethnic entrepreneurship
Given its very nature, ethnic entrepreneurship has been studied from several different perspectives. These include cultural anthropology, sociology, geography, politics, and strategic management, as well as economics. Nevertheless, the exact (p. 582) definition of ‘ethnic entrepreneurship’ remains open to interpretation by scholars since there is no universal agreement on the concepts of ‘ethnic’ or ‘entrepreneurship’.
The concept of ethnicity has been explored in the sociological literature and refers to a sense of kinship, group solidarity, common culture, and self-identification with an ethnic group (Hutchinson and Smith, 1996). An ethnic group has been defined as ‘a collectivity within a larger society having real or putative common ancestry, memories of a shared historical past, and a cultural focus on one or more symbolic elements defined as the epitome of their peoplehood. Examples of such symbolic elements are: kinship patterns, physical contiguity, regional affiliation, language … nationality … or any combination of these’ (Schermerhorn 1978: 12). In the context of ethnic entrepreneurship, ‘ethnic’ refers to ‘a set of connections and regular patterns of interaction among people sharing common national background or migration experiences’ (Waldinger et al., 1990: 33).
The notions of ethnic entrepreneurship, minority entrepreneurship, and immigrant entrepreneurship, are frequently used interchangeably in the literature. However, Chaganti and Greene (2002) point out that there are subtle differences between ethnic entrepreneurs, using the concept of ‘ethnic’ as defined above, and immigrant or minority entrepreneurs. Immigrants are recent arrivals in a country, who often enter business as a means of economic survival. They may or may not be part of a network linking migrants, former migrants, and non-migrants with a common origin and destination (see Chaganti and Greene, 2002). Minority entrepreneurs are business owners who do not belong to the majority population. The US government identifies the following as minorities: Black, Hispanic, Asian, Pacific Islander, American Indian, or Alaska Native descent. Women are also occasionally included as a minority group. Thus, a minority entrepreneur may not be an immigrant and may not share a strong sense of group solidarity with an ethnic group, in terms of a shared history, religion, or language. An immigrant entrepreneur of Caucasian descent would not be considered an ethnic minority entrepreneur in the western world. Likewise, an ethnic entrepreneur may or may not be an immigrant, but is likely to belong to a minority community. As indicated by its title, this chapter focuses on ethnic minority entrepreneurs, that is, entrepreneurs who belong to a minority ethnic community.
In the ethnic entrepreneurship literature, ‘entrepreneurship’ tends to be equated with self-employment. Many researchers define ethnic entrepreneurship as the ownership of a business, small or medium-sized, by an individual belonging to a specific socio-cultural or ethnic background (see, e.g. Masurel et al., 2002). In most cases, the businesses owned are very small and unpromising in terms of their employment or growth prospects. The extant literature on ethnic entrepreneurship generally neglects to draw a distinction between the self-employed who have employees, and the self-employed without employees, or between the ownership of small businesses versus entrepreneurial ventures that are scalable and likely to (p. 583) achieve high growth. This may be one of the reasons why there is disagreement among scholars and empirical studies regarding the motives for, and nature of, ethnic entrepreneurship—as will be discussed in the next section. Moreover, while entrepreneurship is generally regarded as an individual endeavour by economic theory, it is usually a family endeavour in the context of ethnic minorities as observed by empirical studies (Baines and Wheelock, 1998; Basu and Altinay, 2003).
21.3 Factors influencing business entry
One of the main issues addressed in the context of ethnic entrepreneurship is the role of macro conditions and micro motives in stimulating business entry. Economic explanations of ethnic minority business entry usually focus on the impact of prevailing labour market conditions. Theories of ethnic entrepreneurship focus on how the ethnicity or outsider (immigrant or minority) status of an individual has an effect on his or her decision to enter business. It is possible to distinguish between four main sets of explanations for business entry by an individual belonging to an ethnic minority group. These are economic disadvantage, cultural preferences, contextual factors, and opportunity recognition.
21.3.1 Economic disadvantage: ‘Push’ factors
One set of explanations emphasizes the role of economic disadvantage, stemming from racial discrimination in the labour market, in pushing ethnic minorities into self-employment. According to this view, if racial prejudice reduces the rewards of paid employment, minorities are more likely to search for alternatives to it, as emphasized by models of self-employment (de Wit, 1993; Clark and Drinkwater, 1998). The argument advanced in the context of the UK is that the contracting jobs market of the 1970s exacerbated problems among ethnic minorities and immigrants, who were forced to opt for self-employment as a ‘damage limitation’ exercise, to avoid unemployment (Jones et al., 1994). Empirical research on the factors affecting self-employment in Britain between 1973 and 1995 supports the view that ‘discrimination contributes to ethnic minority self-employment in Britain’ (Clark and Drinkwater, 1998: 402). Many members of ethnic minority (p. 584) groups are economically disadvantaged when compared with their counterparts from the majority community and have been compelled to create their own jobs, especially, during economic downturns.
This explanation of necessity-driven ethnic entrepreneurship suffers from several limitations and cannot fully explain the ethnic minority business entry decision. First, as Clark and Drinkwater (1998) acknowledge, not all ethnic minorities who face discrimination opt for self-employment, which suggests that there may be additional factors that attract certain groups more than others, toward self-employment. Secondly, the economic disadvantage explanation implicitly implies that starting up one's own business is an ‘easy’ option or an easier option than finding a job, which is a naïve generalization. While the ability to find employment is likely to be related to educational qualifications, skills, and fluency in the host country language as well as macroeconomic conditions, and conditions in the specific industry, the ability to enter self-employment requires some sort of expertise or knowledge, access to finance, favourable contextual factors including low barriers to entry, as well as the drive to execute.
To say that all ethnic minority entrepreneurs started their own businesses because they were economically disadvantaged, is too simplistic an explanation. It does not distinguish between those who were unable to find a job, perhaps because they were educationally disadvantaged, and those who secured jobs, but spotted an opportunity or felt that they had reached a glass ceiling beyond which they could not progress as employees. For instance, several Indian entrepreneurs who established high-tech businesses in Silicon Valley, California, in the late 1970s and early 1980s, said in interviews with the author that it was very difficult for Indians to progress beyond technical management positions in those days. The widely-held belief among American employers at the time was that Indian engineers made excellent technical managers but did not have the ability or skills to be general managers or CEOs. On the other hand, many of those who started new ventures in Silicon Valley in the 1990s did so not because they lacked employment opportunities but because they hit upon a new business idea or were influenced by the role models of successful Indian entrepreneurs that they saw in their midst.
Thus, economic disadvantage may play a role in pushing ethnic minorities into entrepreneurship, but higher ambition or advancement may also be a motive for taking the leap into entrepreneurship.
21.3.2 Cultural predisposition: Pull factors
A second set of explanations may be labelled under the head of cultural theories. This holds that ethnic minorities choose entrepreneurship because of a cultural predilection toward self-employment in favour of working for someone else. Here, (p. 585) culture refers to the shared beliefs, values, and norms of the ethnic minority group. Early proponents of the link between entrepreneurship and culture in the form of religious beliefs include Sombart (1951), who emphasized the role of Jewish rationalism in stimulating Jewish entrepreneurialism, and Weber (1976) who asserted that the Protestant work ethic, with its emphasis on individualism, achievement, rational conduct, asceticism, and self-reliance, rewarded capital accumulation and self-employment and, hence, encouraged entrepreneurship. In a similar vein, it can be argued that ethnic groups like the Gujarati Lohanas, Ismailis, and Marwaris, have a tradition of business and trading, and value entrepreneurship far more than paid employment (Dobbin, 1996). The cultural norms of these communities encourage hard work, self-sufficiency, thrift, and helping each other by way of informal credit institutions, and predispose members towards entrepreneurship.
While cultural factors may explain the propensity toward entrepreneurship among certain minority groups like the East African Gujaratis and Ismailis in the UK, these are unsatisfactory as a general explanation of entrepreneurial entry among all ethnic minority groups. This is because the ethnic communities that are regarded as entrepreneurial in one country do not always have a tradition of entrepreneurship in other countries, or in their home countries. For instance, Pakistanis in the UK display high self-employment rates and are regarded as entrepreneurial (Werbner, 1990); however, they are not as well known for their entrepreneurial propensity in other countries. Similarly, Cubans and Koreans have an impressive record of entrepreneurship in the US but do not have a history of entrepreneurship elsewhere in the world (Light and Rosenstein, 1995). Likewise, the highly-educated, technically trained Indians in Silicon Valley in the US display much higher levels of entrepreneurship than reflected by the history of entrepreneurial activity among technically qualified Indians in India and in other countries. This suggests the importance of contextual factors in influencing entrepreneurial propensities among different groups. The fact that minorities tend to display higher self-employment rates than non-minority or majority groups, implies the need to look beyond cultural theories to historical and other contextual factors for an understanding of the factors stimulating ethnic minority entrepreneurship.
21.3.3 Contextual factors
A third set of explanations highlights the influence of historical factors, geographical clusters, market conditions, and institutional structures in shaping ethnic minorities' decision to enter entrepreneurship. Historical factors, such as the trading background of minority communities like the Kutchhi Lohana, Ismailis, Jews, Marwaris, and Sindhis, can explain why these groups continue to display high rates of entrepreneurship, which is a family tradition (Tripathi, 1984).
The residential clustering of members of the same ethnic community in a neighbourhood, known as an ‘ethnic enclave’, can create entrepreneurial opportunities, as captured by the so-called theory of ethnic enclaves. Ethnic enclaves create niche market opportunities for serving the local ethnic population. They offer a ‘protected market’ and ‘captive prices’ for ethnic goods and services (Aldrich and Waldinger, 1990). Thus, ethnic enclaves make it easier to start some types of businesses such as those that cater to the specific needs and tastes of the local ethnic population, or those that require critical support in the form of finance or labour from within the ethnic enclave. The role of these resources is discussed in greater depth in the next section.
Waldinger et al. (1990) argue that opportunities may also arise outside the ethnic enclave, in the mainstream market, usually in markets that have low barriers to entry or that are ‘under-served or abandoned’ by non-ethnic entrepreneurs because they regard them as unattractive. For instance, ethnic minorities own taxi services in several large cities, like New York and London, which can be explained by the low entry barriers to running a taxi business. Similarly, most of the small groceries or ‘corner shops’ in Britain were started by ethnic minorities who were prepared to work the long hours entailed by the business for relatively low returns.
Recent research on ethnic minority entrepreneurship in the Netherlands tries to synthesize previously advanced notions of ethnic disadvantage, ethnic resources and opportunities, class resources and ethnic enclaves. It suggests that ethnic minority entrepreneurship depends on the ‘mixed embeddedness’ or interaction between socio-economic and ethno-social characteristics of the immigrant group (Kloosterman et al., 1999; Kloosterman and Rath, 2001). It argues that limited socio-economic resources push immigrants towards entrepreneurship at the lower end of the opportunity structure in traditional sectors (retailing, wholesale and restaurants) where informal production could give them a competitive advantage over their competitors. At the same time, immigrant entrepreneurs tend to set up businesses within their co-ethnic neighbourhoods, so as to access their family or co-ethnic networks for information, capital and labour.
The opportunities described, whether arising from within the ethnic enclave, or outside it in markets with low entry barriers, implicitly assume that ethnic minority entrepreneurs possess very limited technical skills and few ideas to start a business other than one that satisfies existing demand in the ethnic (or mainstream) market in the low technology sector. This appears to underestimate the creative talents and technical competency of many ethnic minority entrepreneurs.
Furthermore, the concept of ethnic enclaves does not capture a situation in which members of the same ethnic community are dispersed across a city or region, but remain connected with each other via social networks. The influence of geographically wider ethnic social networks, which extend beyond ethnic enclaves, on entrepreneurial entry by members of the same minority group has been discussed by Saxenian (2000) but has yet to be systematically analyzed in the literature. (p. 587) Empirical research suggests that entrepreneurs invariably use their social networks to search for ideas and gather information regarding new venture opportunities (Singh et al., 1999). For minority entrepreneurs, exploratory research undertaken by the author suggests that ethnically defined social networks can be a powerful source of support, providing access to information, mentoring, and start-up finance, for entrepreneurial entry. Research by Carter et al. (2002), comparing the reasons for entrepreneurship among minority and non-minority nascent entrepreneurs in the US shows that while the motives of the two groups are fairly similar, family roles and tradition as well as recognition within the community matter more to minorities than to non-minorities regardless of whether or not they are nascent entrepreneurs.
The characteristics of formal institutions, which include government policies and regulations both in respect of immigration and in granting permission to ethnic minorities and immigrants to start, own, and raise funds for new ventures have an impact on business entry decisions and the nature of the businesses started. For instance, Saxenian (2000) discusses the impact of changes in the US immigration system between 1965 and 1990, which increasingly favoured the immigration of engineers and other skilled individuals, on the ethnicity of the Silicon Valley technology labour force. A large number of the immigrant engineers in the Valley were of Chinese and Indian origin and eventually started their own hi-technology businesses, many of which grew to become highly successful companies.
The characteristics and structure of the local environment that more broadly affect all entrepreneurs are also likely to affect entrepreneurial decisions made by ethnic minorities. It has been argued, for instance, that a region predominated by small companies is more likely to foster ethnic (as well as non-ethnic) start-ups than a region where large companies predominate (Rekers and van Kempen, 2000). These broader institutional characteristics may help to explain, at least in part, why many more ethnic minority hi-tech businesses have been started in Silicon Valley than in other parts of the United States. The other factor contributing to this trend is the large population of Chinese and Indian engineers in the Valley, as noted by Saxenian (2000).
21.3.4 Opportunity recognition
A form of market opportunity, not considered by Waldinger et al. (1990) and neglected by most of the ethnic entrepreneurship literature, is that arising from ethnic minorities' involvement in dual cultures and countries. It can be argued that involvement in dual or multiple cultures produces a duality of personality and culture, of nearness and distance, in an individual (Dobbin, 1996). Such an individual may be more creative in business and, hence, closer in character to a (p. 588) Schumpetarian entrepreneur. Such an individual is also likely to be more alert and sensitive to his or her environment and hence, possess Kirzner's attribute of economic alertness, or ‘the ability to notice—without search—opportunities that have hitherto been overlooked’ (Kirzner, 1979: 48). Theories of entrepreneurship have recognized the role of informational asymmetries (Kirzner, 1979) and prior knowledge and experience (Shane, 2000; Shane and Venkatraman, 2000) in discovering new entrepreneurial opportunities. Prior knowledge and experience of different countries and cultures are likely to have a significant impact on the business entry decision of ethnic minority immigrant entrepreneurs, especially those who have maintained their ties with their home countries.
It is also necessary to draw a distinction between the traditional ethnic entrepreneur—who tends to be less educated and inward looking—and the more modern, better-educated ethnic entrepreneur, who often possesses skills that are highly prized and scarce in the host country. The latter entrepreneur is more likely to spot opportunities overlooked by her or his native counterparts.
21.3.5 Business survival and success
There is no single indicator of entrepreneurial success, but in the case of ethnic minority businesses it is generally associated with economic survival, that is, making a profit and generating sales that allow the business to become sustainable. While a large proportion of ethnic entrepreneurs operate on the economic fringes of society, a small proportion have succeeded in building viable businesses that have expanded over time. It is possible to distinguish between two main views among academic scholars regarding the factors influencing ethnic entrepreneurial success. One holds that entrepreneurial survival or success achieved by ethnic minorities is attributable to their unique access to, or exploitation of, ethnic resources and opportunities, which cannot be accessed by non-members. A second set of explanations attributes ethnic entrepreneurial success to economic resources that are not exclusively accessible by ethnic minority entrepreneurs. It also holds that in order to become successful, ethnic entrepreneurs need to adopt strategies that look beyond leveraging their own local co-ethnic community. These explanations, which need not be mutually exclusive, are discussed in the two sections that follow.
21.3.6 Role of ethnic resources
Ethnic resources refer to the resources available to the entrepreneur by virtue of belonging to an ethnic minority group. These resources enable the ethnic minority (p. 589) entrepreneur to compete and survive in the host country. Ethnic resources include access to relatively inexpensive, reliable, trustworthy labour; access to finance from within the ethnic community—the trading experience of many migrant communities—and cultural features such as strong family structures (Mars and Ward, 1984; Waldinger et al., 1990). More broadly, ethnic resources include intangible resources such as access to information and advice from other community members.
It has been argued that ethnic community members are willing to extend labour or financial support as a goodwill gesture and in the interests of reciprocity, with the thought that they might be able to ‘call in the favour’ at a later date (Basu and Parker, 2001). They may also be willing to offer advice and share information, experience and contacts with each other because of a sense of solidarity and trust among them.
The concept of ethnic resources is closely related to the elements of social capital identified by Portes (1995) as being relevant to ethnic entrepreneurs. These include shared cultural values that induce people to behave in ways other than those motivated by sheer greed, reciprocity transactions based on previous good deeds, bounded solidarity emerging from a situation in which a class of people face common adversities and, finally, enforceable trust flowing from group membership. Conventional wisdom suggests that closer or stronger relationships would generate higher levels of social capital and facilitate business growth. By mutually supporting each other, ethnic entrepreneurs lower transaction costs among community members and increase their own chances of survival and success.
However, the existence of ethnic social networks does not necessarily mean that these networks will be valuable to entrepreneurship under all circumstances. For instance, shared values among community and family members may encourage them to be less greedy but may simultaneously promote ‘groupthink’, risk aversion and a lack of innovativeness in the family business. Similarly, bounded solidarity may result in entrepreneurs being unduly partial to their family member or co-ethnic employee compared with non-family employees in the workplace. Community members may be eager to offer advice, but if their own experience and knowledge base are limited, their advice may not be particularly valuable to the entrepreneur. In fact, relying exclusively on co-ethnic community members' advice may prove detrimental to the entrepreneur's survival. Granovetter (1995) suggests that distant relationships or ‘weaker ties’ are a more valuable source of information for people since the information received is more diverse and therefore more likely to generate new ideas. Social capital generated by co-ethnic community networks may, therefore, have advantages as well as drawbacks for entrepreneurship.
Empirical studies of ethnic minority businesses generally emphasize the positive effects of community networks in providing access to a pool of inexpensive and reliable labour (Metcalf et al., 1996; Werbner, 1990). On the other hand, some studies suggest that the excessive reliance on family labour might be detrimental to (p. 590) the business. This is one of the conclusions drawn by Ram (1994) in his case studies of small businesses in Birmingham, England. In a similar vein, Bates (1994), in a study of Asian immigrant-owned businesses in the US, finds that the less successful, failure-prone businessmen rely most heavily on co-ethnic community networks for customers, employees, and finance. Other studies, like Basu and Goswami (1999) find that while family and co-ethnic networks can play a crucial role at business start-up, they become less significant for business growth. Moreover, the value of co-ethnic and family networks depends on the resources possessed by members and the depth and diversity of their experience, knowledge, and contacts (Basu and Altinay, 2003).
Ethnic resources and ethnic social networks, which stem from the entrepreneur's ethnic identity, can be defined narrowly or broadly. If defined narrowly, the entrepreneur's network may be restricted to his or her extended family members, or sub-caste, or geographically proximate community members. In the existing literature, ethnic resources are perceived very much as geographically proximate, local resources. The nature and quantity of these resources therefore vary not only by ethnic group but also with the particular environment. For instance, New York's Chinatown is different from that in San Francisco; Detroit's black community differs from that in Atlanta (Light and Gold, 2000). Similarly, the Gujarati Vaniks (a small caste-based community) in London are a narrowly defined, close-knit social group.
On the other hand, such a narrow conception of ethnic resources ignores today's economic realities of globalization and increasingly interconnected markets. Many of today's ethnic minority entrepreneurs have family, friends and community members spread across the globe. Modern communication has made it possible to nurture global ethnic networks. Global ethnic networks can, in fact, be extremely valuable in offering ethnic entrepreneurs a competitive edge over their rivals in the domestic market. This is evident from recent examples of ethnic minority entrepreneurs who have started dual-location global ventures, with operations in their adopted country and home country. For instance, ethnic social networks like Silicon Valley-based TiE (The Indus Entrepreneurs) are more broadly defined to include all those of Indian or South Asian origin. TiE is now a global network with 42 chapters in 9 countries around the world (www.tie.org). Thus, the access to cross-national or global community networks increases the chances of gaining a competitive advantage. This is not to deny the value of going beyond co-ethnic networks and belonging to ethnic, as well as non-ethnic, networks, since the access to multiple networks is believed to increase the chances of innovation (Ruef, 2002). However, the notion and measures of social capital remain vague. Consequently, the precise causal effects of social capital on entrepreneurial entry and effectiveness continue to remain ambiguous. (See Ch. 19 by Licht and Seigel in this Handbook for a further exploration of these issues).
(p. 591) 21.3.7 Role of socio-economic resources
An important aspect neglected by the ethnic resources perspective is the role of socio-economic resources like education and the class background of migrants, as emphasized by Light (1984) in stimulating entrepreneurial entry and facilitating survival. Educational attainment is likely to positively affect the entrepreneur's knowledge base and ability to evaluate opportunities and replicate business models, as well as his or her ability to communicate with customers, banks, and other stakeholders. Ethnic entrepreneurs are likely to find it easier to negotiate their position in an alien environment if they are educated and possess business or technical skills. In addition, work experience in the host country prior to business entry contributes towards enhancing the ethnic minority entrepreneur's human capital and knowledge of the host country environment, lowering the information costs of operating in the host country, and improving the chances of starting a viable business. Education and prior work experience in the host country not only enhance human capital, but also provide access to wider social networks beyond the entrepreneur's own ethnic community. The access to multiple networks or greater social capital together with the educated and experienced entrepreneur's improved communication and negotiation skills increase the chances of access to financial capital from outside the entrepreneur's own ethnic community.
Empirical research supports the argument regarding the positive impact of education on entrepreneurship. Research on the factors influencing the survival and growth of ethnic entrepreneurs in the UK suggests that higher education consistently has a positive relationship with business growth (Basu and Goswami, 1999; Basu and Altinay, 2002). The advantages of education on business survival are also noticeable in the case of ethnic minorities in the US. For instance, Bates (1994) finds that survival and success among Asian immigrant-owned small businesses can be traced to the owners' impressive educational backgrounds and capital investments at start-up. Similarly, Silicon Valley's successful Chinese and Indian entrepreneurs are mostly engineers by training (Saxenian, 2000).
Ethnic and class resources are closely intertwined. Thus, the access to community finance depends not only on mutual trust and solidarity but also on the economic ability of community members to offer such support. Entrepreneurs belonging to less well-off minority groups are less likely to have access to this type of finance. Similarly, the ability of ethnic community members to offer valuable advice and information would depend on the breadth and depth of their knowledge and business experience or, in other words, their class resources.
(p. 592) 21.3.8 Role of strategy
While ethnic entrepreneurs have a baggage of resources, both ethnic as well as non-ethnic, they have to make conscious decisions regarding what resources to draw on and what market(s) to address. Their survival depends not only on their starting resources, but also on the characteristics of their business and the strategies they adopt. Studies of business survival in the ethnic entrepreneurship literature have tended to underplay the role of proactive strategy formulation, and how and why strategies might shift over time.
Ethnic entrepreneurship theory (Mars and Ward, 1984; Waldinger et al., 1990) explains the survival of ethnic minority entrepreneurs in the context of ethnic resources (as already discussed), and opportunities created by an enclave economy. Business opportunities are generated by the emergence of niche markets to satisfy the demand of co-ethnic community members for ethnic products and services and by the shift of business interests among the majority community to more prosperous business locations. In this scenario, opportunities for business expansion are severely constrained by the size of the ethnic enclave community and the competition for markets and resources.
According to Waldinger et al. (1990), the ethnic entrepreneur has two main options for branching out of the ethnic enclave economy. One option is to adopt a middleman minority strategy of providing goods and services to the wider, majority community while continuing to rely on co-ethnic labour and community networks. An alternative strategy is economic assimilation, by offering goods and services typical of an indigenous majority-owned business and running the business in the same way as the majority community.
Although both the above alternatives are realistic and observable in practice, they ignore the existence of further strategic alternatives that may be available to ethnic minority entrepreneurs equipped with higher levels of education, a wider knowledge base, multiple or wider social networks, more information, and greater imagination.
A few recent studies have distinguished between alternative strategies that ethnic entrepreneurs can pursue, in terms of focusing on ethnic products and ethnic (local or global) markets, or mainstream products and mainstream (local or global) markets, or some combination among these alternative categories of products and markets (Jones et al., 2000; Basu, 2003). While a niche market strategy targeting local, ethnic customers may be logical at start-up, ethnic entrepreneurs who want to ensure survival and success need to broaden their customer base by serving global or mainstream markets.
Empirical research supports the above theory. In the case of ethnic minority entrepreneurs in the UK, an exploratory analysis of business performance by product–market strategy of 356 entrepreneurs shows that ethnic entrepreneurs whose businesses have experienced positive sales growth at constant prices since (p. 593) start-up, display a higher propensity compared with their less successful couterparts (that have recorded zero or negative growth) to supply mainstream, non-ethnic products in national or international markets (strategies F and H in Table 1 above) (Basu, 2003). Although the strategy of supplying ethnic products to non-local, majority community customers (strategy G) is by far the most common strategy among the sample studied, the reliance on ethnic products, whether supplied to local, national or international markets (strategies A, C and G) is higher among the less successful businesses. Thus, the evidence indicates that more successful ethnic entrepreneurs aim to serve the wider community and have either broken out of, or stayed out of, co-ethnic niche markets.
Table 21.1 Alternative product–market strategies of ethnic entrepreneurs
Stereotypical ethnic niche (A)
Local ethnic product niche (C)
National/global ethnic niche (E)
National/global ethnic product niche (G)
Local ethnic client niche (B)
Local mainstream (D)
National/global ethnic client niche (F)
Mainstream mass market development (H)
21.4 Disparities among ethnic minority entrepreneurs
Until the 1990s, studies of ethnic minority entrepreneurs either focused on a single community, like the Gujarati Patels (Lyon, 1972), the Pakistanis in Manchester (Werbner, 1990), and the Koreans in Los Angeles (Light and Bonacich, 1988), or treated some categories like ‘Asians’ in Britain as a single homogeneous group (Aldrich et al., 1981). More recent studies have compared the entrepreneurial behaviour of two or more different ethnic groups in the UK. (Rafiq, 1992; Metcalf et al., 1996; Basu, 1998; Basu and Goswami, 1999; Borooah and Hart, 1999; Basu and Altinay, 2002) and the US (Fairlie, 2004). It is imperative to do so since not all groups display the same rate of self-employment or are equally successful in entrepreneurship, even though they may suffer the same level of discrimination (p. 594) in their adopted country. From a policy perspective, it is important to recognize the heterogeneity among ethnic minority groups, in terms of culture, language, and socio-economic position, in order to understand what causes disparities among them, and institute policies that assist those groups that most deserve such assistance.
Several alternative explanations have been advanced to account for disparities in rates of entrepreneurship among different ethnic minority groups. One explanation is that these differences stem from cultural differences between communities. In other words, it is argued that certain ethnic groups are inherently more entrepreneurial than others due to their family tradition of being in business. For those of Indian origin, this cultural tradition is associated with the caste system; people belonging to business or trading castes are more likely to be self-employed. The validity of this explanation is supported by recent empirical evidence which shows that children whose parents owned businesses are much more likely to become self-employed themselves than those whose parents were not business owners (Dunn and Holtz-Eakin, 2000). Thus, a culture or tradition of business ownership among certain ethnic minority communities may explain their relatively higher propensity towards, and success in, entrepreneurship. Entrepreneurs who have a family tradition of business ownership have the added advantage of access to community and family resources, in the form of cheap and trustworthy labour, finance available at competitive rates, and advice, information and mentoring from other family and community members. Such resources may create further disparities between ethnic minorities since access to those resources are peculiar to ethnic communities that have a tradition in business and are not available to minorities who do not belong to a business community. For instance, a comparison of self-employment rates between Indians and Black Caribbean men in Great Britain indicates that differences can be attributed to family formation and individual characteristics (Borooah and Hart, 1999). A comparative study of Bangladeshi, Indian, East African, Pakistani, Turkish, and Turkish Cypriot entrepreneurs shows that a family tradition in business and strong family ties have a significant impact on business entry motives, as well as on sources of start-up finance, the choice of business, and women's participation in business (Basu and Altinay, 2002). The study found the sharpest contrast to be between East African entrepreneurs, who chose self-employment because of a family background in trade and relied on family finance at start-up, and Turkish Cypriots, comparatively few of whom had fathers in business or relied on family finance, but who chose self-employment as a means of economic advancement.
A further, related explanation points to differences in the historical reasons for, and patterns of, migration of different ethnic minority groups. For instance, the Asians who migrated to Britain from Kenya and Uganda in the early 1970s (they were expelled from Uganda in 1972) belonged to a business and trading (p. 595) background and established businesses, many in retail and wholesale trade, in the UK. On the other hand, the Afro-Caribbean, Indian, and Pakistani people who migrated to the UK in the 1950s and 1960s came to fill the post-war labour shortage in Britain's factories. Most of them had been blue-collar workers and were not highly educated. The early African migrants to the US were taken as slave labour and denied an education for many years even after living in the US. It can be argued that years of slavery had an effect on the African psyche and made it more difficult for them to have the self-confidence to start their own businesses. A similar argument is advanced in the case of the Afro-Caribbean migrants to the UK: their history of oppression destroyed their self-esteem, resulted in weak family and community ties, poor individual motivation, and insufficient personal resources (Barrett et al., 1996). This may explain the divergent entrepreneurial experience of Asians and Afro-Caribbeans in the UK. In contrast, the South Asians who migrated to the US in the 1970s and after were highly educated and went to gain further educational qualifications. Many of them established fast growing, innovative, technology-based businesses in Silicon Valley, California and other parts of the US.
The role of education in contributing to higher rates of entrepreneurship and economic advancement is discussed in theory in the previous section and substantiated by available empirical evidence. Light and Gold's (2000) analysis of US census data showed that nearly 30 percent of Hispanic business owner-employers were college graduates compared with less than 9 percent of the Hispanic adult population. This implies that educated ethnic minorities are more likely to become business owners than those who are less educated. Recent empirical research for the United States indicates that the growth of self-employment among Blacks during the 1980s and 1990s, and the narrowing of the gap between Black and White self-employment rates can be traced to increasing educational levels among Black men (Fairlie, 2004). The study shows that in contrast, the widening gap in self-employment rates between Hispanics and Whites over the same period (1979–98) is associated with no corresponding improvement in the educational attainment of Hispanic men. Furthermore, Fairlie (2004) concludes that the increase in the number of business owners among different racial groups in the US during the 1980s and 1990s can be largely explained by demographic forces such as the growth of the labour force in these groups. The picture is more ambiguous for the UK. For instance, even though the Chinese and Indians in Britain display high rates of educational attainment, self-employment rates among the Chinese are much higher than among the Indian population. On the other hand, Pakistanis have lower educational levels compared with most other ethnic minority groups in the UK, but are the most likely to be self-employed (UK ONS 2004). The reasons for these disparities among communities in Britain and in the pattern observed in the UK and US merit further investigation.
(p. 596) 21.5 Conclusion: Policy implications and future research
This chapter has attempted to provide a summary of the issues of interest to academics studying ethnic minority entrepreneurship. The foregoing analysis suggests that ethnic minority entrepreneurship needs to be defined more carefully to clarify the ethnic, minority, and migration characteristics of the group being discussed, as well as their economic characteristics, whether as self-employed individuals without employees, self-employed employers, micro- or small-business owners, or owners of fast-growth businesses.
Ethnic minorities' entry into entrepreneurship is attributable to a complex set of factors or triggers. These include push factors like economic disadvantage and racial prejudice as well as pull factors like cultural norms and values, and contextual factors like a family background in entrepreneurship, role models of successful co-ethnic entrepreneurs, and close-knit community networks enjoyed by ethnic minorities. Pull factors could also include spotting an opportunity not noticed by others by virtue of the ethnic entrepreneur's involvement in two countries and cultures, which afford her or him informational advantages. These advantages are especially afforded to those entrepreneurs who have established ties with members of the majority community but have maintained their ties with their home country. The latter are more likely to be prevalent in the case of recent immigrants, but not restricted to them in today's global world. Empirical analyses indicate the difficulty of identifying one, overriding factor as being a trigger for ethnic minorities' entry into entrepreneurship. Thus, the decision to start one's own business in an environment where one is part of a minority community, usually stems from push and pull factors created by the interaction of micro-motives and macro, environmental conditions.
Ethnic entrepreneurial success is attributable to a combination of ethnic and economic resources and entrepreneurs' strategic business decisions. In particular, both theory and empirical research highlight the crucial role of higher education in providing the ethnic entrepreneur with the analytical and communications skills necessary for lowering barriers to business entry, widening their access to information and social networks as well as formal sources of finance, and contributing towards business success.
The persistence of disparities in the rates of business ownership and economic advancement among different ethnic communities implies the need for direct policy intervention that is targeted towards the relatively disadvantaged groups. The intervention could take the form of helping to raise the education levels of those groups, generating awareness and enthusiasm among them about entrepreneurship as a career option, offering access to advice, information, and mentoring (p. 597) services, and equipping entrepreneurs with the skills necessary to operate their own businesses and access financial resources. Support agencies could try to identify successful entrepreneur role models for each ethnic minority community to encourage others to follow their example. They could encourage entrepreneurs to form, or join, both co-ethnic and non-ethnic business networks and associations. Since ethnic minority entrepreneurs are often stuck in marginal businesses, support agencies could help them to review their business strategies and find ways to break out of these businesses that have low entry barriers into more promising industries and markets.
While many reasons for disparities in rates of entrepreneurship across different ethnic communities have been identified, future research needs to look more closely at comparing different communities in the same country and the same ethnic community across different countries. In fact, there are hardly any cross-country comparisons of ethnic minority entrepreneurship in the existing literature. This points to the need for further research in that direction.
Another area that merits further research is the inter-generational life-cycle of ethnic entrepreneurs. Despite the fact that ethnic minorities frequently operate family-run businesses, there is hardly any empirical evidence on the impact of factors such as changing educational attainment, the nature of business, and perceptions of payback from it, on business succession from one generation to the next among ethnic minority entrepreneurs.
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