Ethnic entrepreneurship

• SIGNIFICANCE: Ethnic entrepreneurship is self-employment by members of groups other than the dominant racial/ethnic group of a society. The attempts of subordinate group members to develop businesses can be hampered by prejudice and discrimination. Successful entrepreneurship affects the societal standing of minority groups and can lead to intergroup conflict.

Although members of all ethnic and racial groups own businesses, some groups have been quite successful in creating business ventures in the United States. These groups include Jewish Americans and immigrants from China, Cuba, Greece, India, Jamaica, Japan, Korea, Pakistan, and the Arab countries. Ethnic enterprises, often stereotyped as tiny inner-city shops dealing in specialty products, range from mom-and-pop fruit stands to computer chip factories in Silicon Valley. A particular group’s chances of succeeding in business are related to the degree of hostility and discrimination directed against it. In addition, the group’s entrepreneurial success both negatively and positively affects its standing in society.

Factors in Success

The reasons for the business success of certain minority groups can be categorized as assets (elements that the group brings to the situation) and milieu factors (aspects of the particular time and place). A vital asset is investment capital, a large amount of money to start or expand a business. Although some immigrant entrepreneurs bring a great deal of money with them, many begin with no personal wealth and little prospect of receiving conventional bank loans. However, investment capital can still be obtained if the minority member belongs to a cultural group that forms rotating credit associations. They are known by various names (kye in Korea, pandero in Brazil, ko in Japan), but rotating credit associations all consist of a circle of people who contribute at regular intervals to a money pool. The fund rotates through the group over time so that, eventually each member receives a sizable sum.

A second asset is human capital, encompassing education and work experience. Education may be formal (such as a college business degree) or informal (the transmittal of trade secrets and specific knowledge about a particular industry). Some immigrants embrace values learned at the knees of merchant grandparents, including a positive view of self-employment in a trade.

Ethnic or racial solidarity is a third business advantage. Tight bonds within an ethnic or racial group mean faithful customers, loyal employees, and dependable suppliers. Ethnic entrepreneurs frequently achieve market power in the particular trade in which the group specializes. These bonds may take the form of vertical integration, close ties with purchasers and suppliers who are members of the same group, or horizontal integration, supportive alliances with members of the same minority who own similar businesses.

Milieu factors influencing success include a national government that encourages and supports minority group enterprise. This can take the form of immigration preferences for wealthy merchants, tax code loopholes, and minority set-aside programs for government contracts. Although North America and Australia have such policies, many European countries were slower to encourage minority entrepreneurship, preferring that resident immigrants be employees.

A second milieu factor is demand. An entrepreneur must provide goods or services that people want to buy and that are relatively scarce. Demand can come from within the group, in the form of its own consumer preferences (such as specialty ingredients used in the preparation of Asian dishes), from a new consumer preference in the general population (such as the popularity of Mexican food among mainstream Americans), and from a shortage of competing suppliers because of business closures. For example, Asian and Arab American merchants found business opportunities in riot-torn urban neighborhoods from which previous vendors had fled.

A third environmental factor affecting success is reactive entrepreneurship, which refers to a group’s response to an abrupt loss of status. Recent immigrants often experience an unpleasant shock when they find themselves at the bottom of their adopted country’s social hierarchy. Even immigrants who enjoyed high esteem in their homelands find that in North America, they may encounter verbal harassment and discrimination. In reaction, many turn to entrepreneurship as a way to increase feelings of individual and group worth. They are willing to endure unpleasant living conditions and to perform difficult work, inspired by the desire to raise their status quickly.

Consequences of Ethnic Entrepreneurship

Self-employment has consequences for individuals, ethnic groups, and society as a whole. It gives individuals the opportunity to earn a high income, accumulate wealth, and move into the middle class. Entrepreneurship provides employment opportunities for the individual and the group. Minority members, who often encounter discriminatory job practices such as employers who avoid hiring them, workplace harassment, and limited chances for promotion in the outside business world, find opportunities for job advancement and a comfortable work environment in minority-owned businesses. Self-employment also helps strengthen group solidarity—feelings of warmth, acceptance, and support—through daily contact with members of the same minority group. In addition, the business successes of the group’s members enhance the group’s sense of pride and worth.

Ethnic entrepreneurship produces consequences for the host society. First, newly formed firms contribute to the growth of the national economy. The recovery of the US economy in the second half of the 1990s was largely due to the job growth provided by small and middle-sized businesses, some of which were minority-owned. Second, a society’s admiration of a group’s work ethic and inventiveness can lead to improved attitudes toward the group. However, entrepreneurship can also cause widespread prejudices. News accounts of business successes among immigrants or minority group members can cause pervasive envy and a fear that the minority group is “taking over” the city or nation, beliefs encouraged by demagogic politicians. Business competitors often complain about monopolistic business practices. Inner-city customers, often themselves minority members, sometimes allege that ethnic merchants overcharge them, treat them disrespectfully, and receive undeserved government financial assistance.

Particular Ethnic Entrepreneurs

One early entrepreneurial group was the Mississippi Chinese. In the 1870s, Chinese immigrants arrived in the cotton-growing northwest corner of Mississippi. Powerful local White Americans welcomed the Chinese as sharecroppers, but the immigrants soon became owners of small rural general stores serving poor Black customers. Certain Chinese cultural traditions, such as strong extended families and honor associated with business ownership, helped them succeed. The immigrants also filled a market niche not already occupied by either White or Black businesspeople. The Chinese American families commonly lived frugally in a tiny room behind the store, with all family members working, and their children attended segregated public schools. By the 1970s, many of the general stores had closed. The descendants of these immigrants typically attended college and moved out of the Delta area. The Mississippi Chinese had gained social acceptance, as evidenced by their high rates of intermarriage with local White citizens. The Delta Chinese American population reached a peak of approximately twelve hundred in the 1960s.

Korean Americans also have a very high level of entrepreneurship. A 1990 study of foreign-born Koreans in Los Angeles estimated self-employment at 75 percent, and many of the remainder worked for Korean-owned firms. Korean Americans illustrate reactive entrepreneurship in that many immigrants have come from a high position in Korean society, and the loss in status they experience upon arrival in the United States has spurred them to better themselves. The group’s business success is also attributed to high education levels, relatively high labor force participation by women, and heavy usage of rotating credit associations. Korean Americans also exemplify the way friction develops between minority groups in a vendor-customer relationship. Two thousand Korean American businesses were destroyed in the 1992 Los Angeles riots, the result of pent-up hostility on the part of Latino and Black American customers. Part of the hostility was caused by cultural misunderstandings: For example, Latino and Black American customers interpreted the Korean merchants’ stiffness—their formal body language—as an expression of disrespect.

Black American entrepreneurship presents a mixed picture. In the 1990s, Black Americans owned only about 4 percent of US businesses, although they constituted 12 percent of the population. Black-owned businesses such as beauty shops and funeral parlors first developed to meet demand in the segregated community. Because of societal prejudice and discrimination, Black entrepreneurs had difficulty attracting White customers and obtaining bank financing and property insurance. Nevertheless, in areas like Chicago’s South Side, Black Americans owned a wide range of lucrative commercial establishments by the 1930s. As some Black Americans entered the middle class, they moved out of the inner-city neighborhoods and shopped elsewhere, leading to business decline in areas such as the South Side. As discrimination diminished in the 1960s and 1970s, some members of the burgeoning Black American middle class became successful entrepreneurs. In the 1990s, the number of Black American businesses increased because of the continued activity of the middle class and of Jamaicans and other immigrants from the West Indies.

In the twenty-first century, however, the proportion of minority-owned businesses is increasing. A 2015 study by the Kauffman Foundation, for example, showed that new business owners were 40 percent Asian, Black, and Latino, compared to 23 percent in 1996. Into the mid-2020s, this trend continued. As of November 2022, there were over one million minority-owned employer businesses in the United States. This represented a 15 percent increase from 2019.

Bibliography

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