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The topic of ethnic minority entrepreneurship focuses on the creation and growth of new businesses by individuals belonging to minority ethnic communities. In a wider sense, it refers to self-employment among members of ethnic minority communities. The topic is of growing interest for several reasons. With globalization and increasing labor mobility, many countries are experiencing the effects of larger immigrant ethnic minority communities, and these countries want to understand the likely economic and social impact of immigrant entrepreneur-ship. It is increasingly acknowledged that ethnic minorities have a high propensity to be self-employed and start their own businesses. U.S. census data show that the number of businesses owned by minorities grew 30% between 1992 and 1997, which is four times faster than the number of all businesses which increased by 7% during the same period. A recent study highlights the significant contribution made by ethnic minority immigrant entrepreneurs from China, India, Israel, Lebanon, and Taiwan to job creation and innovation in the United States (Anderson & Platzer, 2006). It is widely believed that ethnic minority entrepreneurship can have positive economic consequences in the form of wealth creation and job creation, and it can also foster integration, reduce social exclusion, and promote urban regeneration. However, all ethnic minority communities are not equally well-represented in business. In the United States, for instance, Asians display a comparatively higher propensity than Blacks and Hispanics do with regard to business ownership. This has resulted in debates about the reasons why members of some ethnic minority groups are more likely than others to start their own businesses, since entrepreneurship is regarded as an important route to upward economic and social mobility for ethnic minority communities.
Definition of the Concept
Several complexities are involved in defining the concept of ethnic minority entrepreneurship. Most simply, it could be defined as a business created and owned solely or primarily by members of an ethnic minority group, as done by some scholars (see Masurel, Nijkamp, Tastan, & Vindigni, 2002). Yet “even the basic terminology is open to debate” (Sonfield, 2005, p. 223). Most of the literature regards ethnic minority entrepreneurs as belonging to an ethnic group, which may be defined as “a set of connections and regular patterns of interaction among people sharing common national background or migration experiences” (Waldinger, Aldrich, Ward, Associates, 1990, p. 33). It is usually acknowledged that ethnic group members belong to a minority, as distinct from the majority, population in society. However, a few researchers define ethnic minority entrepreneurship in contextual terms by considering the extent to which entrepreneurs are involved in their own community (Chaganti & Greene, 2002) or are embedded within their own community context (Kloosterman & Rath, 2001). Some researchers regard disadvantage and social exclusion as central to the definition of ethnic minority entrepreneurship (Barrett, Jones, & McEvoy, 1996). In Europe, ethnic minority entrepreneurs are defined as “entrepreneurs who are immigrants or have an immigrant background” (Liikanen, 2003, p. 2). However, minorities
are not always immigrants to a country. For instance, in the United States, American Indians and Natives of Alaskan descent are defined as minority groups in view of their small size relative to the majority population. The National Minority Supplier Development Council in the United States, which is the main official link between large corporations and minority businesses, recently changed its definition of a minority business from one that was at least 51% minority owned to a business that has as little as 30% minority ownership (Sonfield, 2005).
In the ethnic entrepreneurship literature, the term entrepreneurship is usually used synonymously with self-employment, rather than focusing on entrepreneurial characteristics such as opportunity seeking, risk taking, innovation, or proactive behavior. Self-employed individuals belonging to ethnic minority communities are defined as entrepreneurs, regardless of whether or not they employ other people or whether they own small businesses on the fringes of the economy or own large, multimillion dollar businesses. This research-paper employs this broad interpretation of ethnic minority entrepreneurship as including all forms of self-employment among members of ethnic minority groups, while recognizing the nuances involved.
Ethnic minority businesses have traditionally been more prevalent in sectors like restaurants, retailing, and personnel services because of the lower barriers to entry in these sectors (Basu, 1998; Butler & Greene, 1997). However, ethnic entrepreneurs are a heterogeneous group owing to differences in their cultural and socioeconomic backgrounds (Basu & E. Altinay, 2002; Ibrahim & Galt, 2003). Scholars point to the emergence of highly skilled and “transnational” ethnic entrepreneurs who have leveraged business connections between their country of residence and country of origin (Saxenian, 2006; Zhou, 2004).
Explanations of Ethnic Minority Entrepreneurship
There are several different theoretical approaches to understanding ethnic minority entrepreneurship. While some theories regard ethnic minority entrepreneurship as driven by proactive or “pull” factors, others hypothesize that it is the consequence of reactive or “push” factors. Five approaches—namely, (a) cultural theories, (b) structural theories, (c) network theories, (d) resource-based theories, and (e) opportunity-focused theories—that have some overlapping themes are discussed next.
Cultural theories explain the propensity toward entrepreneurship among ethnic minority groups in terms of the groups’ cultural beliefs, norms, and values. It is possible to identify two variants of cultural theories. According to established or orthodox cultural theory, a tradition of entrepreneurship and trading among certain ethnic communities like the Gujarati Lohanas, Ismailis, Marwaris, and Sindhis, predisposes members of those communities toward entrepreneurship (Dobbin, 1996; Sowell ,1975). The community’s members transmit entrepreneurial values like hard work, the habit of saving, delayed gratification, mutual support, and self-reliance to successive generations and thereby help to preserve the tradition. These cultural attributes encourage members of the ethnic community to become entrepreneurs and also contribute to their entrepreneurial success. In contrast, the lack of such a culture or tradition reduces the chances of entrepreneurship among other groups, as in the case of the Black community in the United States (Sowell, 1975).
Orthodox cultural theory has been criticized for being tautological, since it can be used to “explain” the entrepreneurial behavior of an ethnic minority community once it is known to be successful. Besides, an ethnic community that is regarded as entrepreneurial in one country is not necessarily regarded as entrepreneurial in other countries. For instance, while Cubans and Koreans display considerable entrepreneurship in the United States, they do not display the same level of entrepreneurship elsewhere in the world (Light & Rosenstein, 1995). Similarly, Pakistanis are regarded as entrepreneurial in the United Kingdom (Werbner, 1990), but they do not have the same reputation for entrepreneurship in other countries. This highlights a further limitation of the orthodox cultural theory in that it ignores the role of structural factors such as labor market discrimination faced by ethnic minorities that might push them into entrepreneurship. A recent study of ethnic entrepreneurs based in Hawaii and belonging to six different subcultures has found that while some values are clearly traceable to the entrepreneurs’ native culture, the entrepreneurs share certain core values regardless of their cultural origin (Morris & Schindehutte, 2005).
In contrast to orthodox cultural theory, reactive cultural theory states that minority ethnic communities often react to racial discrimination and social exclusion from the majority community by showing greater solidarity and cooperation among their own community members (Portes & Zhou, 1992). Reactive cultural theory captures the role of situational factors and asserts that cultural norms of a community evolve and adapt to circumstances. However, it underestimates the influence on ethnic entrepreneurship of individual characteristics such as the nature and level of education and language proficiency, and the growing cultural and economic links between ethnic minority immigrants based in the adopted country and their country of origin. Nor can it explain the differences in entrepreneurial propensity among disadvantaged ethnic minority groups.
It is possible to distinguish between two sorts of structural explanations for ethnic minority entrepreneurship. Structural disadvantage explanations emphasize the disadvantages faced by ethnic minorities in the labor market, such as lack of job opportunities or lower wages paid to ethnic minorities compared with their majority counterparts in the same occupation. These disadvantages create structural barriers that prevent ethnic minorities from competing with their majority community counterparts on an equal basis, and these disadvantages push many ethnic minorities into self-employment. Such disadvantages may be racially motivated but could equally be caused by factors like lack of transferable educational qualifications, incompatible work skills, or limited language proficiency among ethnic minorities (Bonacich, 1973). In either case, these disadvantages reduce the rewards of paid employment and motivate or compel members of ethnic minority communities to search for alternative careers in self-employment (Clark & Drinkwater, 1998). It is argued that ethnic minority entrepreneurship can therefore be regarded as a “damage limitation exercise” undertaken out of the necessity to avert unemployment (Jones, McEvoy, & Barrett, 1994, p. 202).
Structural disadvantage theory can be used to explain both the motives for entrepreneurial entry by ethnic minorities and the type of businesses they tend to operate. Bonacich (1973) asserted that a dual or split labor market offers disadvantaged ethnic minorities the opportunity to become a “middleman minority” that connects buyers and sellers. While large suppliers serve large markets, middleman minorities can serve smaller, underserved markets like those in inner-city areas, which are usually inhabited by poorer communities that have been deserted by mainstream retailers and by entrepreneurs from the majority community. In doing so, the ethnic middleman-minority entrepreneurs fill a structural gap in the market and connect the elite with the masses. Middleman-minority entrepreneurs have few social ties with the local community in which they conduct their business operations (Zhou, 2004).
While the structural disadvantage explanation for ethnic entrepreneurship has some empirical support in the literature (see Clark & Drinkwater’s 1998 study of self-employment trends by ethnic groups in the United Kingdom), it cannot explain many facets of ethnic minority entrepreneurship. For instance, as acknowledged by Clark and Drinkwater (1998), ethnic minorities who face disadvantage do not universally choose self-employment, which points to the operation of factors and motives other than disadvantage that encourage some, but not other, ethnic minority groups toward entrepreneurship. Moreover, the structural disadvantage theory implicitly assumes that starting one’s own business is an easy alternative for ethnic minorities, or is easier than securing paid employment. It neglects the challenges involved in starting a business, such as having some kind of domain knowledge, finding markets with low entry barriers, identifying and reaching target customers, securing finance, negotiating with suppliers, and so on.
In contrast to the structural disadvantage theory, the structural advantage explanation asserts that ethnic minority entrepreneurship stems from a combination of structural advantages or opportunities. These opportunities arise from the emergence of structural gaps in the economy in the form of niche markets to satisfy demands from the coethnic community for specific goods and services not provided by the majority community businesses, from the shift of businesses owned by majority community members to more prosperous business locations, and from the access to ethnic resources available within the community (Waldinger et al., 1990). The structural advantage explanation implies that ethnic entrepreneurial success would largely depend on the size of the coethnic community. There is some empirical support for this theory. For example, the size of the local ethnic minority population and linguistic isolation among members of that ethnic minority group were found to have a positive effect on ethnic entrepreneurship in a study in Australia (Evans, 1989). The underlying assumption of the theory seems to be that ethnic entrepreneurs react to opportunities created by their coethnic community and the host community rather than proactively seeking and creating new market opportunities. While this assumption is valid to some extent, it is not universally applicable as asserted by recent studies that highlight the emergence of highly skilled, transnational ethnic entrepreneurs described later in this research-paper. Many features of the structural advantage theory are captured by network theories discussed next.
Network theory explains ethnic minority entrepreneur-ship in terms of the utilization of coethnic community networks for the founding, survival, and expansion of ethnic minority businesses, and gaining economic and social mobility through the networks. Ethnic social networks offer access to a trusted pool of relatively inexpensive coethnic employees who are prepared to work long hours (Werbner, 1990). These networks also offer access to finance at favorable rates compared with those offered by banks and other formal financial institutions. Coethnic members are prepared to offer financial support as a gesture of goodwill and in the hope of reciprocity that they may be able to “call in the favor” at a future date (Basu & Parker, 2001). Ethnic social networks also offer access to intangible resources like business advice and information (Flap, Kumcu, & Bulder, 2000; Light & Karageorgis, 1994).
According to Portes (1995), close-knit ethnic community networks generate several elements of social capital such as shared cultural values that encourage members to be altruistic, bounded solidarity stemming from a sense that all community members suffer the same hardships, reciprocal behavior based on previous good deeds, and enforceable trust arising from belonging to the same community. Enforceable trust refers to the enforcement capacity of ethnic community networks to protect members against breach of contract and violation of group norms (Portes & Zhou, 1992). These aspects of social capital facilitate interactions and lower transaction costs among community members, and they increase the probability that ethnic minorities will enter entrepreneurship and survive—if not grow—their businesses.
It is possible to identify two types of network explanations for ethnic minority entrepreneurship. The traditional concept of ethnic networks is that of ethnic enclaves, or the concentration of a large ethnic minority community in a particular neighborhood. Ethnic entrepreneurs operating in the ethnic enclave are able to survive by relying on their coethnic community’s demand for specific goods and services and by relying on family and community networks for access to resources such as labor, capital, and information. The ethnic enclave, therefore, facilitates the entrepreneur in starting a business that caters to the “protected market” needs of the local coethnic population or a business that requires access to labor or capital from other members of the local coethnic community (Aldrich & Waldinger, 1990).
An alternative conception of ethnic networks transcends geographical boundaries. Ethnic entrepreneurs can avail of ethnic networks in starting and managing their businesses even outside the confines of an ethnic enclave. Such networks can provide support in the form of access to labor, capital, and information even when the entrepreneurs serve a wider, nonethnic population. This is similar to the concept of the ethnic economy, with its dual aspects of coethnic ownership of enterprises and the employment of family and coethnic labor (Light & Karageorgis, 1994). The ethnic economy concept includes ethnic enclave entrepreneurs, as well as ethnic minority entrepreneurs who operate coethnic owned or coethnic controlled businesses in the general economy. This concept can be criticized for being so widely defined that it loses its analytical rigor (Zhou, 2004).
Recent research points to the existence of ethnic community networks that are dispersed across cities, countries, and even continents (Saxenian, 2000). A good example of such a network is The Indus Entrepreneurs (TiE), a network of Indian and South Asian entrepreneurs that was established in California’s Silicon Valley in 1992, and had 42 chapters in nine countries by 2007. In the past, the availability of low-skilled immigrants enabled ethnic minority entrepreneurs to engage in activities that were being outsourced. In recent years, the availability of highly skilled ethnic and immigrant employees has added a new twist to ethnic entrepreneurship and the reasons for its success in the high-tech sector, as argued by Zhou (2004). Furthermore, empirical studies suggest that international ethnic networks and linkages play an important role in contributing to the entrepreneurial success of ethnic minority businesses (Basu & Goswami, 1999).
The existence of ethnic social networks need not imply that that the networks will always be valuable to entrepreneurship, as is generally claimed by theory. For example, shared community values and bounded solidarity may promote greater altruism, but may also intensify “groupthink” and risk aversion, and may discourage innovation. Applying Granovetter’s (1995) theory of the value of weak ties, it could be argued that relying exclusively on strong coethnic community networks as a source of information may harm the ethnic minority entrepreneur’s chances of success.
On one hand, empirical studies of ethnic community networks mostly emphasize their positive effects in providing access to a pool of inexpensive and reliable labor (Metcalf, Modood, & Virdee, 1996; Werbner, 1990). On the other hand, some studies suggest that the excessive reliance on family labor may lead to nepotism and may be damaging to the business, as found by Ram (1994) in his study of ethnic minority businesses in Birmingham, United Kingdom. Similarly, Bates’ (1994) study of Asian-immigrant-owned businesses in the United States found that the less successful, failure-prone business owners rely most heavily on co-ethnic community networks for customers, employees, and finance. Basu and Goswami (1999) found that while family and coethnic networks can play a crucial role at business start-up, they become less significant for business growth. Moreover, coethnic community members may be eager to offer advice, but the value of their advice will depend on the depth and diversity of their experience and knowledge (Basu & E. Altinay, 2003).
The extent to which different network characteristics generate different resources needs further exploration (Yoo, 1998). Also, the proponents of ethnic network explanations like Werbner (1990) and Zimmer and Aldrich (1987) tend to view family and ethnic community networks together, rather than drawing a distinction between them and separating the impact of these two types of networks. Further, ethnic network—and particularly, ethnic enclave—explanations implicitly assume that ethnic minority entrepreneurs have low technical skills and few business ideas except to serve ethnic (or mainstream) customers in low-technology sectors. This underestimates the creativity and technological expertise of many ethnic minority entrepreneurs. This is especially true of the Chinese and Indian hi-tech entrepreneurs in California’s Silicon Valley. Finally, ethnic network studies do not examine the relationship between networks and class resources like education even though they are likely to be related. The impact of education on ethnic minority entrepreneurship could be evaluated more precisely by taking account of the presence and impact of networks (Bates, 1994, 1997).
The ethnic resources theory holds that ethnic entrepreneurs are able to start businesses and manage to compete and survive in business because of their reliance on unique resources from within their own coethnic community that are not available to noncommunity members (Waldinger et al., 1990). Ethnic resources are composed of tangible resources like relatively inexpensive and trustworthy co-ethnic labor and finance from within the ethnic community. Ethnic resources may also include intangible resources such as the advice and information available from coethnic community members experienced in business and cultural assets like strong family structures. Ethnic resources are typically perceived to be geographically proximate local resources.
Hence, the extent and type of resources available vary by ethnic group as well as with the specific environment. For example, the Chinese community in New York City differs from that of San Francisco; Detroit’s Black community differs from that of Atlanta (Light & Gold ,2000). However, such a narrow conception of ethnic resources ignores today’s increasingly global world.
The ethnic resources model has been criticized for ignoring the role of socioeconomic or class resources such as education and prior work experience, emphasized by Light (1984), in stimulating entrepreneurial entry and facilitating business survival. Educational attainment has a positive impact on the entrepreneur’s knowledge base, or ability to communicate and to evaluate opportunities and replicate business models (Basu & Goswami, 1999). Ethnic entrepreneurs are likely to find it easier to negotiate their position in an alien environment if they are educated and skilled. In addition, work experience in the host country prior to business entry contributes toward enhancing the ethnic minority entrepreneur’s human capital and knowledge of the host country environment, thereby 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.
It could be argued that there are, in fact, close connections between the access to ethnic resources and to class or socioeconomic resources. For example, the access to coethnic community finance depends not only on mutual trust and solidarity between community members, but also on the economic ability of community members to offer such support. Entrepreneurs belonging to minority groups that are less well-off are less likely to have access to this type of finance. Likewise, access to information and advice from coethnic community members depends on the nature and extent of their business experience and knowledge.
Another criticism of resource-based theory is that it neglects the role of proactive strategy in determining the entry and survival of ethnic minority entrepreneurs. It is possible to distinguish between alternative product and market strategies that ethnic entrepreneurs can pursue, in terms of focusing on either coethnic products or mainstream products and on coethnic (local or global) markets or on mainstream (local or global) markets. This offers ethnic minority entrepreneurs the chance to pursue several alternative combinations of product and market strategies (Basu, 2001; Jones, Barrett, & McEvoy, 2000). While a niche market strategy targeting local, ethnic customers may be the most viable at start-up, ethnic entrepreneurs who want to ensure survival and success need to broaden their customer base by serving global or mainstream markets.
In recent years, a few scholars have highlighted the fact that ethnic minority entrepreneurs do not simply respond opportunities presented by structural gaps in the market or by demands from their coethnic community, as theorized by Bonacich (1973) in the middleman minority concept or by Waldinger et al. (1990) in the argument that ethnic entrepreneurs serve abandoned or underserved markets. Instead, there is a modern breed of ethnic minority entrepreneurs who actively search for and spot business opportunities based on their knowledge of and access to networks in at least two different countries and cultures (Basu & Goswami, 1999). These ethnic minority entrepreneurs are well educated and operate in international markets by serving coethnic customers in more than one nation or serving mainstream customers around the world while locating production in their home or host countries. Zhou (2004) has referred to these entrepreneurs as “transnational ethnic entrepreneurs,” since they conduct business across national borders facilitated by the presence of ethnic networks. Saxenian (2006) has referred to them as “the new Argonauts,” technically skilled immigrant entrepreneurs from ethnic minority communities who travel frequently between their adopted home in Silicon Valley and their home country and who transfer business knowledge internationally within their trusted coethnic group. Saxenian has argued that instead of causing a brain drain from their home country, the new Argonauts contribute to “brain circulation” or the global sharing of knowledge. While Saxenian’s research focuses on technically skilled ethnic minority entrepreneurs, there is evidence of successful ethnic entrepreneurs leveraging their international connections and knowledge in other nonhigh technology fields as well (Basu & E. Altinay, 2002). A common characteristic of these modern ethnic minority entrepreneurs is that instead of selling ethnic products to their own local coethnic community, they sell all kinds of products and services to the wider community, both nationally and internationally, and have broken out of or stayed out of coethnic niche markets (Basu, 2003).
Since there are no reliable databases of the population of ethnic minority-owned businesses, most of the research in this field is based on small sample surveys and in-depth interviews with a small number of ethnic minority entrepreneurs, and therefore, uses qualitative analyses. A few studies have employed quantitative analytical techniques either because they evaluate macro-level data census data (like Clark & Drinkwater’s 1998 study of self-employment patterns in the United Kingdom; Fairlie’s 2004 analysis of business ownership by ethnicity in the United States) or because they are based on large sample sizes of around 100 or more respondents (e.g., Basu & Goswami, 1999; Basu & Parker, 2001). In studies based on primary data collection, the samples are usually nonrandom, convenience samples. In a few exceptional cases, when the entrepreneurs studied are geographically and ethnically specific, the samples have included practically the entire population of a specific community in a small, narrowly defined geographical area (as in Srinivasan’s 1992 study of ethnic minority businesses in Oxford).
Until the mid-1990s, ethnic minority business research tended to focus on a single community, like the Gujarati Patels (Lyon, 1972), the Pakistanis in Manchester (Werbner, 1990), and the Koreans in Los Angeles (Light & Bonacich, 1988). Some researchers studied heterogeneous groups like British “Asians” as a single homogeneous group (Aldrich, Carter, Jones, & McEvoy, 1981). More recent studies have compared entrepreneurial behavior and characteristics among different ethnic groups in the United Kingdom (Basu, 1998; Basu & E. Altinay, 2002; Basu & Goswami, 1999; Borooah & Hart, 1999; Metcalf et al., 1996; Rafiq, 1992) and the United States (Fairlie, 2004). Comparative intergroup studies are essential because of the differences in entrepreneurial propensity and success displayed by different groups that face similar levels of discrimination in their adopted country. From a policy perspective, it is important to recognize the heterogeneity among ethnic minority groups, in terms of cultural background, history, and socioeconomic position, in order to understand what causes disparities among them and to institute policies that assist those groups that most deserve such assistance.
Applications Of Theories
Most theories of ethnic minority entrepreneurs are derived from empirical analyses of such entrepreneurs. Empirical studies indicate that individuals belonging to ethnic minority communities choose entrepreneurship for a complex set of reasons rather than because of one overriding factor, as is portrayed by most of the theories. It is found that business entry motives include “push” factors such as a lack of suitable job opportunities, wage discrimination, possibly due to language barriers and the nontransferability of educational and professional qualifications gained in their home countries, and experiencing a glass ceiling. At the same time, they can also be motivated by “pull” factors like identifying an untapped market, a keen desire for control and independence, a desire for financial betterment, and a cultural or historical predilection toward entrepreneurship. The studies imply that entrepreneurial entry can be explained by combining elements of cultural theory, structural theory, network theory, resource-based theories, and opportunity-focused theories described in the previous section. Comparative studies indicate that the motives for and pattern of entrepreneurship vary from one community to another, depending on the antecedents of each community and on contextual factors (as discussed in the next section).
Ethnic minority entrepreneurship is typically found to be a family enterprise, rather than an individual undertaking (Baines & Wheelock, 1998; Basu & E. Altinay, 2003). Traditionally, ethnic minority entrepreneurs employ a high proportion of family members and people from their own ethnic community. They rely on family and community networks for financial support and often for advice and information, as asserted by network theory. The location and type of business determines whether the entrepreneurs cater to the needs of their coethnic population, as described by the ethnic enclave theory, or the mainstream population, as described by the middleman minority theory. Ethnic minority entrepreneurs face many institutional challenges in starting their own businesses. These challenges may stem from their limited awareness of government support programs for new ventures in the host countries and their inadequate access to external funding leading to undercapitalized businesses (see Johnson, Munoz, & Alon, 2007).
Empirical research for the United States shows that English-proficient immigrants encounter greater entrepreneurial opportunities than immigrants who are less proficient in English and who live in ethnically concentrated areas do (Mora & Davila, 2005). This is because the language-proficient entrepreneurs have the ability to access resources within, and sell products to, both their coethnic community and the majority community. In a similar vein, it has been found that survival and success among Asian-immigrant-owned small businesses are positively related to the owners’ educational attainment and capital investments at start-up rather than to their access to ethnic resources (Bates, 1994). Likewise, Silicon Valley’s successful Chinese and Indian entrepreneurs are mostly engineers by training, and they also access knowledge resources through their community networks (Saxenian, 2006). Studies of ethnic minority entrepreneurs in the United Kingdom find a consistently positive relationship between higher education and business growth (Basu & E. Altinay, 2002; Basu & Goswami, 1999) and between English-language communication skills and the ethnic entrepreneurs’ competitive edge, even in traditional sectors like catering (L. Altinay & E. Altinay, 2005).
Empirical research indicates a gradual evolution in the characteristics of ethnic minority entrepreneurship, which could be attributed to globalization and to changes in the socioeconomic background of ethnic minority entrepreneurs. The rise of the Internet and of cheaper and faster communication across nations has enabled ethnic minority community members to build and strengthen relation-ships with family and friends in their country of origin or country of previous residence. This has led to the creation of international business linkages and the emergence of global start-ups, areas that merit further research. Ethnic minority entrepreneurs are also attaining higher levels of education, which is partly related to immigration policies of the destination or host countries. For example, the large number of Chinese and Indian engineers in the United States is due to immigration laws that tend to issue visas to those with higher educational qualifications. It may, therefore, be instructive to distinguish between the traditional ethnic entrepreneur, who tends to have lower educational qualifications and is 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.
Comparative research on ethnic minority entrepreneurship has mostly been carried out within the domain of individual countries and regions, particularly, in the United States, and the United Kingdom, as well as in some other countries, including Canada, Germany, and the Netherlands. Empirical studies show that ethnic minority entrepreneurs are a very heterogeneous group, although the reasons for this heterogeneity remain open to debate.
In the United States, the Whites (non-Hispanics) and Asians display much higher rates of self-employment than Hispanics and Blacks display (Fairlie, 2004). Using current population survey data, Fairlie (2004) showed that rates of self-employment among Whites and Asians were about twice as high as those among Hispanics were, and were just under thrice as high as rates among Blacks. However, the data indicated a narrowing of the gap in self-employment rates between Blacks and Whites between 1979 and 1998, which could be attributed to the relative growth in labor force experienced by each of these communities, but could also be related to increasing educational levels among Black men.
In the United Kingdom, data indicate wide variations in the self-employment rate of people from different ethnic communities, with the highest rates displayed among those of Pakistani origin (21.8% of those in employment), followed by those of Chinese (19.1%), Indian (12.5%), Bangladeshi (12.3%), Black Caribbean (7.1%), and Black African (6.6%) origin (U.K. Office of National Statistics, 2005). A comparative study of ethnic minority recent immigrants and long-established immigrants has found that the former display lower rates of entrepreneurship than the latter (Levie, 2007). The above-average rates of self-employment among some communities should not interpreted as indicative of upward mobility, since many ethnic minority entrepreneurs are stuck in precarious market niches where they struggle to survive (Blackburn & Ram, 2006). Nevertheless, the self-employed are better off than those who remain unemployed.
The variations in self-employment rates among ethnic groups cannot be explained by differences in education levels alone, since the Chinese and Indians show the highest levels of educational attainment, compared with lower levels among the Pakistanis and Blacks (U.K. Office of National Statistics, 2005). The low propensity toward entrepreneurship among Blacks may be related to their history of oppression, which resulted in low self-esteem, low motivation, weak family and community ties, and inadequate personal resources (Barrett et al., 1996). In contrast, the
Asians who migrated to Britain from East Africa in the early 1970s were from business and trading families, and they quickly established retail and other businesses in the United Kingdom. A comparative study of U.K.-based ethnic minority entrepreneurs of Bangladeshi, Indian, East African, Pakistani, Turkish, and Cypriot origin found that a family tradition in business and close-knit family networks have a significant effect on entrepreneurs’ business entry motives, start-up finance decisions, the type of business started, and the extent of women’s participation in business (Basu & E. Altinay, 2002). Hence, contextual factors such as the historical reasons why specific communities became ethnic minority communities, their reasons for migration (if applicable), and the host country’s immigration laws that govern the characteristics of the immigrant ethnic minority population, can help to explain differences in the propensity toward entrepreneurship and in entrepreneurial success among different ethnic groups in different countries.
Comparisons between first and second generation ethnic minority immigrant entrepreneurs are gaining gradual attention in the United Kingdom and Europe. A recent study found that first generation South Asian entrepreneurs adopt diversification strategies to access new coethnic and non-ethnic markets in order to grow their businesses, whereas second generation entrepreneurs rely more on knowledge skills advantages and technological expertise to grow their businesses (McPherson, 2007).
Several areas merit future research. First, as discussed in the introduction, ethnic minority entrepreneurship has the potential to contribute toward economic development and social welfare. The noneconomic or social effects of ethnic entrepreneurship need to be studied in greater detail, especially since the few studies that have been conducted suggest that the social impact of ethnic entrepreneurship may go well beyond the economic success of individual entrepreneurs and contribute toward community building (Zhou, 2004).
Second, while coethnic networks seem to play an important role in influencing the pattern of ethnic minority entrepreneurship, more research is needed to gain a clearer understanding of the impact of networks and social capital on starting up a business and on expanding the business, since it has been argued that family and community networks are more important at start-up than they are for subsequent business expansion (Basu & E. Altinay, 2002; Basu & Goswami, 1999).
Third, the concept of the transnational ethnic entrepreneur needs to be explored in much greater depth. Ethnic minority entrepreneurs’ exposure to dual cultures and countries could potentially stimulate their creativity, make them more innovative and alert to environmental changes, and increase their propensity to spot new venture opportunities in a global market. Their international experience and access to international networks could also enhance their ability to exploit global start-up opportunities and to build successful businesses. These issues merit further investigation.
Further comparative research on the entrepreneurial experience of different ethnic minority groups in different countries and regions would also be valuable. For example, as Johnson, Munoz, and Alon (2007) noted, future research could compare the pattern of entrepreneurship among Filipinos in the United States with those in Canada, Australia, and Japan. Similar studies could be conducted to compare the entrepreneurial behavior of other ethnic minority communities in different countries. Such comparative research would examine the extent to which immigration policies and patterns and environmental differences in the destination or host country account for differences in the propensity toward entrepreneurship among members of an ethnic minority community, the types of new ventures they start, and the success of those ventures. There are very few cross-country comparative studies that examine these issues.
Finally, it would be instructive to compare first and second generation ethnic minority immigrant entrepreneurs as regards the influence of structural factors on their entrepreneurial entry decisions and their reliance on coethnic networks for access to resources. A related area that merits further investigation is the nature of management succession from one generation to the next within ethnic minority-owned businesses.
This research-paper has explained the concept of ethnic minority entrepreneurship while highlighting the nuances involved in its definition and the reasons why the topic is of increasing interest to researchers and policymakers. It has provided an overview of the various theoretical approaches that have been employed to study issues relating to ethnic minority entrepreneurship. Five main sets of theories are reviewed in this research-paper. These are (a) cultural theories, (b) structural theories, (c) network theories, (d) resource-based theories, and (e) opportunity-focused theories, which have been used by scholars in the field of ethnic minority entrepreneurship. Although none of these theories offer a complete explanation of the reasons for entrepreneurial entry by ethnic minority entrepreneurs or of the nature of management of ethnic minority-owned businesses, together these theories shed light on the nature and characteristics of ethnic minority entrepreneurs and their businesses. Thus, they imply that ethnic minority entrepreneurship is influenced by the ethnic group’s cultural norms, which are, in turn, determined by historical and situational factors. Ethnic minorities may opt for entrepreneurship because they experience structural disadvantages in the host country’s labor market or be-cause they enjoy certain structural advantages in their own community’s factor and product markets. Coethnic social networks and the access to coethnic resources can also facilitate and foster entrepreneurship within an ethnic minority community. However, ethnic minority entrepreneurs have to access resources and capabilities beyond their local coethnic networks if they wish to expand their businesses. In today’s global world, many ethnic minority entrepreneurs actively seek business opportunities by leveraging their knowledge of dual countries and cultures.
Ethnic minority entrepreneurs are a heterogeneous group. While some of them have founded and managed high-growth international businesses, others barely survive on the margins of the economy. Similarly, while some ethnic minority communities are overrepresented in business ownership, others remain underrepresented. Differences in the rates of self-employment and economic advancement among different ethnic communities imply the need for direct policy intervention that is targeted toward the relatively disadvantaged groups. The intervention could take many forms. It could include support for raising 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 services, and equipping ethnic minority 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 coethnic and nonethnic 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.
The field of ethnic minority entrepreneurship offers many opportunities for future research. There is a need to better understand the consequences of ethnic entrepreneur-ship and the role of social networks in facilitating ethnic entrepreneurship. The concept of the transnational ethnic entrepreneur merits further research, as do comparisons of the characteristics and behavior of ethnic entrepreneurs across different countries and successive generations.
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