Handbook of Research on Ethnic Minority Entrepreneurship: A Co-evolutionary View on Resource Management

HANDBOOK OF RESEARCH ON ETHNIC MINORITY ENTREPRENEURSHIP

This volume is dedicated to Naomi J. Dana

Handbook of Research on Ethnic Minority Entrepreneurship A Co-evolutionary View on Resource Management

Edited by

Léo-Paul Dana Associate Professor, Department of Management, University of Canterbury, New Zealand, Senior Advisor, World Association for Small and Medium Enterprises and Founding Editor, Journal of International Entrepreneurship and Journal of Enterprising Communities

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Léo-Paul Dana, 2007 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Handbook of research on ethnic minority entrepreneurship: a co-evolutionary view on resource management/edited by Léo-Paul Dana. p. cm. — (Elgar original reference) Includes bibliographical references and index. 1. Minority business enterprises. 2. Entrepreneurship. I. Dana, Léo-Paul. HD2358.H36 2007 338’.04089—dc22 2007017148

ISBN 978 1 84542 733 7 Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Contents ix xii

List of contributors Foreword by Roy Sharp PART I

INTRODUCTORY CHAPTERS

1

Global entrepreneurship and transnationalism Ivan Light

2

Ethnic economies, social capital and the economic theory of clubs Craig S. Galbraith, Carlos L. Rodriguez and Curt H. Stiles

16

3

Ethnic entrepreneurship: a theoretical framework Thierry Volery

30

4

The economics of co-ethnic employment: incentives, welfare effects and policy options Frank A.G. den Butter, Enno Masurel and Robert H.J. Mosch

5

Understanding the diversity of immigrant entrepreneurial strategies Catarina Reis Oliveira

6

Immigrant women in small business: biographies of becoming entrepreneurs Caroline B. Brettell

7

Migrant entrepreneurship from the perspective of cultural diversity Mediha Sahin, Peter Nijkamp and Tüzin Baycan-Levent

PART II 8

9

3

42 61

83 99

ETHNIC MINORITY SELF-EMPLOYMENT IN AMERICA

Ethnic business owners and their advisors: the effects of common ethnicity Linda M. Dyer and Christopher A. Ross

117

Ukrainian farmers in Canada Tom Allen

132

10

Business engagement of Chinese immigrants in Canada Peter S. Li

144

11

Toward a rethinking of race, culture and the African American entrepreneur Nicholas Maurice Young

12

Hispanic entrepreneurship in the United States Frank Hoy v

157 177

vi

Contents

13

Challenges and opportunities for Hispanic entrepreneurs in the United States Juan Holguin, Ernesto Gamboa and Frank Hoy

195

14

Korean immigrants in the United States Pyong Gap Min

212

15

The Iranian ethnic economy in the United States Mohsen Mobasher

228

16

Entrepreneurship among Filipino immigrants J. Mark Muñoz and Ilan Alon

249

17

Minority entrepreneurship in New York Jerome Krase

267

18

Non-economic effects of ethnic entrepreneurship Min Zhou

279

19

The rise and fall of specialized small business investment: taking the taxi to oblivion Milford B. Green and Rod B. McNaughton

289

Does ethnicity matter? A study of the strategic intent of Internet ventures founded by ethnic and ‘non-ethnic’ entrepreneurs Rajeswararao (Raj) Chaganti, Radha Chaganti and Monica Treichel

309

20

PART III

ETHNIC MINORITY SELF-EMPLOYMENT IN EUROPE

21 Ethnic entrepreneurship in European cities: a comparative study of Amsterdam 323 Tüzin Baycan-Levent and Peter Nijkamp 22

Temporal and geographical variations in ethnic minority business: thirty years of research in the United Kingdom Giles A. Barrett and David McEvoy

23

Italians in Britain: ‘Britalian culture entrepreneurs’ revisited Robin Palmer

24

South Asian entrepreneurship in Britain: a critique of the ethnic enclave economy debate Pnina Werbner

25

Access to finance by ethnic minority entrepreneurs in the UK David Smallbone, Monder Ram and David Deakins

26

Ethnic minority business and the employment of illegal immigrants in Birmingham Trevor Jones, Monder Ram and Paul Edwards

27

Immigrant entrepreneurs in Austria Filiz Kurtoglu

337 360

375 390

405 425

Contents

vii

28

Turkish immigrant entrepreneurs in Finland Östen Wahlbeck

433

29

Immigrant entrepreneurs in Germany Maria Kontos

445

30

Migrant entrepreneurship in Germany Maggi W.H. Leung

464

31

Ethnicity, gender and entrepreneurship: Turkish entrepreneurs in Germany Robert Pütz, Verena Schreiber and Isabell Welpe

488

32

Immigrant entrepreneurs in Hamburg Nikolinka Fertala

511

33

Chinese entrepreneurs in Hungary Pál Nyíri

534

34

Roma entrepreneurs in Hungary Ferenc Babusik

555

PART IV 35

36

37

ETHNIC MINORITY SELF-EMPLOYMENT IN ASIA

Ethnic entrepreneurship and the internationalization of Chinese capitalism in Asia Henry Wai-chung Yeung

575

Dalit entrepreneurs on the edges of caste and class: ethnic minority entrepreneurship in India David Blake Willis and J. Rajasekaran

599

Immigrant entrepreneurs and the Israeli welfare state: institutional support and institutional constraints Eran Razin

615

38

Immigrants from the former Soviet Union as ethnic entrepreneurs in Israel Miri Lerner, Susanna Khavul and Robert D. Hisrich

630

39

Small business among Japan’s Buraku people Mitsuru Tanaka

645

40

Korean minority entrepreneurs in Japan David Blake Willis and Soo im Lee

653

41

Clan associations of Singapore and their roles in the small business sector David Leong

669

PART V ETHNIC MINORITY SELF-EMPLOYMENT IN THE SOUTHERN HEMISPHERE 42

Ethnic entrepreneurship in South Africa: an embedded approach to the study among various ethnic groups Bruce Mitchell and Mary Jesselyn Co

681

viii

Contents

43

Entrepreneurship among Ghanaians in South Africa Vivian Besem Ojong

44

Exploring the relationship between culture, communication and entrepreneurship in New Zealand Zhu Yunxia

707

720

45

Immigrant cultural capital in business: the New Zealand experience Noel Watts, Andrew Trlin, Cynthia White and Nicola North

729

46

Enterprising Indian women in New Zealand Edwina Pio

744

47

Lebanese entrepreneurs in New Zealand Michèle E.M. Akoorie

754

PART VI 48

A comparative, exploratory investigation into the perceptions of internationalizing firms in Singapore and the UK Dave Crick and Léo-Paul Dana

PART VII 49

COMPARATIVE STUDY

TOWARDS FUTURE RESEARCH

Towards a synthesis: a model of immigrant and ethnic entrepreneurship Léo-Paul Dana and Michael Morris

Index

783

803

813

Contributors Michèle E.M. Akoorie, The University of Waikato, New Zealand Tom Allen, University of Saskatchewan, Canada Ilan Alon, Rollins College, USA Ferenc Babusik, Delphoi Consulting, Budapest, Hungary Giles A. Barrett, Liverpool John Moores University, UK Tüzin Baycan-Levent, Istanbul Technical University, Turkey Caroline B. Brettell, Southern Methodist University, USA Radha Chaganti, Rider University, USA Rajeswararao (Raj) Chaganti, Temple University, USA Mary Jesselyn Co, University of KwaZulu-Natal, Republic of South Africa Dave Crick, University of Central England, UK Léo-Paul Dana, University of Canterbury, New Zealand David Deakins, Paisley Business School, UK Frank A.G. den Butter, Tinbergen Institute, The Netherlands Linda M. Dyer, Concordia University, Canada Paul Edwards, University of Warwick, UK Nikolinka Fertala, University of Tübingen, Germany Craig S. Galbraith, University of North Carolina Wilmington, USA Ernesto Gamboa, University of Texas at El Paso, USA Milford B. Green, University of Western Ontario, Canada Robert D. Hisrich, Thunderbird School of Global Management, USA Juan Holguin, University of Texas at El Paso, USA Frank Hoy, University of Texas at El Paso, USA Trevor Jones, De Montfort University, UK Susanna Khavul, London Business School, UK Maria Kontos, Johann Wolfgang Goethe-University of Frankfurt, Germany Jerome Krase, The City University of New York, USA

ix

x

Contributors

Filiz Kurtoglu, Vorarlberg University of Applied Science, Austria Soo im Lee, Ryukoku University, Japan David Leong, Nanyang Technological University, Singapore Miri Lerner, Tel Aviv University, Israel Maggi W.H. Leung, The University of Hong Kong, Hong Kong Peter S. Li, University of Saskatchewan, Canada Ivan Light, UCLA, USA Enno Masurel, VU University Amsterdam, The Netherlands David McEvoy, Liverpool John Moores University, UK Rod B. McNaughton, University of Waterloo, Canada Pyong Gap Min, Queens College and the Graduate Center of the City University of New York, USA Bruce Mitchell, University of KwaZulu-Natal, Republic of South Africa Mohsen Mobasher, University of Houston-Downtown, USA Michael Morris, University of Syracuse, USA Robert H.J. Mosch, De Nederlandsche Bank, The Netherlands J. Mark Muñoz, Millikin University, USA Peter Nijkamp, Vrije Universiteit, The Netherlands Nicola North, Massey University, New Zealand Pál Nyíri, Macquarie University, Australia Vivian Besem Ojong, University of KwaZulu-Natal, Republic of South Africa Catarina Reis Oliveira, SociNova, Faculdade de Ciencias Sociais e Humanas, Lisbon, Portugal Robin Palmer, Rhodes University, Republic of South Africa Edwina Pio, Auckland University of Technology, New Zealand Robert Pütz, Johann Wolfgang Goethe-University of Frankfurt, Germany J. Rajasekaran, University of Wisconsin, USA and India Monder Ram, De Montfort University, UK Eran Razin, The Hebrew University, Israel Carlos L. Rodriguez, University of North Carolina Wilmington, USA Christopher A. Ross, Concordia University, Canada

Contributors Mediha Sahin, Vrije Universiteit, The Netherlands Verena Schreiber, Johann Wolfgang Goethe-University of Frankfurt, Germany Roy Sharp, University of Canterbury, New Zealand David Smallbone, Kingston University, UK Curt H. Stiles, University of North Carolina Wilmington, USA Mitsuru Tanaka, Kansai University, Japan Monica Treichel, Temple University, USA Andrew Trlin, Massey University, New Zealand Thierry Volery, University of St. Gallen, Switzerland Östen Wahlbeck, Åbo Akademi University, Finland Noel Watts, Massey University, New Zealand Isabell Welpe, Ludwig-Maximilians-Universität, Germany Pnina Werbner, Keele University, UK Cynthia White, Massey University, New Zealand David Blake Willis, Soai University, Japan Henry Wai-chung Yeung, National University, Singapore Nicholas Maurice Young, Stanford University, USA Zhu Yunxia, University of Queensland, Australia Min Zhou, UCLA, USA

xi

Foreword Successful entrepreneurial ethnic minorities are not of course a new phenomenon, and many interesting examples from the past spring to mind. There were the Jews who settled in Europe, the Chinese in Australia and Malaysia, and Indians in many places, including East Africa and Fiji. Many of those minorities had so strong a reputation for financial success that they were persecuted or, at the least, their political rights were (and in some cases still are) heavily circumscribed. What has changed markedly since the middle of the twentieth century is the scale of exchanges of peoples between countries, as travel has become easier and more affordable, and national economies more open and integrated. Thus many different ethnic minorities now exist in many different countries and their entrepreneurship can therefore have a significant influence on national economies. So it is important that we can understand what factors make for success. It would also be important to try to understand what factors can minimize the negative political consequences that members of successfully entrepreneurial ethnic minorities might face. This volume follows two earlier reference works in which the author, Léo-Paul Dana, from the University of Canterbury, in Christchurch New Zealand, has commissioned chapters from leading researchers in their field around the world. The first of the three volumes dealt with international entrepreneurship and the second the entrepreneurship exhibited by indigenous peoples. This present volume, similarly, is a collection of chapters which, in this case, cover examples of the entrepreneurship of ethnic minorities from all parts of the world. Authors of the chapters in the introductory section have set the scene by discussing definitions and frameworks. Then, in the bulk of the work, there are many detailed analyses of the entrepreneurship displayed by ethnic minorities in North America, Europe, Asia and the southern hemisphere. The final chapter of the book endeavours to draw together some conclusions and principles which might have universal application. Each of the previous two volumes on entrepreneurship has filled important gaps in our knowledge and will be important reference sources. I am confident that this present volume will do the same. Professor Roy Sharp Vice Chancellor University of Canterbury

xii

PART I INTRODUCTORY CHAPTERS

1

Global entrepreneurship and transnationalism1 Ivan Light

To an earlier generation of scholars, diasporas meant ethno-national communities scattered around the globe that nonetheless remained in continuous, long-term contact with one another as well as with their real or putative homeland (Armstrong, 1976; Cohen, 1997: 185). Their real or putative homeland constituted the hub of ethnic diasporas. The colonies scattered abroad represented the spokes. Thanks to their hub and spoke structure, diasporas linked distant continents in such a way that ethnic minorities resident in any one place had strong social ties and cultural ties with coethnics in many others. Ethnic diasporas were commercially important, but they were not numerous. Diasporas were uncommon because most immigrants just assimilated into host societies within three generations. As a result, unless renewed by new migration, the spokes ceased to communicate with one another and with the hub. Before globalization, which began in about 1965 (Dicken, 1992), and arguably changed this arrangement, the world’s international immigrants routinely assimilated to host societies in historically short order (Caliner, 2000). At a minimum, assimilation meant acquiring the language of one’s new homeland and forgetting the language of one’s ethnic origin. For immigrants, the road to assimilation went from mono-lingualism in a foreign language to bi-lingualism and back to monolingualism in a new language. In the United States, Canada, Australia and New Zealand, assimilation meant that, whatever one’s ethnic origins, one grandchildren would become English mono-lingual. Therefore, thanks to assimilation, international immigration routinely left no permanent ethnic colonies in place abroad as a permanent historical legacy. Diasporas were the exceptions to this generalization. In the early twentieth century, diasporic communities initially attracted Max Weber’s attention because of the remarkable commercial entrepreneurship they exhibited.2 Weber termed this entrepreneurship ‘pariah capitalism’ because of the local unpopularity of the entrepreneurial minorities. Subsequent scholars agreed that diasporic ethnic communities displayed exceptional entrepreneurship, especially in international commerce (Cohen, 1971; Light, Bhachu and Karageorgis, 1993: 38–43; Moallem, 1996; Laguerre, 1998). Entrepreneurial ethnic communities that operated around a diasporan structure earned the sobriquet ‘middleman minorities’ in the literature of social science (Bonacich, 1973; Kieval, 1997; Light and Gold, 2000: 6–8). Middleman minorities were non-assimilating ethnic minorities noteworthy for their abundant and persistent entrepreneurship wherever they lived. Among the middleman minorities, the Jews of Europe, the Hausa of Nigeria, the Sikhs of East Africa, the Chinese of South East Asia, the Armenians of the Near East and the Parsees of India were the most prominent, but there were others as well. Eschewing agriculture, middleman minorities were especially common in retail trade and international commerce. Indeed, the term ‘middleman’ reflected this specialization since the role of the middleman is to trade goods, not to manufacture or grow them. The exceptional involvement of middleman minorities in international trade arose in part because of the ethno-religious oppression to which they were subjected, but also because of 3

4

Handbook of research on ethnic minority entrepreneurship

the unique ethnic resources they enjoyed (Light and Gold, 2000: 6–7).3 Exploited and oppressed by host societies, which treated them as pariahs, middleman minorities turned to self-employment for self-defense amid the general absence of alternative earning options. This strategy increased their self-employment. However, the middleman minorities had also evolved over centuries distinct ethnic resources that facilitated commercial entrepreneurship. The middleman minorities were bi-lingual people, who bestrode international social networks of coethnics. They also controlled and enjoyed superior business skills, which had worked their way over centuries into the cultural fabric of the community. These three characteristics of the entire group created serious natural advantages in trade promotion for individual group members (Collins, 1998: vol. 2, 398–9; Lever-Tracy et al., 1991: xi, 113). First, such people more easily notice the business opportunities that cultural frontiers generate than do mono-cultural stay-at-homes. Second, such people have the international social capital that supports international business (Fukuyama, 1995; Walton-Roberts and Hiebert, 1997; Wong, 1998: 95).4 When they see a potential trading opportunity, they have the connections abroad to bring it to prompt fruition. Third, because they controlled superior business skills that they passed on through socialization to younger generations, middleman minorities produced many shrewd and effective business people. Taken together, these three characteristics (languages, networks, skills) supported and encouraged the entrepreneurship of group members to an outstanding degree, and the result was persistently high rates of self-employment among the middleman minorities. Trading diasporas shipped commodities around the diaspora to continents that were, in terms of travel time, much more distant from one another than they are now and in historical epochs that did not have today’s business-support electronics. In each diaspora site, coethnic merchants sold imported goods to locals. The middleman minority’s specialization in international trade was a product of the diaspora’s distinct advantages for this activity. The international disasporan structure conferred two well-known advantages on international traders recruited within each site. First, the ethno-linguistic homogeneity within diasporas supported the performance of the middleman minority’s trading specialty. For example, an Armenian merchant in Lima could order rugs from an Armenian merchant in Istanbul in the Armenian language, thus surmounting the language problem that Turks and Peruvians encountered when they attempted to trade. The Armenians in Lima sold at retail in Spanish; the Armenians in Istanbul sold at retail in Turkish. To one another Armenian merchants spoke fluent and colloquial Armenian. Thanks to the Armenian diaspora, Turks and Peruvians could trade without having to learn one another’s language. Additionally, the social capital of diasporas permitted enforceable social trust among merchants, even over long distances. As a result, for example, Armenian merchants in Istanbul could ship rugs to Armenian merchants in Lima in confidence that invoices would be paid and that, if unpaid, informal community pressures could compel payment without recourse to litigation in Peruvian courts. Lacking equivalent social capital in the other country, Turks and Peruvians could not trade without the intercession of Armenians whose unique resource was their bi-lingualism and their international social capital. Whatever initially caused a middleman diaspora, such as myths or projects of ultimate repatriation and redemption, once locked into international trading, middleman minorities had real economic motives to retain their cultural and social ties with their homeland. The mythos of repatriation and redemptive nationalism were cultural, but their consequence

Global entrepreneurship and transnationalism

5

was real economic motives that acquired an independent influence of their own in the life of the community. After all, their diasporan livelihood depended upon their retaining the ability to speak the language of their ethnic homeland as well as their social capital there and in the diaspora. Hence, assimilation attacked their livelihood. If unable to speak Armenian, a sign of assimilation, an Armenian merchant in Lima could neither buy rugs in Istanbul through a coethnic intermediary nor feel confident that Armenian exporters there would offer him credit. Remaining ethnically Armenian was a prudent business policy under these circumstances, not just a sentimental attachment to an ancient culture and homeland. The point is not to reduce international ethnic solidarity to economic interest, but only to acknowledge the self-renewing support that economic interest gave to ideologically motivated non-assimilation. The culture promoted the business, and the business supported the culture. Transnationalism and globalization Unlike the older literature of middleman minorities, which addresses non-assimilating communities, the contemporary literature of transnationalism addresses novel processes that generate a transnational elite even within immigrant communities (Wong, 1997; Guarnizo and Diaz, 1999; Guarnizo, Sanchez and Roach, 1999; Landolt, Autler and Paires, 1999; Smart and Smart, 1998). In an influential paper, Schiller, Basch and BlancSzanton define transnationalism as ‘processes by which immigrants build social fields that link together their country of origin and their country of settlement’. Immigrants who build such social fields they dub ‘transmigrants’. Transmigrants are resident in at least two societies between which they shuttle frequently enough to remain active participants in both, but fully encapsulated (mono-cultural) participants in neither. Transmigrants acculturate, but they do not assimilate.5 This cosmopolitan life style enables transmigrants to form bi-cultural colonies that lodge within mono-cultural host societies. In this respect, contemporary transmigrants resemble middleman minorities who also acculturated without assimilating. The single best and most accessible indicator of bi-cultural status is long-term maintenance of the transmigrants’ complete fluency in the language of their homeland when coupled with complete fluency in the language of the host society (Portes and Hao, 1998). Native speaker fluency in two languages distinguishes transmigrants from immigrants, who lose their foreign language fluency within three generations. Transnationalism arrives ‘from above’ when nation states give privileged access to entrepreneur immigrants, hoping thereby to stimulate economic growth (Wong, 2003). States award this privileged access when they set aside non-quota immigration priority to persons who pledge to start businesses or, at least, to invest in business in the host society. This increasingly common practice leavens immigrant populations with state-prioritized entrepreneurs, who were selected for admission precisely because of their existing business skills and financial capital. These entrepreneurs have class resources that their nonentrepreneur coethnics normally lack, but they nonetheless increase the percentage of self-employed within their immigrant group. Transnationalism also arrives from below. Recent interest in transnationalism ‘from below’ (Lever-Tracy and Ip, 1996; Lie, 1995; Chik, 2000) identifies social processes that generate transmigrants from the immigrant population without recourse to the mechanism of state pre-selection that characterizes transnationalism from above. The literature of transnationalism from below has returned to many of the ideas that animated the

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Handbook of research on ethnic minority entrepreneurship

middleman minorities literature as well. First, transmigrants have diasporas, just as did and do middleman minorities. However, because of transnationalism, it is argued, ethnoracial groups that were never middleman minorities can now have diasporas too. For example, Brazilians or Filipinos can have a diaspora such as was previously available only to middleman minorities like the Jews, Armenians or Chinese (Gold, 1997: 410). In an era of globalization, diasporas are easier to maintain now than they were earlier, and much more numerous around the world in consequence (Cohen, 1997: 176).6 Therefore, transnational studies examine groups that are not historic middleman minorities, but which have diasporas as well as, of course, classical middleman minorities. Haitians, Dominicans, Turks, Koreans, Colombians and Filipinos are exemplary transnational groups, who have never been middleman minorities. This novel combination of diaspora without a middleman minority’s history would not have occurred in the past when middleman minorities virtually overlapped with diasporan minorities. In effect, if contemporary theorists of transnationalism are correct, diasporas are no longer reserved to middleman minorities, so many more people can live in diasporas now than previously did so. Second, contemporary transmigrants are bi-cultural just as are and were members of the classic middleman minorities. As a result, transmigrants enjoy some of the same advantages for international trade that middleman majorities enjoyed in the past. The spokes of the transmigrants’ diaspora communicate with one another and with the diaspora’s hub in the mother tongue while selling locally in the local vernacular. They can do this because and to the extent that transmigrants, like middleman minorities, retain their native-speaker fluency in the mother tongue over generations; for example, they do not assimilate. This is the advantage that Armenian merchants in Lima enjoyed when trading with Persia in the eighteenth century. Third, like middleman minorities, contemporary transmigrants have international social capital that provides access to enforceable trust. International social capital hugely simplifies international trade. Enjoying international social capital, a Haitian transnational residing in New York City can buy and sell goods from a coethnic in Port-au-Prince in confidence that invoices will be paid or, if unpaid, can be informally collected without recourse to law. If Haitians simply assimilated, as do immigrants, that transnational merchant would lose the social networks that access Haitian business circles and underpin his or her creditworthiness. Because they shuttle frequently between Haiti and New York City, a life style made possible by jet airplanes, and because they receive and send satellite messages from and to Haiti, a facility made possible by satellite communication, Haitians in New York City can retain social capital in Haitian business circles for protracted, even indefinite periods, thus retaining the advantages in international trade that international social capital permits. Should they assimilate, they would lose those advantages. Given these similarities to middleman minorities, it is unsurprising that transmigrants from below display high entrepreneurship, especially in international trade (Portes, 2003). Some evidence reports that transmigrants are ten times more likely to become entrepreneurs than are coethnic immigrants. Portes, Haller and Guarnizo (2002) studied self-employment rates among immigrant Dominicans, Colombians and Salvadorans in five American cities. None of these ethno-racial groups is or was a middleman minority. Defining transnational entrepreneurs as those who went abroad for business twice a year or more, the authors found that only 5 per cent of each national-origin sample were transnational entrepreneurs,

Global entrepreneurship and transnationalism

7

but 58 per cent of the self-employed were transmigrants. ‘Transnational entrepreneurs represent a large proportion, often the majority, of the self-employed persons in immigrant communities’ (Portes, Haller and Guarnizo, 2002: 293). Better educated than coethnics, the transnational entrepreneurs also earned higher incomes than non-transnational coethnics. Transnationalism is even said to have affected middleman minorities. Ooka (2001) reports that ‘ethnic social capital’ did not increase the income of Chinese business owners in Toronto, but bridging social capital (connections to non-Chinese) did, as did class resources. Ethnic social capital would have been more characteristic of middleman minorities, so its ineffectiveness here suggests a new kind of international business among the Chinese. Wong and Ng (2002: 509) also claim that Chinese transnational business represents a new form of Chinese business. Although still small business, like the Chinese business of the past, the new transnational Chinese business supposedly has a different modus operandi (Yeung, 1999; Li, 1993). The Chinese transnational business owners have more business associates in Asia than non-transnational Chinese entrepreneurs; they are also more likely to make use of Chinese business contacts, and more likely to target non-Chinese customers than are non-transnational Chinese entrepreneurs. The international traffic in prohibited drugs, sex commerce and immigrant smuggling offer additional illustrations of transnational business. The bi-lingualism and international social capital that confer success in legal industries also confer it in these illegal ones.7 Massey et al. (1993: 446) observe that economic globalization ‘creates cultural links between core capitalist countries and their hinterlands’ and transnationalism is one of the ways globalization accomplishes this end. This line of thought eventuates in the hypothesis that transnationalism promotes international trade by multiplying the ethnic resources formerly restricted to middleman minorities. Transmigrants are a minority of the groups to which they belong whereas middleman minorities are whole groups, not just an elite. Middleman minorities enter business because of their underlying life style, which makes business congenial to them; transmigrants more commonly adopt a cosmopolitan life style in the interest of promoting their business. This life style is an elite life style. The past lingers. The era of transnationalism did not demolish middleman minorities. Middleman minorities did not vanish when transnational business elites appeared. However, if the theorists of transnationalism are correct, more people can have the key business-supporting resources now than could do so in the past when international commerce relied on middleman minorities. Therefore, more international trade is possible now. This attractive hypothesis already has some documentation to support it. The hypothesis links transnationalism and the expansion of world trade, which is the hallmark of globalization. Indeed, one could conclude that globalization requires transnationalism, which it also promotes. International trade requires international traders, and international traders are transmigrants. Hence, Silj and Cross (1999: 135) declare that transmigrant entrepreneurs no longer promote a ‘second-rate form of capitalism’ as Weber believed (Light and Gold, 2000: 6–7). Instead, transnational traders are ‘the forefront of new economic ties’. If so, transmigrant entrepreneurs arguably caused some of the last half century’s increase in international trade (Kotkin, 1996). That is, because more people had access to the requisite skills, the world sprouted more international entrepreneurs, and more world trade ensued. Strictly in its economic terms, globalization means the reduction of tariff and non-tariff barriers to trade, freer mobility of capital across international boundaries, international

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Handbook of research on ethnic minority entrepreneurship

standardization of products, specifications, and legal codes as well as the migration of Third World workers, skilled and unskilled, to the developed countries (Sassen, 1994; Hollifield, 1998). As globalization knits world markets, opportunities for trade increase, as does the importance of international trade. World trade has increased substantially in the last generation, a result usually attributed to globalization. In the United States of America, the share of exports in national income rose from 4 per cent to 7 per cent between 1950 and 1990. The share of merchandise exports in the output of manufactured goods, a more revealing ratio, increased over the same period from 6 per cent to nearly 20 per cent (The Economist, 1997), and other countries have seen comparable changes. Exports now account for more than 20 per cent of US economic growth. Exports create more than 11 per cent of American jobs (Rondinelli, Johnson and Kasarda, 1998: 75). This abrupt growth of international trade could not have relied upon middleman minorities whose supply of international traders could not expand rapidly enough to match the growing need. Rather, it appears that even classic middleman minorities like the Jews and Chinese added transmigrant elites (from below and also from above) to their existing population of middleman traders (Gold, 1997; Hamilton and Waters, 1997). Whether generated from above or from below, transmigrant elites utilized class resources of entrepreneurship, such as human and financial capital, more than the ethnic resources on which middleman minorities characteristically relied and continue to rely.8 Similarly, hitherto non-trading immigrant communities began to produce international traders as an elite whose entrepreneurial resources derived from their class status rather than from the ethnic resources of traditional trading minorities. The joint result was expansion of the supply of persons qualified to undertake international business. Without this expansion, the growth of international commerce would be constrained by an inadequate supply of traders with the requisite entrepreneurial resources of social and cultural capital. Transnationalism arguably accomplished this historical task, outfitting more or less every immigrant group with its own cosmopolitan, bi-cultural and non-assimilating business elite, who had the resources to become international business owners and traders (Farrell, 1993). The result was a globalized world in which old-fashioned middleman minorities now shared international trade with new transnational elites rather than dominating it by themselves as they once had. Globalization and English language dominance However, before pledging allegiance to this attractive hypothesis, we should examine the embeddedness of transnationalism in globalization, which is much bigger than just transnationalism. Globalization is changing the world in multiple ways, not just by way of transnational business elites. Kloosterman and Rath (2003: 7) and their colleagues have already drawn attention to possible increases in demand for immigrant entrepreneurs within the developed economies as a result of the transition to post-industrial economies in which small business has new advantages. Cultural globalization also generates demand in the developed countries for exotic food, merchandise and services (acupuncture, falafel, images of Buddha) that emanate from Third World countries and that immigrant entrepreneurs can readily provide (Light, 2004). In these cases, the impact of globalization tends generally to support and enhance the presence and viability of immigrant entrepreneurs abroad. But these positive effects, much celebrated though they are, may not end the story.

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An additional and less studied effect of globalization on immigrant business occurs via the increasing international dominance of the English language in science, business and government, a development that was not always welcomed (Crisafulli, 1996). English has not always been the world’s dominant language. Globalization created the dominance of English since 1945 (Phillipson, 1992; Fishman, 1998–99; Fox, 2000). In effect, the contemporary dominance of English and transnational immigration are both effects of globalization. The dominance of the English language embeds transnational business elites in a world quite different from the one in which classic middleman minorities lived. Possibly that difference affects the trading advantages that transmigrants and middleman minorities enjoy. We inhabit a globalized world in which English has almost become the universal second language of business people everywhere. In this world, bi-cultural transmigrants enjoy less linguistic advantage than classic middleman minorities earlier enjoyed, before globalization. This reduction arises because so many non-immigrants have learned English as their second language. If, in an extreme and limiting case, all the inhabitants of the world’s non-English-speaking countries achieved complete fluency in English, then anyone could trade with anyone elsewhere on the strength of their common second language, English. Immigrants would no longer need bi-cultural elites or middleman minorities to effectuate their international trade as they did when immigrants were mono-linguals. Today the Japanese business travelers in Eastern Europe prefer to speak English to their Polish or Czech trading partners rather than having to learn Czech or Polish, and the Poles and Czechs reciprocate the preference. Thanks to the dominance of English, Japanese, Czechs and Poles now have this option. Returning to the illustration earlier used, we recall that Peruvians in Peru and Turks in Turkey patronized the Armenian diaspora because Peruvians did not speak Turkish and Turks did not speak Spanish. Lacking a common language, Turks and Peruvians needed to communicate through bi-cultural Armenians, one group of whom spoke Spanish and the other Turkish. Armenian intermediaries (middlemen) were indispensable in that world’s rug business. In a fully globalized world, however, Turks speak English and Peruvians speak English. Therefore, Turks and Peruvians can communicate in English, and neither side needs Armenian middlemen any more just for the purpose of communication. Of course, this thought-experiment relies upon a fully globalized world that does not yet exist. Nonetheless, the increasing dominance of the English language in world business does tend to move the world in that direction. In continental Europe today, half of the adult population claims to speak English. This unprecedented state of affairs means that the French and Germans, the Spanish and the Italians, or any other European combination, can speak English to one another for purposes of international trade, reducing any need for either middleman minorities or transmigrants to interpret for them. Middleman minorities translated business into Armenian from local vernaculars; transnational immigrant traders speak their native language plus the adopted language of their destination country. Both acquire trading advantages to the extent that everyone does not already speak English. If everyone speaks English, then neither middleman minorities nor bi-lingual transmigrants have any linguistic resource to exploit in commerce. True, the European trading partners may not trust one another even though they communicate in English with other non-native speakers of English. To that extent, the Europeans would still need middleman minorities or the transmigrants whose international

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social capital stands surety for their business deals. Nonetheless, looking only at the linguistic indispensability, which the middleman minorities once exploited, we conclude that the dominance of English as a world language reduces even if it does not yet extinguish the linguistic advantage of both middleman minorities and of transmigrants today. If so, middleman minorities, like the Chinese, would have lost their trading advantage in intraEuropean trade, and would retain it only in the organization of trade between China and their current host country. This point is speculative. However, evidence has already begun to build up behind other, trade-related economic effects of English dominance (Van Parijs, 2000). Examining the foreign trade of the United States and Canada in the 1980s, David Gould (1990, 1994) found that the volume and skill levels of immigrants increased the dollar volume of both American and Canadian exports to the immigrants’ home countries without increasing imports from them. This discrepancy did not attend immigration from English-speaking countries. He explained the unexpected discrepancy by reference to transaction costs, arguing that immigrants enjoyed transactional advantages for exports, but not for imports. Light (2001) and Light, Zhou and Kim (2002) replicate Gould’s basic finding on a comparable but slightly different American data set. They too find that immigrants to the United States increased American exports to their home countries without increasing American imports from their home countries. However, this discrepancy does not attend immigration from English-speaking countries, which increased neither exports nor imports. Light and his colleagues considered the possibility that transnational immigrants increased international trade more than non-transnational immigrants, but less than middleman minorities who, unlike transmigrants, have centuries of entrepreneurial culture on which to draw. Comparing the Chinese diaspora and the Spanish diaspora, they found that both diasporas increased American trade with overseas homelands net of control variables, but the size of the Chinese effect was twice the size of the Spanish effect. Moreover, a measure of fluency in English found that, net of control variables, high fluency in English increased immigrants’ exports to their overseas homelands without increasing their imports from their homeland. This manipulation implied that Englishspeaking countries need the help of non-English speaking immigrants to export goods to the immigrants’ non-English-speaking homelands because, partially thanks to globalization, English-speaking countries lack foreign language skills. Even in the world of globalized international commerce, an ancient rule of marketing still prevails: ‘the merchant speaks the customer’s language’. Nineteenth-century Armenians in Peru peddled rugs in Spanish. Today this ancient rule requires English-speaking countries to peddle their exports in languages other than English when they export to non-English-speaking countries. Thanks to the dominance of English as a world business language, itself a product of globalization, the English-speaking countries have learned to rely on the rest of the world’s fluency in English, thus relieving them of the necessity of learning foreign languages. Therefore, when they have to market their exports in non-English-speaking countries, English-speaking countries rely upon the assistance of bi-cultural immigrants, who retain full fluency in foreign languages. Transmigrants have this capacity. Fully fluent in English, they are also fluent in the language of their homeland. However, again thanks to the world dominance of English, the opposite situation does not apply. When exporting to English-speaking countries, non-English-speaking countries

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enjoy a linguistic advantage. The exporters already speak English as a second language. Speaking English as their second language, the Spanish, the Koreans, the Chinese or the Swedes do not need the help of coethnic immigrants in the United States, Canada, Australia or New Zealand to market their exports to those English-speaking countries. As a result, Swedish or Spanish transmigrants residing abroad in English-speaking countries cannot contribute to the marketing effort of their homeland’s companies in those English-speaking countries. This observation would explain why immigrants in the United States and Canada increase those countries’ exports to the immigrants’ overseas homelands without increasing their homelands’ exports to the United States and Canada. They also explain or help to explain why immigrants from English-speaking countries have no effect on the imports or exports of the United States and Canada to their homeland. Immigrants from English-speaking countries have no linguistic advantage in another English-speaking country. It was correct to assert, as David Gould did, that cultural skills reduce the transaction costs of international commerce. However, Gould still thought of language as a trade friction, not a trade structure. Prior to globalization, when languages were more or less on an international standing of parity, with perhaps some superiority to French in the nineteenth century, one could conceptualize translation as a frictional cost of international business. Middleman minorities thrived in the shadow of that frictional cost. In the globalized world that is increasingly coming into existence, the global dominance of the English language is a global structure, not what economists call ‘a friction’. This global linguistic structure affects international trade in new ways that require new theory. The theoretical heritage of middleman minorities, properly amended, offers the tools to accomplish this task. Conclusion Existing literature has correctly inferred that transmigrants from above and from below enjoy linguistic and social capital advantages that outfit them advantageously for international commerce and entrepreneurship. On this view, transnationalism endows regional ethnic groups that were not historical middleman minorities and that do not inherit an ethnic culture of entrepreneurship with newly-acquired class resources of entrepreneurship. As a result, those class resources of entrepreneurship are more common than they were previously among immigrants; hence, international trade can progress more rapidly than it did earlier. International trade requires international traders, and international traders require the resources of enforceable trust and bi-culturalism. These inferences are correct as far as they go. However, missing from existing transnationalism literature, whether from above or from below, is any awareness that globalization reduces the utility of bi-lingual combinations that do not include English. Spanish to French competence is not useful when all French people and all Spanish people speak English. In this case, Spanish people can talk to French people in English, and vice-versa, so what additional utility is conveyed by speaking French as well as Spanish? Globalization increasingly embeds world commerce, science, cinema and diplomacy in a dominant language, English. This dominant language creates a global linguistic structure where previously only linguistic frictions existed. There is every reason to suppose that economic consequences flow from the global dominance of English, and some recent evidence supports that hypothesis. Presumably the dominance of the English language

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embeds the earth in a structure that transnationalism must subserve. Studying the manner in which transmigrants fit into this new language structure emerges as a future research path of consequence. Both practical and theoretical issues are at stake. On the theoretical side, we learn that transmigrants are not just middleman minorities redux and many times multiplied. Even if they were, the world has changed in some ways advantageous to immigrant entrepreneurs and in some ways disadvantageous. Even if post-industrial economies and cultural globalization enhance demand for immigrant-owned business, as some authorities maintain, the linguistic effect of globalization diminishes it. The global dominance of English reduces the advantage that bi-lingualism conveys in international trade, undermining transmigrants and middleman minorities alike. Both middleman minorities and transnational business elites exploit bi-lingualism for commercial advantage in international trade. Bi-lingualism is not their only resource; they also have enforceable social trust embedded in international networks. Nonetheless, the bilingualism has been a salient commercial advantage, which the increasing dominance of English tends to erode throughout the world. For this reason, extrapolating the dominance of English into the future, the long-term outlook for both transmigrants and middleman minorities, the modern and old-fashioned forms of international trade elites, is clouded. On the practical side, the four-fold expansion of international trade since 1950, which is a defining feature of globalization, owes something to transnationalism in the functional sense of mutual affinity and support. Transmigrants made the expansion of globalization possible, and profited from the opportunities this expansion afforded. In effect, globalization and transnationalism co-produced one another. Moreover, in the context of the increasing dominance of the English language, the English-speaking countries derived peculiar and idiosyncratic advantages from transnational business migrants who increased their exports without increasing their imports! Because of this lop-sided advantage, the massive and dangerous balance of payments deficit of the United States was reduced, but not eliminated. This reduction performed a service to world trade, rendering it more secure than it otherwise would have been. Operating in tandem, transnational business elites and the dominance of the English language jointly reduced the vulnerability of the United States to the normal monetary corrections that attend large and protracted trade deficits. The same would obviously be true as well of other Englishspeaking countries, but, since their international role is less pivotal than that of the world’s super power, their trade deficits are comparably less important. Since that American balance of payments deficit has been many times identified as the endangered cornerstone of the global economy, whose collapse would pull down the whole global edifice, transnational business elites have proved a social adjunct of globalization in the last generation. Notes 1. An early version of this paper was presented at the European Science Foundation’s ‘Asian Immigrants and Entrepreneurs Conference’ that was held at the Catholic University of Nijmegen, on 11 May 2001. Please direct all correspondence regarding this paper to [email protected]. 2. For an extended discussion, see Light and Karageorgis (1994). 3. The 2004 film Ararat offers Hollywood’s attempt to deal with the oppression of Armenians, and their recourse to commercial entrepreneurship in self-protection.

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4. ‘Trust and cultural affinities facilitate involvement in transnational ethnic businesses. The moment of business encounter is not solely determined by formal rationalized rules, but also by the presence of cultural codes favoring the process of trust building in business transactions. In small-scale transnational entrepreneurial activities, culture can both promote and limit business opportunities. In this context, formal and rationalized market structures are subordinated to the economic culture of the social agents’ (Moallem, 1996: 12). 5. To acculturate is to acquire the language and culture of a host society. To assimilate is to identify with the host society. Inter-marriage is the single most powerful indicator of assimilation. 6. ‘Globalization has enhanced the practical, economic, and affective roles of diasporas, showing them to be particularly adaptive forms of social organization’ (Cohen, 1997: 176). 7. The 2004 film Maria Full of Grace illustrates the operation of a drug smuggling ring around a Colombian diaspora. 8. The distinction between class and ethnic resources is discussed in Light and Karageorgis (1994).

References Armstrong, J.A. (1976), ‘Mobilized and proletarian diasporas’, American Political Science Review, 9, 393–408. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 38, 583–94. Caliner, Geoffrey (2000), ‘The language ability of U.S. immigrants: assimilation and cohort effects’, International Migration Review, 34, 158–82. Chik, Frances (2000), ‘Hong Kong Chinese immigrant women in business: the impact of transnational networks’, paper presented at the Fifth Annual Metropolis Conference, Vancouver, 14 November. Cohen, Abner (1971), ‘Cultural strategies in the organization of trading diasporas’, in Claude Meillassoux (ed.), The Development of Indigenous Trade and Markets in West Africa, London: Oxford University Press, pp. 266–84. Cohen, Robin (1997), Global Diasporas, Seattle: University of Washington Press. Collins, Jock (1998), Cosmopolitan Capitalism: Ethnicity, Gender and Australian Entrepreneurs, vols 1 and 2, PhD dissertation, University of Wollongong. Crisafulli, Edoardo (1996), ‘La Diffusione dell’Inglese e l’Imperialismo Linguistico’, Rivista delle Lingue, 5, 20–23. Dicken, Peter (1992), Global Shift: The Internationalization of Economic Activity, NewYork: Guilford Press. Farrell, Christopher (1993), ‘Shut out immigrants and trade may suffer’, Business Week (5 July), 82, 84. Fishman, Joshua A. (1998–99), ‘The new linguistic order’, Foreign Policy, 28, 26–40. Fox, Justin (2000), ‘The triumph of English’, Fortune, 142, 209ff. Fukuyama, Francis (1995), ‘Social capital and the global economy’, Foreign Affairs, 74, 89–103. Gold, Steven (1997), ‘Transnationalism and vocabularies of motive in international migration: the case of Israelis in the United States’, Sociological Perspectives, 40, 409–27. Gould, David M. (1994), ‘Immigrant links to the home country: empirical implications for US bilateral trade flows’, Review of Economics and Statistics, 76(2), 302–16. Gould, David Michael (1990), ‘Immigrant links to the home country: implications for trade, welfare, and factor returns’, PhD dissertation, University of California, Los Angeles. Guarnizo, Luis Eduardo and Luz Marina Diaz (1999), ‘Transnational migration: a view from Colombia’, Ethnic and Racial Studies, 22, 397–421. Guarnizo, Luis Eduardo, Arturo Ignacio Sanchez and Elizabeth M. Roach (1999), ‘Mistrust, fragmented solidarity, and transnational migration: Colombians in New York City and Los Angeles’, Ethnic and Racial Studies, 22, 367–96. Hamilton, Gary G. and Tony Waters (1997), ‘Ethnicity and capitalist development: the changing role of the Chinese in Thailand’, in Daniel Chirot and Anthony Reid (eds), Essential Outsiders: Chinese and Jews in the Modern Transformation of Southeast Asia and Central Europe, Seattle and London: University of Washington. Hollifield, James F. (1998), ‘Migration, trade, and the nation-state: the myth of globalization’, paper prepared for Symposium on ‘Reconsidering Immigration in an Integrating World’, University of California at Los Angeles. Kieval, Hillel J. (1997), ‘Middleman minorities and blood: is there a natural economy of the ritual murder accusation in Europe?’, in Daniel Chirot and Anthony Reid (eds), Essential Outsiders: Chinese and Jews in the Modern Transformation of Southeast Asia and Central Europe, Seattle and London: University of Washington Press. Kloosterman, Robert and Jan Rath (2003), ‘Introduction’, in Robert Kloosterman and Jan Rath (eds), Immigrant Entrepreneurs: Venturing Abroad in the Age of Globalization, Oxford: Berg. Kotkin, Joel (1996), ‘Cities of hope: thanks to global trade urban America’s potential is revealed’, World Trade, 9(4), 24–30.

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Laguerre, Michel (1998), ‘Rotating credit associations and the diasporic economy’, Journal of Developmental Entrepreneurship, 3, 23–34. Landolt, Patricia, Lilian Autler and Sonia Paires (1999), ‘From Hermano Lejano to Hermano Mayor: the dialectics of Salvadoran transnationalism’, Ethnic and Racial Studies, 22, 290–315. Lever-Tracy, Constance and David Ip (1996), ‘Diaspora capitalism and the homeland: Australian Chinese networks into China’, Diaspora, 5, 239–71. Lever-Tracy, Constance, David Ip, Jim Kitay, Irene Phillips and Noel Tracy (1991), Asian Entrepreneurs in Australia, Canberra: Australian Government Publishing Service. Li, Peter S. (1993), ‘Chinese investment and business in Canada: ethnic entrepreneurship reconsidered’, Pacific Affairs, 66, 219–43. Lie, John (1995), ‘From international migration to transnational diaspora’, Contemporary Sociology, 24, 303–6. Light, Ivan (2001), ‘Globalization, transnationalism and trade’, Asian and Pacific Migration Journal, 10, 53–79. Light, Ivan (2004), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology, 2nd edn, New York: Russell Sage Foundation. Light, Ivan and Steven J. Gold (2000), Ethnic Economies, San Diego: Academic. Light, Ivan and Stavros Karageorgis (1994), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology, New York: Russell Sage Foundation. Light, Ivan, Parminder Bhachu and Stavros Karageorgis (1993), ‘Migration networks and immigrant entrepreneurship’, in Ivan Light and Parminder Bhachu (eds), Immigration and Entrepreneurship, New Brunswick: Transaction, pp. 25–50. Light, Ivan, Min Zhou and Rebecca Kim (2002), ‘Transnationalism and American exports in an Englishspeaking world’, International Migration Review, 36, 702–25. Massey, Douglas S., Joaquin Arango, Graeme Hugo, Ali Kouaouci, Adela Pellegrino and J. Edward Taylor (1993), ‘Theories of international migration: a review and appraisal’, Population and Development Review, 19, 431–66. Moallem, Minoo (1996), ‘Transnationalism, migrancy, and entrepreneurship’, Beatrice M. Bain Research Group and Sociology Department, University of California, Berkeley. Ooka, Emi (2001), ‘Social capital and income attainment among Chinese immigrant entrepreneurs in Toronto’, Asian and Pacific Migration Journal, 10, 123–44. Phillipson, Robert (1992), Linguistic Imperialism, Oxford: Oxford University. Portes, Alejandro (2003), ‘Conclusion: theoretical convergencies [sic] and empirical evidence in the study of immigrant transnationalism’, International Migration Review, 37, 874–92. Portes, Alejandro and Lingxin Hao (1998), ‘E pluribus unum: bilingualism and loss of language in the second generation’, Sociology of Education, 71, 269–94. Portes, Alejandro, William J. Haller and Luis Eduardo Guarnizo (2002), ‘Transnational entrepreneurs: an alternative form of immigrant economic adaptation’, American Sociological Review, 67, 278–98. Rondinelli, Dennis A., James H. Johnson, Jr. and John D. Kasarda (1998), ‘The changing forces of urban economic development: globalization and city competitiveness in the 21st century’, Cityscape, 3, 71–105. Sassen, Saskia (1994), ‘Economic internationalization: the new migration in Japan and the United States’, Social Justice, 21, 62–82. Schiller, Nina Glick, Linda Basch and Cristina Blanc-Szanton (1992), ‘Transnationalism: a new analytic framework for understanding migration’, in Nina Glick Schiller, Linda Basch and Cristina Blanc-Szanton (eds), Towards a Transnational Perspective on Migration, pp. 1–24. Silj, Alessandro and Malcolm Cross (1999), Ethnic Conflict and Migration in Europe, Rome: Consiglio Italiano per le Scienze Sociali and Centre for European Migration and Ethnic Studies. Smart, Alan and Josephine Smart (1998), ‘Transnational social networks and negotiated identities in interactions between Hong Kong and China’, in Michael Peter Smith and Luis Eduardo Guarnizo (eds), Transnationalism From Below, New Brunswick, NJ: Transaction, pp. 103–29. The Economist (1997), ‘The world economy’, 20 September. Van Parijs, Philippe (2000), ‘The ground floor of the world: on the socio-economic consequences of linguistic globalization’, International Political Science Review, 21, 217–33. Walton-Roberts, Margaret and Daniel Hiebert (1997), ‘Immigration, entrepreneurship, and the family: IndoCanadian enterprise in the construction of greater Vancouver’, Canadian Journal of Regional Science, 20, 119–40. Wong, Bernard (1998), Ethnicity and Entrepreneurship: The New Chinese Immigrants in the San Francisco Bay Area, Boston: Allyn and Bacon. Wong, Lloyd L. (1997), ‘Globalization and transnational migration’, International Sociology, 12, 329–51. Wong, Lloyd L. (2003), ‘Chinese business migration to Australia, Canada, and the United States: state policy and the global immigration marketplace’, Asian and Pacific Migration Journal, 12, 301–35.

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Wong, Lloyd L. and Michele Ng (2002), ‘The emergence of small transnational enterprise in Vancouver: the case of Chinese entrepreneur immigrants’, International Journal of Urban and Regional Research, 26, 508–30. Yeung, Henry Wai-Chung (1999), ‘The internationalization of ethnic Chinese business firms from Southeast Asia: strategies, processes and competitive advantage’, International Journal of Urban and Regional Research, 23, 103–27.

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Ethnic economies, social capital and the economic theory of clubs Craig S. Galbraith, Carlos L. Rodriguez and Curt H. Stiles

I Introduction Starting with Piore’s (1979) work on ethnic economies, sociologists and entrepreneurship theorists have focused on a number of underlying factors that appear to partially explain, or at least contribute to the explanation of, the coalescing characteristics of ethnic populations and entrepreneurs into ‘enclave’-type communities. Within this body of literature, explanations of behavior inevitably involve discussions of social capital, social embeddedness and network ties (for example, Portes and Sensenbrenner, 1993; Portes and Landolt, 1996, 2000; Portes, 1998; Kloosterman and Rath, 2001; Rath, 2002). Recently there has been increased focus on understanding the dynamics of ethnic economies and how, over time, their economic engines are tied to other social, religious, cultural and governance factors that ultimately frame the nature of an ethnic community (see, for example, Stiles and Galbraith, 2004). This interest in the dynamics of ethnic community formation and development has fueled a number of research paths, including fine-tuning the definitional distinctions between levels of coethnic cohesiveness, such as ethnic neighborhoods, ethnic economies and ethnic enclaves (for example, Waldinger, 1982; Waldinger et al., 1990; Light and Gold, 2000), directly examining the evolution of economic transactions among early and later stage ethnic entrepreneurs (for example, Greene, 1997; Galbraith et al., 2003), and investigating the role of religious and social institutions in capital, human and intellectual transfer during different periods of an ethnic community’s development (for example, Kwon, 1997; Martes and Rodriguez, 2004). In spite of the proliferation of recent research on ethnic economies, what appears to be missing is an underlying and unifying theoretical paradigm. While recognizing that there are perhaps several possible theoretical candidates, we offer the economic theory of clubs (for example, Buchanan, 1965; Ng, 1973; Berglas, 1976; Sandler and Tschirhart, 1980) as a potential unifying paradigm for the study of ethnic economies and the behavior of ethnic entrepreneurs. Within this context we conceptualize the benefits derived from an ethnic grouping (accumulated social capital, decreased transaction costs and so on) as a ‘club’ good supplied at the coethnic level, demanded by the various key stakeholders within an ethnic neighborhood, economy or enclave, and with clear characteristics of excludability. II Economic theory of clubs Modern discussions of economic clubs have their theoretical roots in Tiebout’s seminal 1956 paper on local public goods (Tiebout, 1956). In this paper, Tiebout responded to an earlier paper by Samuelson (1954) by arguing that the marginal efficiency of pure public goods violates the characteristics of market efficiency. Samuelson, taking a social justice perspective, had previously argued for larger municipalities populated with a myriad of 16

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government agencies that offer broad social, educational and economic programs while aggressively intervening to manage the multiple externalities associated with differential taxing and ‘free-riders’. This general ‘social justice’ approach was particularly attractive in the post-World War II industrial growth environment, providing much of the theoretical justification for the development of the 1950s’ and 1960s’ ‘megatropolises’ such as Los Angeles, Houston and Atlanta, as well as the more recent trend of municipal consolidations and annexations (for example, Huck, 2004). Tiebout, however, invoking the now classic ‘voting with one’s feet’, showed that a quasispatial adjustment mechanism could, under certain assumptions, lead to an efficient equilibrium or Pareto optimality for local public goods.1 Thus individual households, each attempting to maximize their own utility functions, will tend to congregate with similar households in geographical areas where local jurisdictions offer cost-competitive public goods that cater to those particular preferences. This should result in smaller, more homogeneous municipal constructs. As Heikkila observes, ‘an irresistible metaphor is a giant shopping mall with countless “municipality boutiques” offering specialized products or services for a well-defined clientele’ (Heikkila, 1996: 205). Households, upon completing a search process, then select the municipal boutique that best satisfies its vector of preferences and needs. Voting with one’s feet then leads to agglomeration around various vectors of local public goods offered by geographically different municipalities. In essence, Tiebout offered a counter point to the diversified, consolidated city and is often viewed as providing the essential explanatory model behind the other modern urban trend, that is, the proliferation of distinctly more homogenous, suburban bedroom communities (Le Goix, 2003). Over time, the general Tiebout model of municipal goods has been gradually subsumed under a broader class of economic models known as club theory (Buchanan, 1965; Cornes and Sandler, 1996). Club theory, as broadly defined by Hochman et al. (1995), is concerned about the formation and characteristics of optimal production and consumption groups, and their sustainability under various competitive conditions. This definition subsequently broadened the analysis beyond the core municipality to include specific institutions that provide some form of public goods, such as school, water and fire districts (for example, Sterbenz and Sandler, 1992; Rosen and Sexton, 1993; Frey and Eichenberger, 1996). Over the years, a number of different issues and directions have been examined within the general theoretical paradigm of clubs, including relaxing many of the restrictive Tiebout assumptions (Padon, 1999), advances in Pareto optimality (Ng, 1973; Brennan and Flowers, 1980), sharing between clubs (Sterbenz and Sandler, 1992), the conditions under which optimal club membership is mixed (Berglas, 1976; Brueckner and Lee, 1988; McGuire, 1991) and the effects of differences in the club agent’s abilities (Conley and Wooders, 2001). Clearly there are parallels between club theory and both neo-classical theories on diversified, multi-product firms (see Brueckner and Lee, 1988) and consumer preference theories that examine the relationships between segmented customer-markets and product positioning within a multi-dimensional perceptual space. Even Tiebout (1956) noted that spatial mobility provides the local public-goods counterpart to the private market’s shopping trip. Thus, under conditions of general efficiency, households will always reveal their particular vector of preferences by the process of agglomeration around various differentiable local public goods and tax packages.

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In addition to the obvious municipal services and local jurisdictional issues (see Dowding et al., 1994 for a review of empirical research) club theory has been used as the theoretical grounding for understanding the formation, composition and pricing for a variety of ‘groupings’, including recreational clubs (Hearne, 1988), adoption of voluntary codes of conduct (Prakash, 2000), adoption of ISO rules (Kollman and Prakash, 2002), the survival of international trade organizations (Fratianni and Pattison, 2001), optimum organization for farming co-operatives (Slangen, 1994) and political institution formation and voting behaviors (Kollman et al., 1997; Perroni and Scharf, 2001). The key to understanding these broader applications of club theory lies primarily in understanding a broader definition of a ‘club good’. In the next section we argue that one of the foundational concepts underlying ethnic economies – social capital – can, in fact, be properly considered a ‘club good’. III Social capital as a club good Over the last three decades, the concept of social capital has become one of the most enduring and important theoretical forces in explaining the social and economic behavior of immigrant populations (Portes, 1998). Given its roots in the sociological literature, social capital is traditionally defined as an asset, resource, or capability that arises from trust, reciprocity, goodwill, and knowledge among a well defined network of relationships (Woolcock, 1998). Two elements of social capital are critical, the complex vector of social capital assets and the social network that allows an individual or firm to locate, utilize and build upon these social capital assets (Coleman, 1988; Burt, 1992; Fukuyama, 1995; Portes, 1998). From a sociological perspective, having a common language, interacting with a common set of customs, and developing market exchange using common, and perhaps non-written, procedures help create a higher level of trust and access to information through the ethnic network. From an organizational economics perspective (Williamson, 1975), these components of social capital can reduce the transaction costs of contractual economic exchange: search time for appropriate economic partners is shortened, contracting and re-contracting costs are reduced, and enforcement efforts in the face of potential opportunistic behavior are lessened. In fact, from this transaction economic perspective alone, one would expect a greater degree of intra-ethnic vertical supplier–buyer relationships (Galbraith et al., 2003) as well as synergistic horizontal partnering (Teece, 1980; Galbraith and Kay, 1986) as immigrants find efficient coethnic market and coethnic organizational-based solutions by accessing social capital assets.2 While social capital is usually presented in the literature as a resource, recently it is being framed more as an ‘economic good’ with defined benefits and costs (Portes and Landolt, 1996, 2000; Knack and Keefer, 1997; Portes, 1998). From a macro perspective, potential costs are ‘free rider’ costs, where latecomers to an ethnic network benefit from the accumulated social capital without having to ‘pay’ for the benefit. From a micro perspective, individuals may, for example, be expected to give discounts and free service to other coethnics. Within this light, Fukuyama (2001) frames the basic theoretical point by noting that social capital is essentially a ‘private good’ that has various associated economic ‘externalities’. The notion of externalities associated with social capital, we believe, is critical to understanding the nature of the social capital ‘good’. And, within this context, we argue that

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the rise of externalities also gives rise to the possibility of institutionalizing the property rights associated with the underlying asset. This argument builds upon Demsetz (1967) who, noting the close relationship of property rights to the concept of externalities, writes ‘property rights develop to internalize externalities when the gains of internalization become larger than the cost of internalization’ (Demsetz, 1967: 350). Property rights, in fact, are one of the most important instruments of societal and economic development (North, 1990; DeSoto, 2000; Dabla-Norris and Freeman, 2004). If social capital is considered an ‘economic good’, then a form of property right must also be applied to the good if the externalities (positive or negative) become too great, particularly if social capital is a ‘private good’ as suggested by Fukuyama (2001). To Demsetz (1967) these property rights are the mechanisms that assist people to ‘form those expectations which [they] can reasonably hold in their dealings with others’ (Demsetz, 1967: 347). The view of social capital as an economic good fits well within the framework of club theory. Within this context, we therefore theoretically conceptualize the benefits derived from coethnic networks in the form of social capital as representative of a ‘club’ good. This club good of social capital is supplied at the coethnic level via the network within the ethnic population, and demanded (and ultimately consumed) by the various key stakeholders within an ethnic neighborhood, economy or enclave such as the coethnic laborers, immigrant small business owners, and leaders of the ethnic community, depending on the level of analysis (Galbraith, 2004). In this light, social capital, regardless of its various sociological sources (Portes and Sensenbrenner, 1993), is seen as a collective asset supplied at the coethnic ‘network’ level, derived from the sharing of production costs (contributing to ethnic causes and so on), and coethnic members’ characteristics. Also, considering that individuals outside the ethnic community may have limited access to some of the benefits derived from social capital that is ‘owned’ by the community (owing to differences in language and culture, for example) and that some community members can eventually be prevented from sharing those benefits (for example, via the exclusion from ethnic social networks as a form of ‘punishment’ for sub-par ‘contribution’ to the development of the network), there is an evident nature of excludability in social capital, making it a classic ‘club’ good. IV Ethnic economies, entrepreneurship and club theory Under the general Tiebout club hypothesis, assuming fixed costs and equal distribution of skills within the population, people and/or households of similar tastes and preferences will partition themselves into non-overlapping jurisdictions; that is, they will form ‘clubs’. This homogeneity characteristic is one of the most examined and tested of all the club hypotheses (Sandler and Tschirhart, 1980; Kelleher and Lowery, 2002) and there is growing empirical evidence to support this general argument (Dowding et al., 1994; Heikkila, 1996). This underlying Tieboutian homogeneity hypothesis of club theory appears to have immediate intuitive application when examining the formation and characteristics of an ethnic economy. Classic discussions of ethnic enclaves or economies, after all, almost always suggest that a coalescing component of coethnics is that they have a common vector of preferences, endowments and cultural beliefs and that these are visibly distinct from the general population. Thus, within the nomenclature of club theory, an ethnic enclave can be described essentially as a voluntary group of coethnics deriving mutual benefit from

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sharing production costs, coethnic members’ characteristics and/or excludable goods. The various benefits derived from membership in coethnic networks, such as accumulated social capital, can be considered a local ‘club’ good that is supplied at the coethnic enclave level. Although large-scale empirical studies of the Tiebout homogeneity hypothesis have not viewed ethnicity and language as the main component of economic club membership, they have typically employed ethnicity and language as input factors along with other socioeconomic variables such as income, occupation and education. As expected, ethnicity does typically provide an explanatory component of intra-jurisdictional homogeneity and inter-jurisdictional heterogeneity. Heikkila notes, for example, that ‘membership in “municipal clubs” helps to explain variance along four dimensions: urban scale, ethnicity, household type, and economic class’ (Heikkila, 1996: 223). While ethnicity offers some explanatory power in regional agglomeration as noted above, studies of voting behaviors and municipal formation suggest that income and landuse preferences, not ethnic or racial diversity/homogeneity, tend to be the primary motivators of jurisdictional formation (Musso, 2001). Thus, while club theory suggests a ‘sorting’ process among a diverse population, it appears that the sorting process involving coethnic social capital, preferences and consumption patterns, may not be locationspecific. And while housing and income factors certainly cause some ethnic population agglomeration, the core ethnic economies and entrepreneurial behaviors may, in fact, be more ‘supra-regional’ in nature. Club membership, including those described as ethnic economies, will never be completely homogeneous. There are always differences in potential club members’ preferences and utility functions, as well as differences in the production of a club ‘good’. In theory these differences can lead to less homogenous clubs (Berglas, 1976; Brueckner and Lee, 1989; McGuire, 1991) that are still optimal solutions, as well as overlapping clubs (Frey and Eichenberger, 1996) and core homogeneity with diffused edges (Conley and Wooders, 2001). Club formation is almost always a cost–benefit process. As McGuire writes, ‘the crucial tension governing group composition remains a conflict between the disadvantage dissimilar people find from cooperating in a collective consumption and the advantage they find from cooperating in production’ (McGuire, 1991: 1391). Consider the economic relationships between suppliers and buyers within an enclave economy. Here the ethnic ‘club’ is formed within an abstract multi-dimensional economic space, with the various ethnic businesses as club members. The club good represents the benefits from intra-enclave trade, including lower labor costs associated with employing coethnic workers and the lower transaction costs of intra-enclave contracting. The ‘price’ of club membership can come in different forms: higher input and product costs (Martes, 2000), various types of requests from other club members (discounts, hiring of relatives, preferential purchases and so on), as well as ‘leveling pressures’ or conformity requirements of the type described in Portes (1998). In a sense, if the strength of the within-club ties is based upon antagonism to another group (coethnic or not), the between-group relations are likely to become weaker. In the extreme, reciprocally hostile groups may become severely constrained in their potential for economic and cultural exchange, thus preventing ethnic entrepreneurs from accessing larger markets. In this case, the price of club membership could eventually be thought to be excessive.

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V Propositions and discussion With this background, we offer several propositions regarding ethnic economies and entrepreneurial behavior employing an economic club theoretic framework. First, social capital related to ethnic business is, in fact, a club good but a club good that is limited in scale and, as a result, one which shows diminishing returns. Second, the partial assimilation of older, more tenured ethnic business people in society results in a more heterogeneous set of preferences and utility functions, which in turn results in overlapping economic ‘clubs’ for these entrepreneurs. Third, social capital is not a free good, but rather a quasi-public good, and thus subject to both costs and externalities. And fourth, as an ethnic economy matures, the increased externalities of social capital are progressively internalized as a form of private property controlled by quasi-public institutions. While several more propositions could also be offered, the remainder of this chapter will focus on these four. As support for these propositions, two studies will be discussed. One study involves measuring the intra-enclave economic exchanges of Hispanic and Arab ethnic entrepreneurs in Paterson, NJ (see Galbraith et al., 2003; Stiles et al., 2007), and the other study traces the founding and development of an Hispanic ethnic economy and its associated social institutions in Wilmington, NC, from 1992 to 2004 (Galbraith et al., 2004). While both studies should be viewed as preliminary, they do provide an opportunity to frame our discussions of ethnic entrepreneurship within the context of club theory. Proposition 1 Social capital related to ethnic business is, in fact, a club good but a club good that is limited in scale and as a result shows diminishing returns. Social capital, as a club good, must be seen as a collective asset that is supplied at the coethnic network level. Its value stems from a number of sources including the sharing of production costs, such as coethnics contributing to ethnic causes, festivals and work training events, as well as the unique group characteristics, such as common language, culture or immigration experience, that result in excludable benefits for non-ethnics. Clearly social capital has value, and should encourage coethnic economic exchanges, contracts and institutional solutions. However, evidence of ethnic business development appears to indicate that the process is dynamic, with diminishing returns to social capital as a business matures. For example, utilizing an input–output analysis of goods and services for entrepreneurs belonging to two different ethnic enclaves in Paterson, NJ, we found that early stage ethnic entrepreneurs purchased from and sold their products to coethnics significantly more often than more established ethnic entrepreneurs; that is, the degree of importance of intra-enclave trade for the sustainability of emergent businesses decreased as ethnic businesses matured (Galbraith et al., 2003). For both Arab and Hispanic sub-samples, in every category of material inputs, labor inputs, service inputs and outputs, the percentage of coethnic economic exchange declined for more established businesses. This might suggest more of an evolutionary model of ethnic entrepreneurial behavior, in which potential immigrant entrepreneurs enter an enclave seeking employment, then accumulate resources and progress into a start-up phase that relies primarily upon intra-ethnic business ties, which in turn matures into a third stage of extra-ethnic market expansion (Iyer and Shapiro, 1999; Morris, 2001; Sequeira and Rasheed, 2004). Early

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stage ethnic entrepreneurs are better able to develop strong ties with suppliers and coethnic customers, and obtain the necessary workforce at lower costs. Business growth, however, requires expansion outside the enclave; or, as Woolcock (1998) argues, ‘the initial benefits of intensive intra-community integration . . . must give way over time to extensive extra-community linkages’ (Woolcock, 1998: 175). Proposition 2 The partial assimilation of older, more tenured ethnic business people in society results in a more heterogeneous set of preferences and utility functions, which in turn results in overlapping economic ‘clubs’ for these entrepreneurs. Another explanation for this evolutionary entrepreneurial behavior can also be provided within the context of club theory. This suggests that the utility function of early stage ethnic entrepreneurs tends to be more similar to the general coethnic community than later stage ethnic entrepreneurs. Several factors could cause this, including (a) lower levels of assimilation by new immigrants, making them more dependent upon the ethnic community, (b) higher levels of wealth and other endowments by more tenured entrepreneurs, compared to the standards of the ethnic group, and (c) the fact that in many ethnic communities early-entry immigrants are often from the same geographic region within their home country. If we considered the ethnic economy to be a ‘club’, we would, indeed, expect some heterogeneity in the ‘ethnic club’, with emergent entrepreneurs sharing more economic activity internal to the club than more established entrepreneurs, with the latter becoming more involved in ‘overlapping’ clubs – a coethnic economy combined with a non-coethnic (or other-ethnic) economy, representing increasing levels of assimilation. In fact, assimilation within this context may be framed as the relationship of evolving personal utility and preference functions with the perceived benefits of resources derived from coethnic social capital. In addition, ethnic markets are essentially small and as such will prevent ethnic businesses from achieving cost-efficiency in sectors where economies of scale are the basis of competition: in essence, the cost/benefit function of club membership changes as an ethnic business grows. This encourages, as McGuire (1991) argues, a more differentiated club. For these reasons, we would expect that mature ethnic businesses would progress towards lower dependency from intra-enclave trade, both in their purchases of inputs and in their sales of outputs. Under the light of club theory, this evolutionary pattern should not be surprising, and, in fact, may provide for an optimal efficient solution of maximization of social welfare for the ethnic economy as a whole. Proposition 3 Social capital is not a free good, but rather a quasi-public good, and thus subject to both costs and externalities. The basic Tiebout model assumes that club goods are ‘local public goods’, where the good, service or benefit is both ‘nonrival’ and ‘nonexcludable’ (Ostrom and Ostrom, 1977; Prakash, 2000). Rivalry represents the dimension of limitability, with ‘nonrival’ implying that the consumption or enjoyment of the good by an individual does not diminish the ability of others to enjoy the good. ‘Nonexcludibility’ means that other members of society cannot be prevented from enjoying the good. Fukuyama (2001), however, appears to draw a distinction, and calls social capital a ‘private good’. Note that, within this usage,

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‘public good’ defines a type of good, service, or benefit, and not whether the public or private sector provides it. In general, we lie in-between the traditional Tiebout assumption of local ‘public goods’ and Fukuyama’s ‘private good’ argument, and start with the view that social capital is more of a ‘quasi-public ethnic good’. Here we define quasi-public ethnic goods as goods, services and other benefits that are ‘offered’ to a particular segment of the community – the ethnic population – that members of the general community are unable to access because of their different ethnicity and/or language. To use Ostrom and Ostrom’s (1977) categorization, our quasi-public ethnic good is a class of ‘impure public goods’ in that they are generally ‘non-rival’ – or at least only partially rival – but are, indeed, like private goods, ‘excludable’. In the case of social capital, since the benefits derived from ethnic community membership have their source in having a common language, belief system, legal and business expectations, and cultural context, it is exactly those aspects that make them ‘excludable’ from other non-ethnics – and, possibly, as an ethnic economy matures, even excludable from other coethnics if, for example, congestion becomes an issue. But the benefits derived from social capital are not free; there are both costs and externalities. The cost or ‘fee’ for membership in this ‘ethnic club’ might include such things as discounts or free services that are demanded by coethnics, purchasing of ethnic goods at a higher price than is typically available outside the enclave (see Martes, 2000), hiring coethnic employees that are perhaps less skilled, and required contributions to various ethnic social and political causes. In this sense, there could be situations where the benefits of social capital, due to congestion, lose their non-rivalrous nature. Other costs might be seen as the ‘stereotyping’ cost derived from the close association with a discriminated ethnic group, or even the threat of exclusion from participating in the benefits of the ethnic club after investments or efforts to join have been made. As an economic good, there are also certain externalities associated with social capital. The most obvious is the free-rider problem that arises from late entrants to the ‘club’. After the networks have been established and the stock of coethnic social capital accumulated, new coethnic (and some opportunistic non-coethnic) entrants may desire to enjoy the benefits of the club without having paid their ‘dues’ in terms of, for example, services to the ethnic community that signal commitment to long-term membership. This is similar to the problem of the late nineteenth-century homesteaders in the Western US who, after the earlier cattlemen and railroaders risked their lives and wealth establishing a ‘club’ good of free-range ranching, entered the region and demanded the best land without any payment: inevitable conflicts arose. While the free-rider problem related to social capital comes in different forms, it ultimately results in the same consequence as any free-rider situation: late arrivals have little incentive to pay for access to potential benefits of community social capital without some form of centralized subsidy. This inevitably results in a ‘crowding’ – or, in classic club theory terminology, ‘congestion’ effect, where every coethnic wants to enjoy maximum benefit from their right to access to the pool of ethnic social capital, which, in turn, results in economic inefficiencies and, in some cases, even violence. Proposition 4 As an ethnic economy matures, the increased externalities of social capital are progressively internalized as a form of ‘private property’ controlled by quasi-public or pseudo-public institutions.

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In theory, the informal contractual agreement between the coethnic and the club that generates the club good (social capital) also allows the club good to be produced in quantities that are most efficient for consumption. But as the ethnic economy matures, the stock of accumulated social capital expands, and the influx of new entrants increases, the externality problem becomes more severe, and crowding occurs. As Demsetz (1967) argues, this will likely give rise to a regime of property rights associated with the economic good. Current ‘holders’ of ethnic community social capital must be satisfied that new entrants will not reduce, or even threaten to reduce, the value of their existing holdings. We posit that this incentive to internalize externalities in later stages of an ethnic economy development results in the proliferation of various private and non-profit institutional mechanisms such as specialized charities, church groups, social organizations and training programs. Access to such associations or networks is controlled, and membership is typically on the basis of reference or introduction, sometimes the common element being church or professional association membership (Martes and Rodriguez, 2004). Since there is usually not a readily available private competitive solution for the social capital tied to a particular ethnic grouping, enclaves and their associated networks are generally not easily replicable: another classic characteristic of club goods (Buchanan, 1965). Ethnic enclaves, defined in a broad sense, are essentially monopolistic in nature, thus the monopolistic ‘non-rival’ pie can be subdivided among the various associations in order to better manage the increasing cost of externalities. Confronted by the mounting externality problem, social capital can convert to a ‘pseudo-public good’. Padon (1999) defines a pseudo-public good as a privatized version of a public good when concentrated groups of individuals demand control over a good that is beginning to have high externalities. Pseudo-public goods can be used to explain the rise of privately developed communities with homeowners associations. In essence, the constituents establish a ‘shadow government’, providing greater control over membership and costs, including the capability of raising admission costs for latecomers. This could be seen as a pseudo-public equivalent to public ‘zoning laws’, a traditional issue in club theory. We argue that ethnic social capital acts essentially in the same manner. As an ethnic enclave matures, ‘shadow governments’ are established within the ethnic community that create a series of limiting conditions or access restrictions: older coethnic participants still enjoy the benefits of the club good, while new entrants pay more if they want to ‘play’. The existence of these sub-local impure public goods, or quasi-public ethnic goods, thus creates pockets of homogeneous ‘privatized’ clubs, each optimizing their consumers’ preference criteria under a combination of jurisdiction-wide public ethnic goods and subjurisdictional quasi-public ethnic goods. A longitudinal study of a Hispanic ethnic community in Southeastern North Carolina appears to support this argument (see Galbraith et al., 2004). In 1992, with a Hispanic population of less than a couple of hundred, there was only one Hispanic-related social organization, the Catholic Social Ministries. Over the next 12 years, the Hispanic population grew to several thousand and by 2004 there were more than 15 specialized social organizations, each controlled by a well-established hierarchy of older coethnic members. These included a Hispanic Economic Development Corporation, an Hispanic Chamber of Commerce, Hispanic charities, Hispanic social organizations, Hispanic training and education groups, Hispanic health initiatives and Hispanic political action groups. Each

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‘club’ provided a distinct but sometimes overlapping social benefit to the broader local Hispanic community, and most of these benefits were subsidized by charities or government grants. Membership in the ‘shadow governments’ that controlled these social organizations, however, was firmly restricted, with almost no new entrants allowed, unless the new entrant offered to commit substantial human or capital resources. The traditional business and entrepreneurial benefits that accrue from social capital networks, such as business referrals, contract bids and personal references were closely regulated, sparingly awarded, and in any case always restricted within the constituency of the ‘shadow governments’ for each association. Another interesting development has been the parallel development of Spanish language religious services. The first Spanish language service was started by a local Catholic Church in 1994, and by 2004 there were more than ten Spanish language services offered by a variety of Catholic and Protestant churches. Each of the churches offering a Spanish language service also had a separate Hispanic council, encouraged business networking among members, and provided charities to their Hispanic members. VI Final thoughts While the original Tiebout model includes some fairly restrictive assumptions, such as full knowledge of differences in revenues and public goods offered by competing jurisdictions, consumers that are fully mobile, and a sufficient collection of competing communities (for example, Oates, 1969; Epple et al., 1978; Padon, 1999) we believe that it is useful to examine ethnic neighborhoods, economies and enclaves within this context. Although theoretically attractive and capable of shedding light on various aspects of the dynamics of ethnic economies, the original Tiebout model cannot fully explain, for example, why the same jurisdiction (given the same housing stock, tax structure and the rest) may contain a collection of two or more distinct, and evidently sustainable ethnic enclaves, literally side-by-side, or why a single ethnic enclave might exist surrounded by a general population of non-coethnics within the same immediate area. Under the basic Tiebout model we would expect each ethnic club to ‘vote with their feet’, and seek out separate, more optimal jurisdictions such that the intra-jurisdiction population would be homogeneous, composed primarily of coethnics. While a number of possible explanations can be offered, three seem most promising. First, perhaps ‘voting with one’s feet’, in the case of ethnic communities, is more a slow crawl than a fast run. While there may be an overall tendency for ethnics to migrate to more fully homogeneous jurisdictions as the Tieboutian hypothesis might suggest, this process is not without friction. There are mobility barriers, particularly with lower income populations (for example, Dowding et al., 1994; Bickers and Stein, 1998; Huck, 2004). Other types of barriers may exist at the confluence of the human capital possessed by individual immigrants with the level of social capital that exists in the ethnic networks (Greene and Chaganti, 2004). Enclaves do evolve, expand, combine with other ethnic agglomerations, and even in some cases assimilate into the larger host society, but this evolution tends to be relatively sticky – which in turn may result in sub-optimization of an ethnic club’s bundle of preferences. Certain events can speed up the process, such as the violent attacks on the Korean community during the Los Angeles riots of 1992, but without this impetus enclave migration is generally slow, thus allowing other non-coethnic populations to expand near or around the ethnic enclave.

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Second, the general Tieboutian model requires a complete search, with full information about the package of local public goods and taxes offered by various jurisdictions. Applying this idea to the development of ethnic communities, there is a long line of research, however, that suggests that people follow a very limited search process in their immigration decisions. It is well documented, for example, that recent Mexican immigrants in U.S. cities tend to immigrate by following family and friends to a particular location, often times returning to their native village, then back to their host community (Piore, 1979). And in some cities a large number of immigrant residents are often found to be from only a few small villages in their native country (Galbraith et al., 2004; Martes and Rodriguez, 2004). A potential immigrant from a rural village in Mexico, for example, probably does not investigate the characteristics of Hispanic communities in each and every US city prior to ‘voting with his feet’. Instead, he or she relies more upon word of mouth, familial ties and convenience of transportation. This limited information search pattern is similar to that in consumer decision making, where brand loyalties and limited search patterns mean that consumers will select the same product, such as beer or breakfast cereal, time and time again without seeking additional information about competitive, and perhaps more optimal, products. Third, as we suggest in this chapter, ethnic economies and enclaves may simply be much more complex than the regional jurisdictions often studied by urban economists. Whereas certain government-supplied public goods related to housing, employment and health may be location-specific and thus may suggest some physical agglomeration of coethnics, the benefits derived from social capital may be more ‘supra-locational’ in nature, and thus tied more often to the ‘shadow’ jurisdictions of ethnic-specific agencies, charities and religious organizations that ultimately anchor a maturing ethnic economy. As a consequence, while the sticky nature of ethnic migration and limited search may produce sub-optimal results in terms of the use of the local public goods, the existence of supra-jurisdictional quasi-public ethnic goods offered by the ‘shadow’ jurisdictions still maintains a possible Pareto-optimal solution. This chapter is written to suggest one possible unifying approach to understanding the formation of ethnic neighborhoods, economies and enclaves, as well as the entrepreneurial behaviors within these ethnic groupings. By design, this chapter was meant to be neither a definitive study of club theory nor inclusive in its application to ethnic and entrepreneurial issues. We also recognize that the theory of clubs overlaps with several economic, strategy and marketing models, including the agglomeration theories of regional economics, central tendencies models in theoretical economics, strategic group theory in the strategic management literature, and consumer group and preference models in the marketing literature. Over the past decades the various sociological frameworks of social capital and social networks have provided powerful descriptive models of ethnic and immigrant population behaviors. However, almost by nature, these sociological models lack prescriptive power. One important advantage of more economic and strategic approaches to understanding ethnic enclave and entrepreneurial behavior is that these frameworks have not only a useful descriptive ability but also a normative, prescriptive capability to suggest avenues for optimizing economic development and entrepreneurial success. While the exact application of club theory to ethnic economies and entrepreneurial behavior remains to be examined in detail, the four propositions offered in this exploratory chapter will hopefully stimulate the investigation of this potentially valuable avenue of research.

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Notes 1. From Vilfredo Pareto (1848–1923), ‘Pareto improvement’ is an economic concept of social welfare improvement. Social welfare goes up if at least one person is made better off (in their own estimation) and no one else is made worse off. A Pareto optimum or efficient solution is reached when it is impossible to make one person better off, without making someone else worse off. 2. The relationship of social capital to the economics of both market and institutional solutions to economic exchange, vertical relationships, and scope economies within an ethnic economy has been touched on by several writers, but not fully explored as yet.

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Hochman, O., D. Pines and J. Thisse (1995), ‘On the optimal structure of local governments’, American Economic Review, 85(5), 1224–40. Huck, E. (2004), ‘Tiebout or Samuelson: the 21st century deserves more’, Marquette Law Review, 88, 185–93. Iyer, G. and J. Shapiro (1999), ‘Ethnic entrepreneurial and marketing systems: implications for the global economy’, Journal of International Marketing, 7, 83–110. Kelleher, C. and D. Lowery (2002), ‘Tiebout sorting and selective satisfaction with urban public services: testing the variance hypothesis’, Urban Affairs Review, 37(3), 420–31. Kloosterman, R. and J. Rath (2001), ‘Immigrant entrepreneurs in advanced economies: mixed embeddedness further explored’, Journal of Ethnic and Migration Studies, 27(2), 189–202. Knack, S. and P. Keefer (1997), ‘Does social capital have an economic payoff? A cross-country investigation’, The Quarterly Journal of Economics, 112(4), 1251–88. Kollman, K. and A. Prakash (2002), ‘EMS-based environmental regimes as club goods’, Policy Sciences, 35(1), 43–67. Kollman, K., J. Miller and S. Page (1997), ‘Political institutions and sorting in a Tiebout model’, American Economic Review, 87(5), 977–92. Kwon, V. (1997), Entrepreneurship and Religion: Korean Immigrants in Houston, Texas, London: Taylor & Francis. Le Goix, R. (2003), ‘Gated communities’ sprawl in Southern California and social segregation’, paper presented at the Conference, ‘Gated Communities: Building Social Division or Safer Communities?’, University of Glasgow, September. Light, I. and S. Gold (2000), Ethnic Economies, San Diego, CA: Academic Press. Martes, A. (2000), ‘Brasileiros nos Estados Unidos – um estudo sobre imigrantes em Massachussets’ (‘Brazilians in the US – a study about immigrants in Massachussets’), São Paulo: Editôra Paz e Terra. Martes, A. and C. Rodriguez (2004), ‘Church membership, social capital, and entrepreneurship in Brazilian communities in the US’, in C. Stiles and C. Galbraith (eds), Ethnic Entrepreneurship: Structure and Process, Amsterdam: Elsevier Science, pp. 171–202. McGuire, M. (1991), ‘Group composition, collective consumption, and collaborative production’, American Economic Review, 81(5), 1391–408. Morris, M. (2001), ‘The critical roles of resources’, Journal of Developmental Entrepreneurship, 6(2), v–viii. Musso, J. (2001), ‘The political economy of city formation in California: limits to Teibout sorting’, Social Science Quarterly, 82(1), 139–53. Ng, Y. (1973), ‘The economic theory of clubs: Pareto-optimality conditions’, Economica, 40 (August), 291–8. North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge, UK: Cambridge University Press. Oates, W. (1969), ‘The effects of property taxes and local public spending on property values: an empirical study of tax capitalization and the Tiebout hypothesis’, Journal of Political Economy, 77 (Nov. /Dec.), 957–71. Ostrom, V. and E. Ostrom (1977), ‘Public goods and public choice’, in E. Savas (ed.), Alternatives for Delivering Public Services, Boulder, CO: Westview, (pp. 7–49). Padon, A. (1999), ‘Pseudo-public goods and urban development: a game theoretic model of local public goods’, Journal of Urban Affairs, 21(2), 213–35. Perroni, C. and K. Scharf (2001), ‘Tiebout with politics: capital tax competition and constitutional choices’, Review of Economic Studies, 68(234), 133–54. Piore, M. (1979), Birds of Passage: Migrant Labor and Industrial Societies, Cambridge, MA: Cambridge University Press. Portes, A. (1998), ‘Social capital: its origins and applications in modern sociology’, Annual Review of Sociology, 24, 1–24. Portes, A. and P. Landolt (1996), ‘The downside of social capital’, The American Prospect, 26, 18–22. Portes, A. and P. Landolt (2000), ‘Social capital: promise and pitfalls of its role in development’, Journal of Latin American Studies, 32, 529–47. Portes, A. and J. Sensenbrenner (1993), ‘Embeddedness and immigration: notes on the social determinants of economic action’, American Journal of Sociology, 98, 1320–50. Prakash, A. (2000), ‘Responsible care: an assessment’, Business and Society, 39(2), 183–209. Rath, J. (2002), ‘Needle games. A discussion of mixed embeddedness’, in J. Rath (ed.), Unraveling the Rag Trade. Immigrant Entrepreneurship in Seven World Cities, Oxford: Berg Publishers, (pp. 1–28). Rosen, M. and R. Sexton (1993), ‘Irrigation districts and water markets: an application of cooperative decisionmaking theory’, Land Economics, 69(1), 39–53. Samuelson, P. (1954), ‘The pure theory of public expenditures’, Review of Economics and Statistics, 36(3), 387–9. Sandler T. and J. Tschirhart (1980), ‘The economic theory of clubs: an evaluative survey’, Journal of Economic Literature, 18(4), 1481–521. Sequeira, J. and A. Rasheed (2004), ‘The role of social and human capital in the start-up and growth of immigrant businesses’, in C. Stiles and C. Galbraith, C. (eds), Ethnic Entrepreneurship: Structure and Process, Amsterdam: Elsevier Science, pp. 77–94.

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Slangen, L. (1994), ‘The economic aspects of environmental cooperatives for farmers’, International Journal of Social Economics, 21(9), 42–59. Sterbenz, C. and T. Sandler (1992), ‘Sharing among clubs: a club of clubs theory’, Oxford Economic Papers, 44, 1–19. Stiles, C. and C. Galbraith (2002), ‘The birthing process: a study of embryonic ethnic enclaves’, presented at the 22nd Annual Babson Research Conference, Boulder, CO, June, in P. Reynolds (ed.), Frontiers of Entrepreneurship Research, Babson Park, MA: Babson College. Stiles, C. and C. Galbraith (eds) (2004), Ethnic Entrepreneurship: Structure and Process, Amsterdam: Elsevier Science. Stiles, C.H., C.L. Rodriguez and C.S. Galbraith (2007), ‘The impact of ethnic–religious identification on buyer– seller behavior: a study of two enclaves’, International Journal of Business and Globalisation, 1(1), 20–33. Teece, D. (1980), ‘Economics of scope and the scope of the enterprise’, Journal of Economic Behavior and Organization, 1, 223–47. Tiebout, C. (1956), ‘A pure theory of local expenditures’, Journal of Political Economy, 64 (October), 416–24. Waldinger, R. (1982), ‘The occupational and economic integration of the new immigrants’, Law and Contemporary Problems, 45, 197–222. Waldinger, R., H. Aldrich and R. Ward (1990), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, Newbury Park, CA: Sage Publications. Williamson, O. (1975), Markets and Hierarchies, New York: The Free Press. Woolcock, M. (1998), ‘Social capital and economic development: toward a theoretical synthesis and policy framework’, Theory and Society, 27, 151–208.

3

Ethnic entrepreneurship: a theoretical framework Thierry Volery

1 Introduction With the recent growth of new ethnic populations in Western societies, ethnic business is no longer a matter of strictly historical interest; neither is it parochial American concern. Because new ethnic populations have grown at a time when Western economies are in a phase of slow growth and massive technological challenge, ethnic adaptation and mobility are central issues to economic research (Waldinger et al., 1990a: 13). In Europe, businesses run by persons from minority ethnic groups have always been present, but three changing historical circumstances have increased their salience and visibility over the past decades. Firstly, massive immigration from former colonies, southern Europe and North Africa has led to a considerable migration flows. Secondly, three decades of economic restructuring have led to a fundamental transformation of the labour market and a general shift away from employment in large firms to self-employment in small ones. This trend has hit certain immigrant groups much harder than indigenous populations, which is reflected by the higher unemployment rates among immigrants (Barrett et al., 1996). Thirdly, the opportunity structure for ethnic business has become more favourable as Europe’s changing industrial structure has led to a resurgence of small and medium-sized enterprises (Blaschke et al., 1990). The main objective of this chapter is to develop a framework for understanding the dimensions in ethnic entrepreneurship. Factors influencing the establishment of an ethnic enterprise are multifaceted and include education, generation, the local population, the economic situation, job opportunities, location, cultural and religious differences, and the origin. The result, viewed from a macroeconomic perspective, presents a very complex and dynamic mosaic, which usually moves too fast for statistics to keep up. This chapter begins with a conceptual consideration of the topic of ethnic entrepreneurship and examines the definition and evolution of ethnic entrepreneurship. We next discuss the different theories which can be drawn upon to frame the field. We conclude the chapter with the development of an enhanced model. 2 Defining ethnic entrepreneurship Ehtnic entrepreneurship is ‘a set of connections and regular patterns of interaction among people sharing common national background or migration experiences’ (Waldinger et al., 1990a:3). Since the emphasis for theoretical explanations of this phenomenon is based upon those patterns of interaction, the focus of the majority of studies in this area is the ethnic group. Various definitions for the term ‘ethnic group’ have been suggested. According to Yinger (1985:27) for example, an ethnic group is ‘a segment of a larger society whose members are thought, by themselves or others, to have common origin and to share important segments of a common culture and who, in addition, participate in shared activities in which the common origin and culture are significant ingredients’. An alternative term used to ‘ethnic’ is ‘immigrant entrepreneurs’, which in turn would only 30

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include the individuals who have actually immigrated over the past few decades. This definition excludes, however, members of ethnic minority groups who have been living in the country for several centuries, such as Afro-Americans in the USA, Jews in Europe or aborigines in general. ‘Ethnic’ on the contrary, does not exclude immigrant or minority groups. The term ‘immigrants’ will nevertheless be used hereafter when speaking specifically of the early stages in the process of ethnic entrepreneurship, that is, when an ethnic group is new in a host society and its members can clearly be considered as ‘immigrants’. Light and Gold (2000:3) for their part speak of ‘ethnic economy’, which they define as ‘any ethnic or immigrant’s self-employed group, its employers, their co-ethnic employees, and their unpaid family workers’. They further introduce the concept of ethnic ownership economy to distinguish between an ethnic economy that is based on property right and ownership and an ‘ethnic economy whose basis is de facto control based on numbers, clustering, and organization, the ethnic-controlled economy’. Whereas ethnic ownership economy consists of small and medium-size businesses owned by ethnic or immigrant entrepreneurs and their co-ethnic helpers and workers, ethnic control economy refers to industries, occupations, and organization of the general labor market in which co-ethnic employees (not owners) exert appreciable and persistent economic power. This power usually results from their numerical clustering, their numerical preponderance, their organization, government mandates, or all four. The ‘ethniccontrolled’ economy is completely independent of the ‘ethnic ownership’ economy. The participants in the ethnic controlled economy exert control rather than ownership authority. The authors believe that the ethnic-controlled economy permits fellow migrants to secure more and better jobs in the mainstream economy, reduce unemployment and improve working conditions. 3 Evolution of the concept Ethnic entrepreneurship is by no means a new phenomenon, as it is a firm part of any migration, most obviously observed in the United States, where the foreign born have been overrepresented in small businesses since 1880 (Barrett et al., 1996). The long history of ethnic entrepreneurship in the USA also explains why research in this subject has its roots there. An early and very prominent theory suggested that ethnic businesses are an obvious reaction to blocked opportunities in the labor market, which in many instances still holds true today. Europe, on the contrary, was at the turn of the century an emigration continent and remained very homogenous until after World War II, when large labor forces were needed by ever-growing industrial companies. Initially, the immigrants came as a temporary workforce, fulfilling jobs which required no skills and which could easily be replaced by a succession of sojourners (Waldinger et al., 1990a). As the immigrants started to settle down over time, the preconditions for ethnic businesses slowly started to evolve. In most cases, it was the ethnic community which created the demand for specific ethnic goods and services in the first place and which could only be fulfilled by co-ethnics with knowledge of tastes and buying preferences. Markets occupied by ethnic entrepreneurs are typically characterized by low barriers of entry in terms of required capital and educational qualifications, small-scale production, high labor-intensity and low added value, while cutthroat competition reigns. This leads to the emergence of a large number of start-ups and, in turn, a high rate of failure. In order to stay ahead and remain competitive under such conditions, the temptation to

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apply informal practices with respect to taxes, labor regulations, minimum wages and employing children and immigrant workers without documents is quite large (Rath and Kloosterman, 2002). The opportunities offered by the environment of a host society have a strong influence on the propensity of immigrants to turn to self-employment as a way of absorption and upward economic mobility. These external factors influence different ethnic and immigrant groups in different ways (Razin, 2002). The decision regarding business entry, being a central part of entrepreneurial behavior, is certainly a prime object of interest. Generally speaking, individuals who have no real chance of becoming employed are ‘pushed’ into self-employment in contrast to individuals who are ‘pulled’ into self-employment, possibly from an employee status, attracted by the rewards and independence that it offers (Borooah and Hart, 1999). The business entry decision has had a strong impact on the development of theories in ethnic entrepreneurship. Much attention has been given to the question whether cultural or structural factors influence the business entry decision and therefore are responsible for the rise of ethnic entrepreneurship. Supporters of the culturalist approach believe that immigrant groups have culturally determined features leading to a propensity to favor self-employment (Masurel et al., 2004). The structuralist approach, on the other hand, suggests that external factors in the host environment, such as discrimination or entry barriers on the labor market due to education and language deficits, pushes foreigners into self-employment. More recent approaches, which attempt to combine these two perspectives, show that a differentiated view is necessary to understand this complex phenomenon. Today, a gradual shift away from the stereotypical ethnic-run corner shop towards more diversified sectors can be observed (Freitas, 2003). Even though these types of self-help firms persist, new sectors such as computers, global trade, leisure and recreation management, real-estate agencies and cultural enterprises are developing as well. 4 Theoretical framework Sociology, anthropology and labor economics literature have each contributed to the development of theoretical frameworks addressing the effect of ethnicity and race on entrepreneurship. Research into ethnicity and entrepreneurship can be traced back to classic works such as those of Weber (1930), Sombart (1914) and Simmel (1950). These scholars’ concept of the stranger as trader, combined with the social structure of societies and pervasive religious canons, have influenced subsequent literature about and study of ethnic entrepreneurship. Enclave theory and middleman theory are two of the primary explanatory frameworks. Ethnic business typically starts when an entrepreneur begins serving other members of the ethnic community and satisfies their specific ethnic needs (Greene and Owen, 2004). This process is facilitated when larger ethnic groups live in geographically concentrated areas. Despite being widely recognized, this theory is itself insufficient to explain the entire phenomenon. Most initial theories on ethnic entrepreneurship stem from sociology. The disadvantage theory and the cultural theory are two major theories that can be drawn from this field to explain ethnic entrepreneurship. Disadvantage theory suggests that most immigrants have significant disadvantages hampering them upon arrival but which at the same time steer their behavior (Fregetto, 2004). Firstly, they lack human capital such as language skills,

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education and experience, which prevent them from obtaining salary jobs, leaving selfemployment as the only choice. Secondly, a lack of mobility due to poverty, discrimination and limited knowledge of the local culture can lead ethnic minorities to seek self-employment. This theory sees entrepreneurship not as a sign of success but simply as an alternative to unemployment. Therefore, it is probably more adequate to explain the development of informal and illegal activities, rather than to explain the widespread creation of immigrant businesses. This is because immigrant policies deny newcomers becoming legally self-employed in the first years of their stay, when the disadvantages would be the greatest. The cultural theory suggests that ethnic and immigrant groups are equipped with culturally determined features such as dedication to hard work, membership of a strong ethnic community, economical living, acceptance of risk, compliance with social value patterns, solidarity and loyalty, and orientation towards self-employment (Masurel et al., 2004). These features provide an ethnic resource which can facilitate and encourage entrepreneurial behavior and support the ethnic self-employed (Fregetto, 2004). Ethnic people often become aware of the advantages their own culture might offer only after arriving in the new environment: ‘Whether one is English, Albanian or Mongolian, the very act of transferring to a new society with alien customs and incomprehensible language is in itself likely to heighten awareness of one’s own cultural and national identity’ (Jones and McEvoy, 1986: 199). The differences in ethnic resources act also as an explanation for the different rates of self-employment between equally disadvantaged ethnic groups (Waldinger et al., 1990a). For example, cultural aspects are particularly popular for explaining the propensity of Asian people, for example, to become self-employed. The strong presence of Chinese people in the catering sector has many observers believing that a certain predisposition of the Chinese culture determines their participation in such economic sectors (Leung, 2002). New studies, however, have attempted to illustrate that these assumptions fail to consider other critical aspects of the complex phenomenon, such as employment alternatives, immigration policies, market conditions and availability of capital. Among economic explanations, middleman minority theory is the primary explanation for ethnic entrepreneurship. Ethnic enterprises rapidly pop up with the expansion and growth of an ethnic community and include businesses such as travel agencies, garment shops, specialized grocery shops, tearooms and fast-food stands. An important prerequisite for the broad emergence of ethnic businesses within a community is a sufficient number of potential consumers of ethnic products on the one hand, but also their aim of a permanent stay in the host country; that is, the immigrants have to bring their families along. Not only is the community otherwise too small to develop the necessary demand for ethnic goods, but an additional factor hindering business creation is the large sums of money sent home to families and relatives and thus not available for start-up capital. This phenomenon was discovered at the turn of the twentieth century when comparing Jewish and Italian immigrants in New York, with the latter group not having sufficient funds for new investments (Waldinger et al., 1990b). After a while, ethnic businesses can start to grow by engaging in trade with entrepreneurs from other ethnic groups. After reaching a critical mass and gaining acceptance within the indigenous population, they can become a viable and respectable business by expanding into the high-volume trade with the local population.

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5 Models Many of the theories previously described have been integrated into models attempting to explain the phenomenon as whole. Two commonly used models will be discussed in this section. We will then develop an enhanced model, which attempts to position the ethnic dimension into the classic entrepreneurial context. 5.1 The interactive model The interactive model, conceptualized by (Waldinger et al., 1990a), suggests that the development of an ethnic business cannot be traced back to a single characteristic that is responsible for the entrepreneurial success of an ethnic group. Instead, the success of an ethnic enterprise depends on a complex interaction between opportunity structures and group resources, as displayed in Figure 3.1. These two dimensions steer the strategies an ethnic entrepreneur has to implement in order to create a viable business in an alien environment. The opportunity structures are made up of market conditions, access to ownership, job market conditions, and legal and institutional frameworks. Typically, opportunities emerge from the development of a new ethnic community. These communities have specific needs which only co-ethnics are capable of satisfying. The greater the cultural differences between the ethnic group and the host country, the greater the need for ethnic goods and the bigger the potential niche market. But no matter how big the niche market is, the opportunities it offers are limited. Access to open markets, which are typically occupied by local entrepreneurs, is often blocked through high entry barriers, either on a financial or on a knowledge basis. But not all industries in Western economies are characterized by mass production or unattainable know-how. Especially markets with low economies of scale, such as the taxi industry, can offer opportunities which immigrants can successfully pursue. Further potential lies in markets either underserved or completely abandoned by the locals, because of insufficient returns and strenuous working conditions. The second dimension focuses on the resources shared by immigrants and ethnic people of the same origin. Here, ethnic people can draw on the resources provided by their cultural OPPORTUNITY STRUCTURE

RESOURCES

MARKET CONDITIONS Niche markets Open markets

CULTURAL TRADITIONS ETHNIC STRATEGIES

Access to Ownership Job Market Condition

ETHNIC SOCIAL NETWORKS

Legal Frameworks Source: Adapted from Pütz (2003) and Waldinger et al. (1990).

Figure 3.1 Interactive model of ethnic entrepreneurship development

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traditions and ethnic social networks. The explanation of cultural traditions is based on assumptions that self-employment of certain groups is the result of their specific cultural predisposition (Pütz, 2003). The importance of cultural traditions needs nevertheless to be considered with caution and should not be overemphasized. The significance of family and ethnic networks as resources is, however, undisputed. Such interrelational connections play a crucial role in the success of an ethnic enterprise and can compensate for many disadvantages foreigners face in an alien environment. Opportunity structures and ethnic resources constantly interact. In this sense, some aspects of the opportunity structure can be influenced and improved with the help, for example, of a strong ethnic network. Ethnic strategies are the solutions to the specific problems ethnic entrepreneurs encounter as a result of the interaction between the opportunity structures of the host society and the characteristics of their group. The problems ethnic entrepreneurs must contend with include the gathering of information, capital, training and skills, human resources, customers and suppliers, competition, and political attacks (Boissevain et al., 1990). 5.2 The mixed embeddedness model The concept of mixed embeddedness is a further development of ethnic resources and opportunity structure. It recognizes that the structures of a local economy and legal–institutional factors exert a strong influence on the creation and existence of the small business economy in general. The influence of these factors on the access of immigrants to small business is even greater (Razin, 2002). The economic environment, however, differs widely on a national scale, offering substantially different opportunities from one region to another. This phenomenon was emphasized by Razin and Light (1998), who provided evidence for spatial variations among the same immigrant groups and variations between different ethnic groups in the same economic milieu. The local influence depends not only on the local economy structure, but also on the characteristics of the local ethnic community, such as the specific location of ethnic networks. A further attribute is discrimination through the absorbing environment but also through the local community. Opportunities should therefore be analyzed on a national, regional and local level (Boissevain et al., 1990). The mixed embeddedness model is based on three assumptions: 1. 2. 3.

Opportunities must not be blocked by too high barriers of entry or government regulations; an opportunity must be recognized through the eyes of an potential entrepreneur as one that can provide sufficient returns; and an entrepreneur must be able to seize an opportunity in a tangible way.

The main weakness of this model is that it is still in an experimental phase. The validation of the phenomenon has not yet gone beyond descriptive case studies (see, for example, Collins, 2002; Jones et al., 2002; Peters, 2002). 5.3 Merging the interactive model with the entrepreneurial process The model depicted in Figure 3.2 is an attempt to capture the factors influencing an ethnic entrepreneur by recognizing two essential aspects: that the individual is from a different

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Handbook of research on ethnic minority entrepreneurship OPPORTUNITY STRUCTURE

ETHNIC DIMENSION

ENTREPRENEURSHIP DIMENSION Psychological characteristics

Information and knowledge ENTREPRENEURIAL PROCESS

ETHNIC STRATEGIES

OPPORTUNITY RECOGNITION

OPPORTUNITY EVALUATION

Creative processing

OPPORTUNITY EXPLOITATION

METROPOLITAN CHARACTERISTICS

Cognitive heuristics

ETHNIC GROUP RESOURCES

Figure 3.2

Enhanced interactive model in the context of entrepreneurship

ethnic group, and that this individual is an entrepreneur. As shown in Figure 3.2, the entrepreneurship dimension exists independently of a potential entrepreneur’s ethnical, cultural or religious background and influences the pursuit of entrepreneurial opportunities. Even people with the same nationality or from the same ethnic group have differences which affect the way they recognize and pursue opportunities. This does not mean that the entrepreneurship dimension is not influenced by the factors present in the ethnic dimension. Schaper and Volery (2004) remarked that people can be differentiated on the basis of four aspects: firstly, specific psychological characteristics, such as the need for achievement, the belief in control over one’s life, and a propensity to take risks, typically characterize the classic entrepreneur; secondly, information and knowledge not available to others can motivate an individual to search for and exploit opportunities in a specific domain. Furthermore, networks and social relationships play a decisive part in gathering information and gaining access to important resources; thirdly, the ability to analyze an opportunity and transform it into a commercially exploitable business idea implies special skills, aptitudes, insights and circumstances, related to creative processing; fourthly, an inevitable part of being an entrepreneur is the recurrent confrontation with new problems which require quick and efficient judgements and decisions. The ability to find and develop simplifying strategies

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to facilitate this crucial process is known as ‘cognitive heuristics’. These four aspects influence the entrepreneurial process, which includes the recognizing, evaluating and exploiting of opportunities. Conversely, the ethnic dimension encompasses the factors only relevant for ethnic entrepreneurs. The influence that the ethnic dimension exerts on the entrepreneurship dimension can vary tremendously, depending on how big the cultural differences are between host and home country, the discrimination the entrepreneur is subjected to, the progression of the social integration of the concerning ethnic group, the experience gained in the new environment, age and gender, and the education level of the entrepreneur. In the case of a highly educated and very well integrated individual, the influence of the ethnic dimension can shrink to a level where it is no longer relevant. As shown in the interactive model, the opportunity structures and the ethnic group characteristics determine the ethnic strategies and these three factors have an influence on the entrepreneurship dimension. When observing specific ethnic or immigrant groups, studies have often focused on the behavior of groups in only one particular location and have not thoroughly investigated the influence of the urban milieu on the prospects of entrepreneurship (Razin and Langlois, 1996:704). Results show, however, that spatial variations exist and are due to different metropolitan characteristics. Especially the size of communities, varying widely from one milieu to another, has an impact on the selfemployment rates. 5.4 Ethnic strategies It is common for ethnic entrepreneurs to set up a business which is easily portable and allows them to return to their homelands. This can be accomplished by acquiring skills or assets that can readily be transferred across geographic regions. Ethnic business is usually characterized by rather low innovativeness. Commonly, immigrants acquire the skills and capital needed to start an enterprise while employed. Subsequently, when the time is right and they feel confident about their capabilities, they take the step of establishing their own business. This stereotypical path represents a case of entrepreneurial reproduction; that is, the entrepreneurs perform a familiar activity and attempt to bring added value to their services or products through operational efficiency (Iyer and Shapiro, 1999:95). Do ethnic entrepreneurs have any advantages over indigenous entrepreneurs? While considering the risks which can typically face an entrepreneur – financial risks, career risks, health risks and social and family risks (Schaper and Volery, 2004:38) – one notices that the career and social risks are much less distinct for an ethnic entrepreneur. Firstly, a failed ethnic entrepreneur, because of the difficult circumstances he had to begin with, will probably be accorded more understanding than his local counterpart. Secondly, the jobs many immigrants practice do not require very high standards and are thus easy to regain. Thirdly, if family members work in the enterprise, as is commonly seen among Asian entrepreneurs, the entrepreneur will still be able to spend enough time with his loved ones and not risk social exclusion. 5.4.1 Ethnic communities and networks Virtually all ethnic entrepreneurs make extensive use of their social networks because these are a central source of ‘social capital’. Such migration networks can be defined as ‘sets of interpersonal ties that link migrants, former

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migrants, and non-migrants in origin and destination areas through the bonds of kinship, friendship, and shared community origin’ (Massey, 1988:384). The influence of an ethnic network is often intense and reaches further than is normally presumed. The decision to migrate or to stay, the selection of a destination, and the adjustment process at the destination are massively influenced by ethnic kinship and friendship networks in which people participate (Light et al., 1993). Having restricted opportunities, a good social structure can enable or at least facilitate a job search, hiring, recruitment and training, and, more importantly, organizing the information flows between newcomers and settlers (Waldinger, 1994). Networks can substantially improve the efficiency of searches, enabling immigrants to find jobs and housing faster. The community surrounding an ethnic entrepreneur is capable of delivering a number of crucial resources for the launch and the growth of the business, such as cheap and loyal labor and capital. However, even the strongest community support can only help improve (but does not guarantee) the survivability of the enterprise when confronted with the harsh conditions of the market (Jones and Ram, 1998). Ethnic networks can reduce the economic risks related to the creation of a new business, thus rendering the decision to become self-employed more attractive from a riskdiversification perspective. It is often the social support network of an ethnic community and the cultural background that give the required impulse to start a business. But if a successful entrepreneur seeks to grow and break out of the ethnic market serving the community’s needs, these same factors can present a serious limitation (Masurel et al., 2002). In general, firm survival and growth are explained in terms of the entrepreneur’s ability to acquire skills through learning-by-doing and to innovate (Jones and Ram, 1998:57). In addition, Waldinger et al. (1990a) suggest that cultural and social factors take up a central position in explaining growth in ethnic enterprises. More recent studies dismiss this idea. Basu and Goswami (1999) used a multivariate model including economic, cultural, social and managerial variables to identify the determinants of entrepreneurial growth in South Asian ethnic firms in Great Britain. Their results suggest that some individual cultural characteristics can hinder growth. The ability to overcome the inhibition to delegate responsibilities to non-family employees is just one example. The commitment to work hard, a virtue typical of Asian people, is crucial during the start-up process. Human capital factors, however, such as the entrepreneur’s educational attainments and employee training in the long run have a more important effect on growth. 5.4.2 Financing ethnic businesses Gathering the necessary capital to start a small business is indisputably one of the biggest challenges in the process of business creation. This is also true for ethnic entrepreneurs. Factors such as inner-city locations, highly competitive market sectors, the absence of a ‘track record’, language difficulties and discrimination, often comprise difficult conditions for a bank loan (Jones and Ram, 1998). Still, ethnic businesses would not develop and prosper in such numbers if ethnic entrepreneurs were not capable of raising formal or informal equity. Contrary to conventional expectations that an ethnic business is usually a small corner shop with little capital need, the capital required to establish an enterprise can quickly surpass $300 000 in the case of a restaurant. Several studies have shown that most ethnic entrepreneurs accumulate the bulk of their start-up capital through their own savings, some through arranged loans from relatives or within the ethnic community, whilst only a small number may acquire a

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bank loan (Basu and Goswami, 1999). This is surprising, since immigrants usually arrive with only a few savings and often earn their living with unskilled labour paying barely enough to survive. Enduring long working hours, spartan living and multiple employments for a few years are usually the only conceivable methods to amass necessary savings (Boissevain et al., 1990). A popular method for accumulating financial resources among Chinese and Korean ethnic entrepreneurs across the globe is via the rotating credit associations (RCA) (Bates, 1997). ‘These methods facilitate the birth of innumerable businesses globally, because they break through red tape, facilitate capital efficiency, and allow for quick business geneses in contexts in which people lack credentials to acquire loans from traditional channels’ (Iyer and Shapiro, 1999:97). RCAs typically flourish where formal financial institutions fail to satisfy the needs of large sections of the population, but also where ethnic groups are either subjected to discrimination, or cannot meet the demanded criteria. In general, RCAs can be defined as a ‘a voluntary grouping of individuals who agree to contribute financially at uniformly-spaced dates towards the creation of a fund, which will then be allotted in accordance with some prearranged principle to each member of the group in turn’ (Calomiris and Rajaraman, 1997:208). At periodic intervals, a member can withdraw the cash accumulated in the fund and use it for commercial purposes. Once a member has received a fund, he is excluded from the distribution of future funds, but has to continue paying until the end of the RCA period. Concluding that the variations in the rates of self-employment among ethnic and immigrant groups can be traced back to the intensive and widespread use of RCAs among Asian entrepreneurs would, however, be inexact. Despite being a good example of a social resource, solid evidence is missing as to whether RCAs really represent a major source in financing immigrant-owned firms (Bates, 1997). Conclusion Ethnic entrepreneurship has become an important aspect of modern urban life and fulfills a key economic and social role for ethnic communities. The restructuring of the Western economies has changed the situation for foreigners for the worse, but at the same time has given rise to businesses with low economies of scale. This presents a new chance for immigrants to regain lost ground, but only if they are not held back by immigrant policies or subjected to invisible barriers, such as discrimination. The influence of the socioeconomic context, or ‘opportunity structure’, will continue to affect the decision to enter self-employment. The aim of this model was to provide a mental aid which can help position and understand the ethnic factor within the broader context of entrepreneurship. Using it as a template for the empirical analysis would, however, prove to be a very difficult task. As shown in this chapter, a stand-alone theory is capable of explaining the business entry decision of a single ethnic entrepreneur and maybe of small groups with a similar immigration history and entrepreneurial activity. However, no theory can explain the phenomenon as a whole. The two models presented attempt to combine the ‘culturalist’ and ‘structuralist’ approach into an interactive concept. The theoretical frameworks described in this chapter offer guidance in investigating differences in entrepreneurial behaviors between ethnic groups, but perhaps more importantly in focusing upon different paths and strategies of the business creation process.

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References Barrett, G., T. Jones and D. McEvoy (1996), ‘Ethnic minority business: theoretical discourse in Britain and North America’, Urban Studies, 33(4–5), 783–809. Basu, A. and A. Goswami (1999), ‘Determinants of South Asian entrepreneurial growth in Britain: a multivariate analysis’, Small Business Economics, 13(1), 57–70. Bates, T. (1997), ‘Financing small business creation: the case of Chinese and Korean immigrant entrepreneurs’, Journal of Business Venturing, 12, 109–24. Blaschke, J., J. Boissevain, H. Grotenberg, I. Joseph, M. Morokvasic and R. Ward (1990), ‘European trends in ethnic business’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, London: Sage, pp. 79–105. Boissevain, J., J. Blauschkee, H. Grotenberg, I. Joseph, I. Light, M. Sway, R. Waldinger and P. Werbner (1990), ‘Ethnic entrepreneurs and ethnic strategies’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, London: Sage, pp. 131–57. Borooah, V.K. and M. Hart (1999), ‘Factors affecting self-employment among Indian and Black Caribbean men in Britain’, Small Business Economics, 13(2), 111–29. Calomiris, C.W. and I. Rajaraman (1997), ‘The role of ROSCAs: lumpy durables or event insurance?’, Journal of Development Economics, 56(1), 207–16. Collins, J. (2002), ‘Chinese entrepreneurs: the Chinese diaspora in Australia’, International Journal of Entrepreneurial Behaviour & Research, 8(1), 113–33. Fregetto, E. (2004), ‘Immigrant and ethnic entrepreneurship: a U.S. perspective’, in H.P. Welsch (ed.), Entrepreneurship: The Way Ahead, New York: Routledge, pp. 253–68. Freitas, M.J. (2003), The LIA Report, available online at http://www.lia-partnership.org/en/liareport/oreword06.htm [27.11.2004]. Greene, P. and M. Owen (2004), ‘Race and ethnicity’, in W.B. Gartner, K.G. Shaver, N.M. Carter and P.D. Reynolds (eds), Handbook of Entrepreneurial Dynamics: The Process of Business Creation, Thousand Oaks, CA: Sage Publications, pp. 26–38. Iyer, G. and J.M. Shapiro (1999), ‘Ethnic entrepreneurial and marketing systems: implications for the global economy’, Journal of International Marketing, 7(4), 83–110. Jones, T., D. McEvoy and C. McGoldrick (2002), ‘The economic embeddedness of immigrant enterprise in Britain’, International Journal of Entrepreneurial Behaviour & Research, 8(1/2), 11–31. Jones, T. and D. McEvoy (1986), ‘Ethnic enterprise: the popular image’, in J. Curran, J. Stanworth and D. Watkins (eds), The Survival of the Small Firm, vol. 1, Gower: Aldershot, pp. 197–219. Jones, T. and M. Ram (1998), Ethnic Minorities in Business, London: Small Business Research Trust. Leung, M. (2002), ‘From four-course Peking duck to take-away Singapore rice: an inquiry into the dynamics of the ethnic Chinese catering business in Germany’, International Journal of Entrepreneurial Behaviour & Research, 8(1/2), 134–47. Light, I. and S. Gold (2000), Ethnic Economies, San Diego: Academic Press. Light, I., P. Bhachu and S. Karageorgis (1993), ‘Migration networks and immigrant entrepreneurship’, in I. Light and P. Bhachu (eds), Immigration and Entrepreneurship, New Brunswick: Transaction Publishers, pp. 25–51. Massey, D.S. (1988), ‘Economic development and international migration in comparative perspective’, Population and Development Review, 14, 383–413. Masurel, E., P. Nijkamp and G. Vindigni (2004), ‘Breeding places for ethnic entrepreneurs: a comparative marketing approach’, Entrepreneurship & Regional Development, 16, 77–86. Masurel, E., P. Nijkamp, M. Tastan and G. Vindigni (2002), ‘Motivations and performance conditions for ethnic entrepreneurship’, Growth and Change, 33(2), 238–60. Peters, N. (2002), ‘Mixed embeddedness: does it really explain immigrant enterprise in Western Australia?’, International Journal of Entrepreneurial Behaviour & Research, 8(1/2), 32–53. Pütz, R. (2003), ‘Culture and entrepreneurship – remarks on transculturality as practice’, Tijdschrift voor Economische en Sociale Geografie, 94(5), 554–63. Rath, J. and R. Kloosterman (2002), ‘Working on the fringes: immigrant businesses, economic integration and informal practices’, available online at http://users.fmg.uva.nl/jrath/downloads/@rath%20NUTEK.pdf. Razin, E. (2002), ‘The economic context, embeddedness and immigrant entrepreneurs (Conclusion)’, International Journal of Entrepreneurial Behaviour & Research, 8(1/2), 162–7. Razin, E. and A. Langlois (1996), ‘Metropolitan characteristics and entrepreneurship among immigrants and ethnic groups in Canada’, International Migration Review, 30(3), 703–27. Razin, E. and I. Light (1998), ‘Ethnic entrepreneurs in America’s largest metropolitan areas’, Urban Affairs Review, 33, 332–60. Schaper, M. and T. Volery (2004), Entrepreneurship and Small Business: A Pacific Rim Perspective, Milton: John Wiley & Sons Australia. Simmel, G. (1950), ‘The stranger’, in K. Wolf (ed.), The Sociology of Georg Simmel, Glencoe Il: Free Press.

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Sombart, W. (1914), The Jews and Modern Capitalism, New Brunswick NJ: Transaction. Waldinger, R. (1994), ‘The making of an immigrant niche’, International Migration Review, 28(1), 3–28. Waldinger, R., H. Aldrich and R. Ward (1990a), ‘Opportunities, group characteristics and strategies’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, London: Sage, pp. 13–48. Waldinger, R., D. McEvoy and H. Aldrich (1990b), ‘Spatial dimensions of opportunity structures’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, London: Sage, pp. 106–30. Weber, M. (1930), The Protestant Ethic and the Spirit of Capitalism, New York: Scribner. Yinger, M.J. (1985), ‘Ethnicity’, Annual Review of Sociology, 11, 151–80.

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The economics of co-ethnic employment: incentives, welfare effects and policy options Frank A.G. den Butter, Enno Masurel and Robert H.J. Mosch

Co-ethnic employment refers to the stylized fact of many labour markets that there is an over-representation of workers of the same ethnic group within firms. This chapter presents empirical proof of the phenomenon and analyses the incentives for employees to work in co-ethnic firms. It argues that strong social networks and related high intra-group trust constitute the major reasons for co-ethnic employment by lowering information and co-ordination costs. In the short run, co-ethnic employment leads to more jobs for employees, easy access to labour for ethnic minority firms, strengthening of the group values and norms, and fewer unemployment and social security problems for society. In the long run, co-ethnic employment might form an obstacle to the social and economic emancipation of ethnic minority groups. It generates disincentives for individual group members to acquire general skills, hinders the development of ethnic minority firms, fosters the danger of the ethnic trap and stimulates the emergence of an enclave economy. In many Western economies there is a fierce policy debate on the welfare effects of immigration, and more specifically on the (lack of) integration of immigrant groups in the regular labour market. Empirical evidence suggests that the workforce of a considerable number of firms with an ethnic minority owner consists for the larger part of co-ethnic employees. We call this clustering of co-ethnic workers ‘co-ethnic employment’. In this chapter, we study the questions why so many ethnic minority employees work in co-ethnic firms and how this translates into welfare effects for the employees, the firms, the ethnic minority group and the society. In doing so we seek to explain the rationale behind co-ethnic employment from the perspectives of labour economics and institutional economics Most of the existing research in this field focuses on ethnic minority entrepreneurs and their ways of doing business. Usually, little attention is paid to the phenomenon that coethnic employees are over-represented in ethnic minority firms and, if this question is raised, the answer is often sought from the perspective of the employer. This chapter contributes to the literature by examining the issue of co-ethnic employment from a different angle, namely the perspective of the employees. Instead of studying why employers want to hire co-ethnic employees, we investigate the motivations of ethnic minority employees to work in co-ethnic firms. Our chapter argues that strong social networks and related high intra-group trust constitute the major reasons for co-ethnic employment by lowering information and co-ordination costs. Asymmetric information is a well-known phenomenon in the principal–agent relationship between employers and employees. The information asymmetry between bosses and workers is smaller when they have the same ethnic background than when their ethnic backgrounds differ. Therefore search costs, monitoring and bonding costs are lower in co-ethnic employment principal–agent relationships than in the case where the principal belongs to another ethnic group (say a 42

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majority group) than the agent (say a minority group). A similar reasoning holds for informational differences and incompleteness of information between workers. Co-ethnic employment seems to lead to immediate positive welfare effects in the short run, but the welfare effects are less prosperous in the longer run, when the dangers loom of ethnic minority group lock-in and inertia. The set-up of the chapter is as follows. Section 1.1 starts with a short overview of the literature on the labour market characteristics of immigrants. Here an operational definition is given and the incidence of co-ethnic employment is illustrated using the results of various surveys. Most of these results relate to our own country, the Netherlands. Given this empirical evidence, section 2 discusses the reasons for co-ethnic employment. Here the focus is on incentives and on the costs of information and co-ordination. Then we discuss the welfare effects of co-ethnic employment. Here we consider the positive and negative externalities associated with co-ethnic employment and its consequences for individual welfare and social welfare. This provides a clue for answering the question on policy options to enhance the (positive) welfare effects of co-ethnic employment. The final section summarizes the conclusions. 1 Ethnic entrepreneurship and co-ethnic employment Before we start with a description of the characteristics of co-ethnic employment, we first have to make clear what we mean by this phenomenon. We define as co-ethnic a firm whose owner (the employer) has the same ethnic minority background as the majority of his personnel (the employees). Co-ethnic employment refers to the situation where a substantial number of the employees of a specific firm belong to the same ethnic minority group. In this chapter, ethnic minorities are considered to be non-Western immigrants of the first and second generation. We follow the definition of the Netherlands Central Bureau of Statistics by defining first generation immigrants as persons born in a foreign country with at least one parent born in a foreign country (CBS, 2003). Second generation immigrants are persons born in the host country with at least one parent born in a foreign country. In short, immigrants are persons with at least one of their parents born in a foreign country.1 The major ethnic minority groups in the Netherlands consist of people from Turkey, Morocco, Surinam, the Netherlands Antilles and Aruba. The people from Turkey and Morocco were invited to work in the Netherlands to fill the labour shortages in the 1960s and 1970s. Surinam, the Netherlands Antilles and Aruba have been colonies of the Netherlands. Surinam became an independent country in 1975. Fear for poverty and the new government in Surinam motivated many Surinams to flee to the Netherlands. The Netherlands Antilles and Aruba are still part of the Kingdom of the Netherlands. This entitles the Antillans and Arubans to study, work and live in the Netherlands. 1.1 Labour market characteristics of ethnic minority groups Three general observations emerge from the literature on the labour market characteristics of ethnic minority groups: bad labour market performance, high incidence of selfemployment and entrepreneurship, and the important role of the ethnic minority group. The first observation is that immigrants tend to do worse on the labour market than members of the native born population, also when controlled for objective characteristics like education, gender, age and so on. This observation stands in stark contrast to the

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Table 4.1 Labour market position of persons aged 15 to 64 years in the Netherlands, 1996–2002

Labour participation (%) Natives Ethnic minorities From: Turkey Morocco Surinam Nl Antilles and Aruba Unemployment (%) Natives Ethnic minorities From: Turkey Morocco Surinam Nl Antilles and Aruba

1996

1997

1998

1999

2000

2001

2002

61 40

63 41

64 44

66 46

67 48

67 50

68 50

34 31 53 46

35 35 52 45

37 38 58 50

40 39 58 53

44 34 63 55

48 42 62 54

46 46 61 57

6 22

5 21

4 16

3 14

3 11

3 9

3 10

24 28 15 21

22 22 13 21

16 20 12 16

13 16 10 14

9 13 9 8

8 10 6 8

9 10 8 10

Source: CBS (2003: 138).

popular fear that natives lose their jobs as a result of immigration. In the Netherlands, non-Western immigrants and their offspring have a relatively high incidence of unemployment and a relatively low labour participation rate (see Table 4.1). Studies for the United States (for example Chiswick, Cohen and Zach, 1999) and for the UK (for example Wheatly Price, 2001; Blackaby et al., 1997) show the same kind of immigrant labour market problems. This poor labour market performance of first and second generation immigrants in the recent past, and the resulting small or even negative contributions to welfare, contrast with historical accounts of immigration. For example, the German peasants that migrated to the Netherlands at the end of the nineteenth century contributed considerably to welfare in the Netherlands. The second labour market characteristic of immigrants is their over-representation in self-employment and entrepreneurship figures. Ethnic entrepreneurs are defined as being united by a set of connections and regular patterns of interaction among people with common national background or migration experiences (Waldinger, Aldrich and Ward, 1990) or simply as business owners who are not members of the majority population (U.S. Department of Commerce, 1997). Ethnic entrepreneurship comprises a multi-faceted phenomenon that has at least as many sides as there are different ethnic groups. We refer to the studies of Boissevain and Grotenbreg (1986), Aldrich and Waldinger (1990) and Chaganti and Greene (2002) for general evidence and theory on ethnic entrepreneurship. The motivations for immigrants to start their own firm vary widely. Negative reasons or push factors are high unemployment (Kloosterman, Van der Leun and Rath, 1998), discrimination (Deakins, 1999; Johnson, 2000), socio-economic status and cultural factors (Rafiq, 1992), leaving immigrants no alternative but to start up on their own. Positive

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Table 4.2 Persons aged 15 to 64 years with one or more jobs as an employee as a percentage of the total ethnic group in the Netherlands, October 2000 Industry Agriculture and fishing Mining Industry Utility companies Construction Trade Hospitality Transport and communication Financial organizations Commercial services Public administration Education Health Culture and other services Unknown

Natives

Ethnic minorities

1.8 0.1 13.9 0.5 6.5 17.1 3.0 6.4 4.0 15.2 7.2 6.1 13.4 3.6 1.2

2.0 0.1 14.4 0.2 2.7 14.5 6.5 5.5 3.1 30.5 4.8 3.1 9.1 2.7 0.7

Source: CBS (2003: 146).

reasons or pull factors are the need for achievement and the wish to be their own boss. Especially sectors with low entry barriers (like retailing and hospitality – bars and restaurants) are attractive for these start-ups; they usually set up their businesses in those sectors where informal production (with low government control) can provide a competitive advantage. This is also the case in the Netherlands (see Table 4.2). In comparison with the native population, immigrants are over-represented in hospitality and commercial services. The issue of ethnic minority entrepreneurship is discussed in the literature in the context of the incorporation of new immigrants into the labour market. Classical theories of assimilation assume labour supply as a pool in which immigrants start at the bottom and gradually (and occasionally) climb up the socio-economic ladder, while gaining social acceptance. Integration and emancipation are just a matter of time in this view. A second line of theories considers new immigrants as being mainly additions to the secondary labour market linked with small peripheral firms. According to this theory, ethnic minorities experience prolonged problems in entering the regular labour market and thus seek refuge in self-employment. Wilson and Portes (1980) introduce a third possibility: the enclave economy, which consists of immigrant-owned firms that are isolated from the regular economy, thus constituting a dual labour market. In the words of Portes (1998: 13), enclaves are ‘dense concentrations of immigrant or ethnic firms that employ a significant proportion of their co-ethnic labor force and develop a distinctive physical presence in urban space’ (see also Peterson and Roquebert, 1993). The separation of the regular and the ethnic minority labour market is permanent in this case and integration has failed completely. The third typical aspect of ethnic minority labour and, especially, ethnic minority entrepreneurship is the crucial role of one’s own ethnic group. Almost by definition the

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entrepreneur has a strong focus on his (or her) own group, especially the first generation who starts out on his (her) own. Nijkamp (2003) stresses that, although network participation by creative entrepreneurs does not necessarily need an urban base, informal spatial networks may be favourable for ethnic entrepreneurs.2 In the fields of clients, finance, information and employment the ties with one’s own ethnic group strongly dominate (Waldinger et al., 1990; Ram, 1994; Greene, 1997; Kloosterman, Van der Leun and Rath, 1998). Van Delft, Gorter and Nijkamp (2000) argue that ethnic related social networks appear to be multi-faceted and flexible, and offer good possibilities for the efficient recruitment of personnel and capital. In general, ethnic businesses rely heavily on labour from their particular ethnic group or, more specifically, the (extended) family.3 Also capital can be more easily borrowed informally (Van Delft, Gorter and Nijkamp, 2000). In addition, within the network of the ethnic group, individuals are depending on informal ways of doing business and exchanging information, because there is mutual trust within the network. Lee, Cameron, Schaeffer and Schmidt (1997) call this phenomenon the social resources explanation: the success of ethnic minority business can in part be explained by the existence of such social resources as rotating credits, a protected market and a labour source. This third typical aspect of co-ethnic employment is elaborated further in the next section from the general perspective of relatively small information and co-ordination costs, but we will first consider the question whether we can find empirical evidence on over-representation of ethnic minority employees in co-ethnic firms. 1.2 Empirical evidence A number of studies indicate that co-ethnic employees dominate in ethnic minority firms (see Table 4.3). All of these studies are based on interviews with managers (mostly the owners) of small firms in or around Amsterdam. Most firms operate in the retail sector or in the hospitality sector. Together they form a dataset of 120 ethnic minority firms. Between 50 and 84 per cent of these firms only employ co-ethnic personnel. Some firms employ personnel with mixed co-ethnic background and between 16 and 33 per cent of the firms only employ non co-ethnic personnel. When we compare these figures with the benchmark of the size of the ethnic minority groups as a percentage of total population, this presents a clear idea that co-ethnic employment is a real phenomenon. Other evidence for the proposition that co-ethnic employees tend to cluster together in firms comes from a survey conducted by the Netherlands Economic Institute for the Construction Industry (EIB, 2003). Their survey was sent to 8883 firms and responded to by 3573 firms (40 per cent response rate). The definition of an ethnic minority employee in this research is a person of whom at least one parent was born in a non-Western foreign country. A typical aspect of the construction industry is that members of ethnic minority groups are under-represented in its employment (also see Table 4.2). Reported causes are the informal way of attracting new employees (which leads to a path dependency), the ‘tough’ culture in this profession, and discrimination and prejudice among employers about the language skills and the productivity of immigrants (EIB, 2003: 23). About 90 per cent of all firms in the construction sector report that they have no ethnic minority personnel. The prevalence of ethnic minority personnel in the construction industry in firms with at least one ethnic minority employee is shown in Figure 4.1. The interesting aspect of this figure is the ‘fat tail’ on the right. One would expect the frequency of firms to decrease

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Table 4.3 Prevalence of co-ethnic personnel in ethnic minority firms in the Netherlands a

Study Masurel et al. (2002)b

Ethnic background of ownere

Number of firms in dataset

Only co-ethnic personnel (% of firms)

No co-ethnic personnel (% of firms)

Personnel with mixed ethnic background

14 Turkey, 15 Pakistan/ 15 India, 12 Morocco Turkey

41

84.4 %

15.6 %

0.0%

25

69%

31%

0.0%

14

66.7%

33.3%

0.0%

40

50.0%

25.0%

25.0%

Baycan-Levent, et al. (2003)c Masurel et al. Morocco (2004a)d Masurel and Turkey Nijkamp (2004)

Notes: a The empirical evidence does not come from the papers as such, but from the underlying databases. It should be noted, furthermore, that we did not make a sharp distinction between active family members and formal personnel. b Two respondents work alone, 32 work with employees and the remaining seven do not work alone, but without employees, but with business partners, spouse and/or family members. Other ethnic minority personnel account for 6.3 per cent of the cases: this is now part of ‘no co-ethnic personnel’. c 13 of the 25 firms had employees. Only percentages of total volume were available; 5 per cent of the employees were family members. d Six work only with Moroccan employees, five only with Moroccan family members, two with only native employees, and one with native employees and Moroccan family members. e People from Turkey, Pakistan/India and Morocco as a percentage of total population in 2002, respectively 2.1, 0.1 and 1.8 (CBS, 2003: 116).

80 70 Firms (%)

60 50 40 30 20 10 0 0–20

20–40 40–60 60–80 Ethnic minority personnel (% of total)

80–100

Source: Calculations based on the survey reported in EIB (2003).4

Figure 4.1 Prevalence of ethnic minority personnel in the Dutch construction sector in firms with ethnic minority personnel, 2003

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when the prevalence of ethnic minority personnel rises. This can indeed be seen in the figure up to a prevalence of 80 per cent. After this, in the 80–100 per cent prevalence area, we see an unexpected hump that indicates that there is a substantial number of firms which mainly consist of co-ethnic employees. This confirms the idea that co-ethnic employees tend to flock together. Note, however, that we do not know the ethnicity of the entrepreneur in this case. Although the information from empirical research on co-ethnic employment is scarce, the data that we find all point in the direction that co-ethnic employment is a real and substantial phenomenon. However, there is ample scope for further research on the prevalence and magnitude of co-ethnic employment in different sectors of industry and in different countries. 2 Reasons for co-ethnic employment Given this empirical evidence on over-representation (and under-representation) of ethnic groups in specific firms and sectors of the economy, we now try to explain this phenomenon from the theoretical perspective of information and co-ordination costs. 2.1 Social capital, networks and trust In general social networks and social capital are seen as major reasons why ethnic firms hire a disproportionate number of co-ethnic workers and why co-ethnic workers want to work in co-ethnic firms. Social networks are networks based on some shared characteristics of people; for example, they have the same ethnic, cultural or religious background, live (or have lived) in the same region or neighbourhood, speak the same language, and/or have the same social–economic status. The importance of these networks is that they can create resources for the members of the network, which is known as social capital. In the words of Bourdieu (1986: 248), social capital is ‘the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition – or in other words, to membership in a group’. These resources range from highly implicit to concrete material benefits. Immaterial benefits are generated by the social control function of the network. This involves the creation of uniform values and norms, which ease the co-ordination of behaviour. Values and norms make the behaviour of other people more predictable. This lowers information costs as part of transaction costs by reducing uncertainty without needing the help of expensive formal co-ordination systems, like the police and the legal system. Social control and social sanctions uphold these informal rules. Breaking the rules leads to a depreciation of the reputation of the violator of the rules, sometimes with consequences for his whole family. This can go as far as social ostracism, which has serious consequences for the offender’s social, religious and business life. But values and norms also create loyalty of individual members to (other members of) the group. Even when the network is putting pressure on an individual member, he may decide to stay in the network (not to exit), not to raise his voice and protest (not to voice his anger), but to support the network (to be loyal) (Hirschman, 1970). The advantages of the network can also be found in its function as a communication device, through which reliable information about, for example, job opportunities, is spread through the community quickly and efficiently (Portes, 1998). Networks can also

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be helpful in starting up businesses by acting as a lending channel. A famous example is the Korean rotating credit associations in the United States (Light and Bonacich, 1988). The main force behind the networks is the members seeing themselves as belonging to the same group of people, who are ‘in the same ship’, and have to co-operate to ‘survive’ in the strange and maybe ‘hostile’ environment they have migrated to. This leads to general reciprocity, as Putnam (1993) calls it. Members of the network help each other. They do not do this to get their favour returned to the same extent, from the same person and as soon as possible, but with the idea they will receive some kind of help from someone in the network somewhere in the future when they need it in their turn. A characteristic of these networks is that there exists mutual trust: the members of the network expect that the other members will co-operate and will reciprocate in the future the favours received now. Results of micro-economic game experiments are in line with the above-mentioned characteristics of networks. People tend to have more trust in people that are of the same race or nationality than in other people (Glaeser et al., 2000; Buchan et al., 2002). Reciprocity has also been tested in laboratory experiments. The results suggest that both positive and negative reciprocity influence people’s behaviour (Fehr and Gächter, 2000). The effects – advantages and disadvantages – of networks are highly dependent on their degree of density. The more closed and dense the network, the better are the members able to uphold the implicit values and norms of reciprocity and trustworthiness, and the better they are able to circulate information. However, this can easily turn into a disadvantage, as a closed network increases the risk of missing new, potentially beneficial influences from outside the network. A feature of many high-density networks with high mutual trust among its members is that they evince very little trust in people from outside the network. Fukuyama (1995) argues that this could be the reason that countries in which people only have trust in their (extended) family seem to have relatively less large firms than countries in which people have a higher general trust in strangers, that is, in people from outside their own (extended family) network. For a firm to grow large, it is necessary to attract strangers with certain skills and capabilities that cannot be found in one’s own network or family. This hypothesis has been corroborated by the empirical research of La Porta et al. (1997). If the above is true, then it should be the case that firms owned by migrants from ‘low trust’ countries (like China, Turkey, Southern Italy and France) have a larger portion of co-ethnic employees than firms owned by migrants from ‘high trust’ countries (like Japan, Germany, Northern Italy, the Netherlands and the United States).5 When appropriate data are available, this hypothesis could be tested in future research. 2.2 Utility of co-ethnic employment We now turn to the incentives for a member of an ethnic minority group to find a job in a co-ethnic firm or a regular firm. A regular firm is a firm in which ethnic minorities are not over-represented in the personnel structure as compared with the prevalence of the ethnic minority group in the total population. A regular job is a job in a regular firm and a co-ethnic job is a job in a co-ethnic firm. We start with the basic assumption that a person wants to maximize her utility function. She can choose between a regular job and a co-ethnic job. The utility she derives from a job depends on the chance of finding the job (and the search costs) and the rewards of the job (corrected for investment costs in education and so on). She chooses a regular job if the utility of a regular job is higher

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Handbook of research on ethnic minority entrepreneurship

than the utility of a co-ethnic job. We first look at the incentive structure that is connected to the rewards; after that we continue with the incentives arising from the search process. 2.2.1 Rewards: management problems The rewards of an employee are largely determined by her productivity. A widely recognized problem considering productivity is that productivity is hard to measure. Asymmetric information with respect to tasks and their fulfilment between managers and personnel leads to the well-known principal–agent problem. The principal (the manager) has other objectives than the agent (the employee), but is not able to monitor the behaviour of the employee completely. Strong formal monitoring on the aspects of the employee’s behaviour that can be monitored often leads to perverse consequences. The employee will tend to do her utmost to perform well on the monitored tasks but will neglect her other duties. The principal–agent problem is aggravated by the inherent incompleteness of contracts. It is very costly to gather information; some information cannot be obtained at all; it is costly to write down an extensive contract and writing down all possible events may even create distrust among the contracting parties. Furthermore, even with a complete and legally binding contract, severe costs are involved with the enforcement of this contract through judicial procedures. They are costly, time consuming and some parts of the contract cannot be verified by third parties like judges. These highly incomplete contracts give contracting parties the opportunity and incentives to shirk at the expense of the other party (Williamson, 1985). Besides this monitoring problem, the bonding problem also comes forth, out of the combination of bounded rationality, scarcity of information and contracting problems. The productivity of an employee rises when she works longer in the same firm (learning by doing) and when specific investments are made. Specificity of an investment means that the value of an investment is directly dependent on the continuation of the relationship. An example is a firm investing in the skills of an employee while these skills are only valuable in this particular firm. The productivity of the employee in this firm rises and, as long as the employee stays within the firm, the investment leads to extra rents (to be divided between firm and employee). The lack of complete contracts hinders mutually advantageous investments in this case, because the ex ante (before the investment) commitments are not credible in the post-investment phase. The incentives for splitting the rents and continuing the relationship have changed by then. Although there are profitable investments to be made, potential investors may refrain from doing so, because they are afraid that their transaction partner will hold them up. This means that there is no formal way to solve the principal–agent based monitoring and bonding problems. The principal and his agent have to trust each other: they expect that the other will refrain from opportunistic behaviour and perform according to the letter and spirit of the agreement. The ability to trust is often seen as an important element of social capital, while networks are regarded as an essential framework for the development of trust and social capital (see, for example, the reviews by Nooteboom, 2002, and Sobel, 2002). Within a certain network, such as an ethnic minority group, members can easily transpose and enforce collective values and norms, which creates mutual trust. Acting in accordance with these values and norms leads to the positive reward of social recognition, while ‘bad’ behaviour results in a loss of reputation and, in the worst case, exclusion from the network. Because it takes some time to create a solid reputation (a valuable asset as it is useful in both business and social matters) while it can be destroyed

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at once by one unwise malevolent act, the implied trigger mechanism forms an indisputable strong incentive to behave by the rules. From this perspective, the ethnic network can be seen as a trust-creating device, which makes it possible to economize on the transaction costs that accompany management problems. The informal ties are used as a means of managerial discipline that mitigates the monitoring and bonding problems. Another advantage of this management device is that it is helpful in substituting formal procedures. Especially in the case of ethnic minority firms, the firm owner might have little or no knowledge of the official labour market and its regulations. Co-ethnic employees are for these reasons more productive in coethnic firms than employees with other ethnic backgrounds. The resulting extra rents for the co-ethnic firm may be split among owner and personnel, which forms a monetary incentive for co-ethnic employment. If the monitoring and bonding problems analysis is correct, we expect that the average tenure of ethnic minority personnel is lower in regular firms than in co-ethnic firms. The trust-creating network aspect is missing in regular firms, while it is doing its beneficial work in co-ethnic firms. It is hard to find data on firing decisions or average tenure of ethnic minority group members, but the EIB survey (2003: 36) about ethnic minorities in the Dutch construction industry reports an extraordinarily high volatility in ethnic minority personnel. Both inflow and outflow involves about 25 per cent of the total number of ethnic minority employees per year. This could be regarded as an indication that firms with a non-co-ethnic owner face substantial management problems in keeping their ethnic minority labourers inside the firm. 2.2.2 Rewards: general and culture-specific skills A more direct link between rewards and productivity is through the notion of general skills. General skills originate in formal education and raise the productivity of the employee and, thereby, her rewards. These skills are extremely important in regular jobs and natives might have a natural lead, for example because they are better speakers of the native language. In ethnic firms, these general skills might be somewhat less important, because the, on average, small size of these firms requires an, on average, lower level of skills and also fluency of the majority language may be less of a necessity. Culture-specific investments in knowledge of one’s own ethnic minority culture and language are useless for regular jobs, but are valuable for co-ethnic jobs. Knowledge of the specific culture and language gives the employees a comparative advantage over nonco-ethnic people in communicating with the co-ethnic boss, the other employees, the suppliers and the customers. This might also involve ‘tacit knowledge’ about the product, for example how it should taste or look. Furthermore, the customers might expect co-ethnic personnel, for example in a restaurant. So, because of their culture-specific skills, coethnic employees are more productive in co-ethnic firms than in non-co-ethnic firms, and co-ethnic employees are more productive in co-ethnic firms than employees with a different cultural background. Both reasons form incentives to work in a co-ethnic firm. 2.2.3 Rewards: positive and negative discrimination Obviously discrimination in regular firms has a negative effect on rewards for members of ethnic minority groups. Discrimination on cultural background leads to both monetary disincentives to work for a regular firm (not given promotion, not receiving bonuses) and non-monetary disincentives

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(victim of teasing by colleagues, always having to do the dirty jobs). Discrimination may work the other way round in co-ethnic firms. The employer might feel a moral obligation, resulting from the social network, to help and comfort co-ethnic employees. The employer is more benevolent to his co-ethnic personnel than a non-co-ethnic boss. This might even offer the possibility for the workers to have a ‘good time’ and shirk. A job in a co-ethnic firm might also offer better career perspectives, for example to get promoted, to become a partner or to take over the business when the owner retires. This issue can also be related to trust and networks. Ethnic minority employees only trust co-ethnic employers to be fair to them and not to discriminate against them. They might have less or no trust in (or are unaware of) the official labour market regulations and/or the motivations of non-co-ethnic employers. Their trust in co-ethnic employers is based on the knowledge that they can rely on the social network if they are mistreated by their co-ethnic boss, while this protection mechanism is not available when a nonco-ethnic employer is involved. The networks also deliver non-monetary rewards to the employees in the sense of a certain social recognition from other group members, when employees decide to work for a co-ethnic firm. In this way, both employers and employees obey an informal moral obligation to help each other. The employer helps the members of his co-ethnic group by offering employment. The employees help the co-ethnic employer by offering their labour. We now turn our attention to the incentives that come forth out of the search process. 2.2.4 Search: signalling As we saw above, principal–agent problems arise because of information asymmetries between employers and employees. The equivalent of this management problem for the search process emerges from the differences in asymmetric information about the qualities of applicants. Applicants know more about their own skills and motivations than the potential employer does and tend to present an over-optimistic view of their qualities. There are three reasons why ethnic minority applicants could make a better impression on a co-ethnic employer than on a non-co-ethnic employer. First is the problem that certain foreign diplomas are not recognized by native employers, but are recognized by co-ethnic employers. The magnitude of this problem increases when it is combined with communication problems between the employer and the applicant, for instance when the candidate has trouble in expressing herself in the majority language of the host country. This makes it more difficult for the applicant to communicate her skills and motivations to the native employer, while she has no problem discussing this subject in her native language with a co-ethnic employer. Second is the problem of discrimination. This can be outright discrimination, but also statistical discrimination (Loury, 1977). When a certain ethnic minority group gets a stigma attached for being ‘lazy’, ‘unproductive’ or ‘fraudulent’, this diminishes the chance of all members of this stigmatized group to be employed in a regular firm. Bad employees will drive out good employees. Since the rate of rejection is so high, it is not worthwhile anymore for ‘good’, unfairly stigmatized employees to invest in applications for such jobs. Only the ‘bad’ applicants keep on applying, because for them the rewards of success are much higher, as it enables them to shirk at the expense of the hiring firm. This confirms the stigma and increases the prejudice against members of this ethnic minority group. Even more good employees stop applying for jobs in the regular sector, and so on and so forth.

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A third issue is that applicants are backed by members of their own network. The credentials of native applicants are thus for the greater part backed by other natives who might be more highly valued by native employers than the ethnic minority references of ethnic minority applicants. This holds, vice versa, for applicants at ethnic firms. These are three objective reasons why it might happen that ethnic minority employees end up in co-ethnic firms, even if they themselves have no preference for the one above the other. 2.2.5 Search: search channels Social networks are often used as a channel for information about vacancies and job opportunities. Nan Lin has written extensively on this subject (for example, Lin, Ensel and Vaughn, 1981). Especially the ‘weak links’ of one’s network can be very helpful in finding a job (also see Granovetter, 1974). Given that the network of an ethnic minority group member consists in large part of other members of this group, information about vacancies will mainly consider job openings in ethnic firms. This information function of the network also works the other way round. Co-ethnic employers can more easily find a suitable co-ethnic employee than a non-co-ethnic one. The transaction costs involved in the search process are lower when using the social network than when using the official canals. Using panel data for the United Kingdom, Frijters et al. (2003) report on how the job search methods of unemployed immigrants vary from those of the native born. A striking result of this research is that all immigrant groups, and especially South Asian immigrants, rely more on their social networks for job search than the UK born. The researchers conclude, however, that the relative failure of immigrants to find a job ‘cannot generally be explained by differences in the choice of main job search method or in observable characteristics’ (Frijters et al., 2003: 1). This confirms the idea that immigrants make a relatively strong use of social networks to find a job. It also confirms that this is a rational thing to do, because it does not influence (read: it does not worsen) the probability of immigrants finding a job. The result of the extensive use of this search channel, however, is that ethnic minorities end up being over-represented in co-ethnic firms. 2.2.6 Conclusion We conclude, from our economic analysis of the labour market incentives of ethnic minority group members, that there is much economic rationality for ethnic minorities to find a job in a co-ethnic firm instead of in a regular firm. Their ethnic background makes them more productive in co-ethnic firms, because it enables firms to economize on management control and bonding costs. A second source of their higher productivity lies in the specific cultural capital they have accumulated and that is valuable in certain ethnic business niches. Discrimination and problems with the verification of their qualities form clear disincentives to work in regular firms. Finally, the social network allows ethnic minorities to lower their search costs when looking for a job. The fact that the behaviour of immigrants to find a co-ethnic job is rational does not automatically imply that this behaviour is beneficial for them in the longer term or beneficial for their employers, their ethnic community or for the society as a whole. We explore the positive and negative externalities of co-ethnic employment in the next section. 3 Welfare effects of co-ethnic employment The emphasis of this section lies on the welfare effects of co-ethnic employment. We first present a broad historical perspective of the welfare effects of immigrants, we continue

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with a somewhat smaller scope about the welfare effects of ethnic entrepreneurship and end with an analysis of the welfare effects of co-ethnic employment in the short and long run. 3.1 Welfare effects of immigrants In Dutch history the freedom of the Protestant religion, the high tolerance of other religions and the economic prosperity of the region attracted several waves of immigrants, particularly in the sixteenth to nineteenth centuries. Among them were the Huguenots, who fled France after the revocation of the edict of Nantes in 1685, that was directed against Protestantism, and among them were many (Portuguese) Jews who saw their lives threatened for religious reasons in other parts of Europe. These influxes of highly skilled and wealthy immigrants are generally seen as important contributions to the rise of the Low Countries as an economic superpower in the seventeenth century (De Vries and Van de Woude, 1995). For the immigrants themselves, their migration benefited them at least in the sense that it provided them with a way to survive the religious feuds in Europe. But even at the end of the nineteenth century immigration was substantial, especially from the poor regions of Germany. This wave of immigration benefited the Dutch economy in the sense that it provided a source of cheap labour. At the same time, it was beneficial for the immigrants, because they earned a better salary than at home. This picture has changed dramatically. Evaluations by the CPB Netherlands Bureau for Economic Policy Analysis (Roodenburg et al., 2003) and the Netherlands Scientific Council for Government Policy (WRR, 2001) are not optimistic about the contributions of recent immigrant inflows to the Dutch economy. Non-Western immigrants have a relatively low labour participation, have a relatively high unemployment rate and make a relatively high use of social security. Remarkably, these differences between the native population and immigrants are much greater in the Netherlands than in other countries, such as Italy, Spain, Canada and Australia (WRR, 2001: 121). The welfare effects of new immigrants whose social–economic characteristics correspond to those of the average non-Western resident are likely to be small and maybe even negative on residents’ incomes, and are a burden for the public budget (Roodenburg et al., 2003: 7–8). This can be partly blamed on the lagging performance of immigrants on the labour market, but is ‘also the reflection of the generous system of Dutch collective arrangements’ (Roodenburg et al., 2003: 8). 3.2 Welfare effects of ethnic entrepreneurship In 1998, the Netherlands Social Economic Council (SER) wrote an advice to the government on ethnic entrepreneurship as a reaction to the perceived labour market problems of immigrants (SER, 1998). The SER concludes that entrepreneurship of ethnic minorities is part of the solution of the problem and should therefore be stimulated by the government. The government has underwritten this advice in its official reaction. According to the SER, weak points of the present ethnic minority firms are the lack of entrepreneurial skills, the relative weak basis of many firms, the lacking presence of business networks and the insufficient accessibility of services for ethnic entrepreneurs. We agree that ethnic entrepreneurship is, in principle, a positive phenomenon that contributes to the integration and economic emancipation of ethnic minority groups.

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However, we have more doubts about the co-ethnic employment that is often involved with the creation of ethnic firms. We sum the pros and cons later, but first look at some actual developments. The number of ethnic enterprises in the Netherlands has risen sharply over the last ten years (Van den Tillaart, 2001). The type of firms is also changing. Originally, most ethnic firms were in the hospitality and retail sectors. Newly founded firms, mostly by second generation migrants, are more and more in commercial services. In this new sector, second generation ethnic entrepreneurs often choose more sophisticated branches like advice and consultancy, research and public-relations offices and travel agencies instead of driving schools and cleaning services (ibid.). Does this mean that the differences between ethnic and native entrepreneurs are disappearing? Yes and no. On the one hand, we see that the distribution of firms over the different sectors of second generation ethnic entrepreneurs has become more similar to that of the native entrepreneurs than it has ever been with regard to the first generation immigrants. This is in line with the thought that the second generation of immigrants has less strong ties within the migrants’ community. The rules and resources of the social ethnic network are less applicable to ‘newer’ generations. Although these figures only give an indication of the sectors of activity and not of employment policies, the broader picture that arises from it is that the phenomenon of coethnic employees and employers is less pregnant for newer generations, because they ‘break out’ of the old structures. On the other hand, however, one can notice that a part of the second generation ethnic entrepreneurs is explicitly focusing their activities on their own ethnic group. They develop ethnic niches to exploit, for example in culture, recreation and sports (Van den Tillaart, 2001). This makes the Scientific Council for Government Policy conclude that it is very troublesome that the immigrants, especially those coming from Turkey and Morocco, mainly use their own ethnic network to find a job, because of the restricted and internal focus of these networks (WRR, 2001: 119). 3.3 Welfare effects of co-ethnic employment In this subsection we discuss the welfare effects of co-ethnic employment for employees, co-ethnic firms, the ethnic minority group and society as a whole. Most of the positive welfare effects seem to lie in the short run. Structural problems that lead to negative welfare effects come to the fore when we analyse the long-term effects of co-ethnic employment. We pay extra attention to externalities: the external effects (positive and negative) that arise for society as (unintentional) consequences of individual behaviour. 3.3.1 Positive welfare effects and externalities The immediate effects of co-ethnic employment are positive at every level of analysis. The major reason why co-ethnic employment is associated with positive externalities is that it creates jobs for ethnic groups. This increases the labour participation and work experience of the individual employees. Although some of these jobs may be ‘network-subsidized’ jobs, such a job in a co-ethnic firm is better than no job at all. A second positive welfare effect for individual employees exists when their rewards are higher in co-ethnic firms than in regular firms. The monetary rewards may be higher, because their culture-specific skills enhance their productivity in co-ethnic firms (especially when active in ethnic niches) and lower management and search costs for firms. The non-monetary rewards may be higher, because co-ethnic employment leads to moral appraisal and recognition from the ethnic group.

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The co-ethnic firm benefits from co-ethnic employment for the same reasons. The productivity of co-ethnic personnel may be higher than the productivity of other personnel, and because of reductions in management and search costs. The welfare benefits for the ethnic group lie in the fact that all value created by the ethnic firms stays inside the ethnic group. The rents are split among the co-ethnic suppliers of capital, management and labour. This also makes the group less dependent on outsiders. A feeling of autonomy can be regarded as valuable. Above all, the ethnic network stays intact and dense. This makes it easier to uphold the (traditional) values and norms. The welfare effects for society are the less frequent recourse to social security, combined with higher income taxes. Moreover, poverty reduction among ethnic minorities is a positive good in itself. When one believes in the existence of poverty-related crime, one can argue that this poverty reduction may have positive external welfare effects for the society, because it translates into a reduction of the crime rate among ethnic minority groups. 3.3.2 Negative welfare effects and externalities There are also a number of negative externalities associated with co-ethnic employment. To start with, it may prevent the development of general skills among the co-ethnic employees. It reduces the necessity of (fluently) speaking the majority language and co-ethnic employees are not confronted with the native ‘work ethics’. Regardless of the fact whether this work ethic is better or worse, not being familiar with it does not improve your chances on the regular labour market. When, for some reason, immigrants lose their job at the co-ethnic firm, the pool of potential new employers is restricted for them only to the co-ethnic firms, while the possession of general skills would allow them to seek a job across all firms in the economy. A second negative welfare effect for employees may result from the fact that they keep very closely attached to their social ethnic network when they work in a co-ethnic firm. This makes it relatively easy for the other network members to enforce network rules, values and norms upon them. Social control co-ordinates the behaviour of group members and thus prevents sub-optimal outcomes in social dilemma situations. However, it also restricts individual freedoms. It impedes individual welfare, when social control and sanctions are used to enforce unwanted solidarity with other group members. In the worst case, this results in the exploitation of co-ethnic employees, who are obliged to work in ethnic firms under bad working conditions (hard work, low salary). Social pressure exercised by the network then sacrifices the welfare of the individual for the good of the group. The welfare or development of firms is faced by two dangers resulting from co-ethnic employment. The first relates to the fact that easy access of ethnic minority group members to employment in the firm automatically implies that applicants with other ethnic backgrounds are barred from access. This has two consequences. First, it may lead to a very narrow focus of the ethnic firm regarding suppliers and customers, because there are no natural links (established through the networks of employees) with suppliers and customers from outside their own group. Second, it may be difficult to find suitable employees within one’s own group, especially for certain specialized functions (Fukuyama, 1995). Both restrictions might seriously hinder the small family firm hoping to develop into a larger-scale enterprise. The second danger for the development of the firm also results from the situation that the firm becomes too enclosed in the social ethnic network. In some cultures, strong norms of mutual assistance and solidarity lead to high free-riding problems, because successful

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firms are overloaded with requests for loans and jobs from fellow kinsmen (Geertz, 1963; Portes, 1998). The social norms that allow for these excess claims on more successful group members severely impede the accumulation of wealth (and thus the incentives to gather wealth) that is needed for entrepreneurial success and development. Negative externalities of co-ethnic employment for the ethnic group also arise from the fact that co-ethnic employment leads to less interaction between different ethnic groups and networks. This implies that the separate networks stay relatively closed, small and isolated. One misses the positive external effects that would result from a single ‘combined’ large network. A concrete example of a negative externality of co-ethnic employment is that information about job opportunities and applicants’ skills is not public for all networks. As a result, members of ethnic minority groups may fall into the ‘ethnic trap’. They must find a job in the co-ethnic network, because they miss contacts in other networks. As a result, they also do not become members of other networks, which reduces the chance of other ethnic minority group members finding a job outside the social ethnic network. This problem of path dependency is worsened by the phenomenon of co-ethnic employment. A more extreme situation occurs when ‘group solidarity is cemented by a common experience of adversity and opposition to mainstream society’ (Portes, 1998: 17). Coethnic employment can be seen as a form of group solidarity. A prolonged period of discrimination by mainstream society may lead to downward levelling norms in the group. The group members do not believe anymore that they can be successful in society. This implies that there is no use in going to school or in making other long-term investments. Pride in the group for its own sake is the only thing that remains. Ambitious group members who do manage to be successful in the ‘hostile’ outside world, however, are perceived as traitors, because they undermine the group cohesion that is built on the alleged impossibility of such events. In this situation, the social norms of the group work out as a public ‘bad’, because they form fatalism-based disincentives for the social and economic emancipation of the group. The negative externalities for society originate in the missed network opportunities that result when ethnic groups keep their distance from the rest of society, for example via a high prevalence of co-ethnic employment. A major example is that the emergence of common values and norms in society is hindered. Common values and norms streamline the co-ordination of human behaviour in (economic) activities, because they form informal guidelines for behaviour. In this way, they reduce the transaction costs involved with co-ordination problems. Another example is that the economy is not running at its possible optimum, because best matches between vacancies and applicants are missed. This hinders the personal development of the employees, the emergence of strong firms and the growth of the national economy. More generally, we may conclude that co-ethnic employment enhances segregation instead of integration. The worst case situation would be the emergence of an ethnic minority enclave economy without ties to the rest of society. This would imply an isolated sub-society within a society and the complete failure of integration policies. 3.3.3 Conclusion The immediate effects of co-ethnic employment seem to be positive on balance. In the short run, co-ethnic employment leads to more jobs for employees, easy access to labour for ethnic minority firms, strengthening of the group values and norms,

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and fewer unemployment and social security problems for society. This bright picture is obscured when we take a long-term perspective. Co-ethnic employment might form an obstacle to the social and economic emancipation of ethnic minority groups, because it generates disincentives for individual group members to acquire general skills, hinders the development of ethnic minority firms, fosters the danger of the ethnic trap and may stimulate the emergence of an enclave economy. An enclave economy does not seem to be a realistic threat for Dutch society, but the other dangers certainly are. We therefore look at the possible policy options in the next section. 4 Concluding remarks and policy options Survey data from various sources in the Netherlands confirm anecdotal evidence of overrepresentation of co-ethnic employees in ethnic minority firms. This major characteristic of ethnic minority employment can be explained by the relatively low information and coordination costs in labour relationships in co-ethnic firms. When people belong to the same ethnic group, or network, they are bound to the same cultural values and norms, and this will enhance trust, for example within a group of immigrants from the same country or background. This implies that, within a group of workers from the same ethnic origin, information is less asymmetric and less incomplete than that between workers of different ethnic origins. In a hierarchical relationship between a supervisor and subordinates the monitoring and bonding costs may be lower in the case where all belong to the same ethnic groups than when they have different ethnic backgrounds. A similar argument holds for search costs when employing workers. These economics of co-ethnic employment suggest that there are both positive and negative externalities associated with this phenomenon. A positive externality is that it enhances labour participation and therefore reduces demand for social security provisions. However, a negative externality is that is hinders integration of minority groups in the society which will eventually cause these members of minority groups to be less productive. These positive and negative externalities can be considered as market failures. The economics of the public sector teach us that government policy should try to repair such market failures as much as possible. Hence the general rule for government intervention in the case of co-ethnic employment is to design policy options which will minimize the negative externalities and which will exploit the positive externalities. The biggest structural problem seems to be that the business networks of native and ethnic minority entrepreneurs are separated from each other. In the most extreme case, this would mean the complete isolation of an ethnic minority part of the regular economy: the enclave economy. To prevent the emergence of enclave economies in the Netherlands and to reap the positive external benefits of extended (business) networks, the government has a role to foster the integration of native and co-ethnic business networks. With respect to the phenomenon that co-ethnic firms are used as a ‘last resort’ for unskilled ethnic minority members, additional schooling programmes for co-ethnic employees are necessary to give them a chance on the regular labour market. Concerning the diploma comparison problem in the search process, one could think of government support in the form of a databank for diploma comparison. Furthermore, positive externalities should be exploited by promoting businesses of ethnic minorities, such as by providing assistance in setting up a business (through chambers of commerce), and guarantees for loans, and by not too much strict regulation. The

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chambers of commerce could play an important role in this process. They have information about the ethnic background of firm owners and play a natural role in stimulating entrepreneurship. Notes 1. We are aware of the discussion that people who were born in a foreign country, but migrated to the host countries before their sixth birthday, could be considered as second generation immigrants, because this early migration enabled them to receive their education in the host country (Veenman, 1996). As this discussion is somewhat removed from the main topic of this chapter, we leave this issue here. 2. According to De Graaff (2002), minimizing the costs of adaptation (or migration costs) is the main reason for the spatial clustering of immigrants. This can be translated into various positive spatial externalities, such as the possibilities of obtaining information, housing and even finding future spouses. 3. This may be a result of labour market discrimination, which is defined by Borjas (1996) as the arise of differences in earnings and employment opportunities among equally skilled workers employed in the same jobs simply because of the workers’ race, gender, national origin or sexual orientation and other seemingly irrelevant characteristics. This argument goes back as far as Becker (1957). 4. We acknowledge the help of the EIB in providing us with these data from the survey. 5. This distinction in high and low-trust countries is based on Fukuyama (1995).

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Hirschman, A.O. (1970), Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Cambridge: Harvard University Press. Johnson, P.J. (2000), ‘Ethnic differences in self-employment among Southeast Asian refugees in Canada’, Journal of Small Business Management, 38(4), 78–86. Kloosterman, R., J. van der Leun and J. Rath (1998), ‘Across the border: immigrants’ economic opportunities, social capital and informal business activities’, Journal of Ethnic and Migration Studies, 4(2), 249–68. La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R.W. Vishny (1997), ‘Trust in large organizations’, American Economic Review, 87(2), 333–8. Lee, Y., T. Cameron, P.V. Schaeffer and C.G. Schmidt (1997), ‘Ethnic minority small business: a comparative analysis of restaurants in Denver’, Urban Geography, 18(7), 591–621. Light, I. and E. Bonacich (1988), Immigrant Entrepreneurs: Koreans in Los Angeles 1965–1982, Berkeley: University of California Press. Lin, N., W.M. Ensel and J.C. Vaughn (1981), ‘Social resources and strength of ties: structural factors in occupational attainment’, American Sociological Review, 46, 393–405. Loury, G.C. (1977), ‘A dynamic theory of racial income differences’, in P.A. Wallace and A. LaMond (eds), Women, Minorities and Employment Discrimination, Lexington: Lexington Books, pp. 153–86. Masurel, E. and P. Nijkamp (2004), ‘Differences between first-generation and second-generation ethnic startups: implications for a new support policy’, Environment and Planning C: Government and Policy, 22(5), 721–37. Masurel, E., P. Nijkamp and G. Vindigni (2004), ‘Breeding places for ethnic entrepreneurs: a comparative marketing approach’, Entrepreneurship & Regional Development, 16(1), January, 77–86. Masurel, E., P. Nijkamp, M. Tastan and G. Vindigny (2002), ‘Motivations and performance conditions for ethnic entrepreneurship’, Growth and Change, 33(2), 238–60. Nijkamp, P. (2003), ‘Entrepreneurship in a modern network economy’, Regional Studies, 37(4), 395–405. Nooteboom, B. (2002), Trust: Forms, Foundations, Functions and Failures, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Peterson, M.F. and J. Roquebert (1993), ‘Success patterns of Cuban–American enterprises: implications for entrepreneurial communities’, Human Relations, 6(8), 921–37. Portes, A. (1998), ‘Social capital: its origins and applications in modern sociology’, Annual Review of Sociology, 24, 1–24. Putnam, R.D. (1993), Making Democracy Work: Civic Traditions in Modern Italy, Princeton, NJ: Princeton University Press. Rafiq, M. (1992), ‘Ethnicity and enterprise: a comparison of Muslim and non-Muslim owned Asian business in Britain’, New Community, 19(1), 43–60. Ram, M. (1994), ‘Unravelling social networks in ethnic minority firms’, International Small Business Journal, 12(3), 42–53. Roodenburg, H., R. Euwals and H. ter Rele (2003), Immigration and the Dutch Economy, The Hague: CPB Netherlands Bureau for Economic Policy Analysis. Sobel, J. (2002), ‘Can we trust social capital?’, Journal of Economic Literature, 40, 139–54. Sociaal Economische Raad (SER) (1998), Etnisch ondernemerschap, The Hague: SER. U.S. Department of Commerce (1997), The State of Small Business: a Report of the President, Washington D.C.: U.S. Government Printing Office. Van Delft, H., C. Gorter and P. Nijkamp (2000), ‘In search of ethnic entrepreneurship opportunities in the city: a comparative policy study’, Environment and Planning C: Government and Policy, 18, 429–51. Van den Tillaart, H. (2001), Monitor etnisch ondernemerschap 2000, Nijmegen: ITS. Veenman, J. (ed.) (1996), Keren de kansen? De tweede-generatie allochtonen in Nederland, Assen: Van Gorcum. Waldinger, R., H. Aldrich, R. Ward and associates (1990), Ethnic Entrepreneurs: Sage Series on Race and Ethnic Relations, vol. 1, Newbury Park, CA: Sage Publications. Waldinger, R., H. Aldrich, W.D. Bradford, J. Boissevain, G. Chen, H. Korte, R. Ward and P. Wilson (1990), ‘Conclusions and policy implications’, in R. Waldinger, H. Aldrich, R. Ward and associates, Ethnic Entrepreneurs: Sage Series on Race and Ethnic Relations, vol. 1, Newbury Park, CA: Sage Publications, pp. 177–97. Wetenschappelijke Raad voor het Regeringsbeleid (WRR) (2001), Nederland als immigratiesamenleving, Reports to the Government no. 60, The Hague: Sdu Publishers. Wheatly Price, S. (2001), ‘The unemployment experience of male immigrants in the English labour market’, Applied Economics, 33(2), 201–15. Williamson, O.E. (1985), The Economic Institutions of Capitalism, New York: Free Press. Wilson, K.L. and A. Portes (1980), ‘Immigrant enclaves: an analysis of the labor market experiences of Cubans in Miami’, The American Journal of Sociology, 86(2), 295–319.

5

Understanding the diversity of immigrant entrepreneurial strategies Catarina Reis Oliveira

Introduction The desire to explain the distinct propensity of immigrant groups to invest in business activities in host cities remains a challenge to researchers around the world. Up to now, explanations of immigrant entrepreneurship fall into three categories: one that emphasizes immigrants’ characteristics and their main predisposing factors to succeed in businesses (Portes and Zhou, 1999); a second that points out the importance of community networks and ethnic resources to engage entrepreneurial activities (Light and Gold, 2000; Portes and Manning, 1986); and a third that highlights how the labour market and the institutional and regulatory framework of the host society can restrain or encourage immigrants’ entrepreneurial success (Ward and Jenkins, 1984; Aldrich and Waldinger, 1990, Jones et al., 2000; Kloosterman, 2000; Barrett et al., 2001). Previous research on immigrant entrepreneurship gave monocausal explanations readily isolating the importance of gathering either family or ethnic resources. Waldinger, Aldrich and Ward (1990) were probably the first to underline the need for an integrative research into ethnic entrepreneurial strategies, concerning the role of group characteristics and the opportunity structure. Later on, Kloosterman and Rath (2001) in a critical overview of research on immigrant entrepreneurship proposed a complementary theoretical model based on the ‘mixed embeddedness’ hypothesis. These authors stress the importance of an interactive relation between the culture and social embeddedness of immigrants within the co-ethnic group (usually addressed by the majority of researchers in the field) and the economic and institutional embeddedness in host contexts (Kloosterman et al., 1999; Rath, 2000; Kloosterman and Rath, 2001; Rath, 2002). A consensual idea pervades these researches: immigrants adapt to the resources that are available in the environments in which they are embedded, which vary across countries, cities and over time. In this chapter I assess the relevance of those conceptual approaches to explain immigrants’ entrepreneurial strategies. I argue that, while Waldinger and his associates (1990) give a more inclusive explanation of immigrants’ entrepreneurship, they do not take into account the fact that, owing to the interaction of the opportunity structures and group characteristics, a variety of strategies emerge beyond the ethnic ones, even in the same host country and in the same period of time. As will be stressed in this chapter, immigrants’ cultural boundaries do not necessarily constitute opportunities or advantages to entrepreneurship. In some cases, immigrants tend to rely to a much greater extent on personal resources when they want to have a business, particularly in cases where their social ties channelled them into unskilled jobs in the host labour market. 61

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As will be shown in this chapter, what defines an immigrant entrepreneurial strategy is not only his or her ethnic background but the degree of resources and opportunities that are mobilized in the start-up process. According to this, immigrants’ entrepreneurial strategies are not unalike just because of individuals’ different cultural and ethnic references, but mostly because of their options and unequal opportunities of access. In other words, immigrants with different ethnic structures and cultural boundaries can in fact define similar entrepreneurial strategies in host contexts. Moreover, it is even possible to identify immigrants with similar strategies to those of natives. This chapter presents three case studies which show both the complexity and the diversity of the interaction between personal resources, social networks and structural opportunities. It starts with a more elaborated explanation of immigrants’ entrepreneurial strategies theory reaching out to a heuristic model. This entails, first, a more wide-ranging explanation of immigrant entrepreneurship. Second, it will explore the too-often-neglected personal resources component. Third, it intends to highlight the diversity of immigrant strategies. Finally, I provide an assessment test of the heuristic model through an analysis of data from a survey of 704 entrepreneurs of Chinese, Indian and Cape Verdean origin residing in Portugal.1 Even within this sample, with only three different groups, there is a surprisingly wide variety of entrepreneurial strategies, ranging from individuals desperately struggling to survive with small personal savings, to highly successful businesses benefiting from strong social networks with important entrepreneurial resources. Conceptual approaches on immigrant entrepreneurship: literature review Earlier research on immigrant entrepreneurship tended to explain foreigners’ high motivation to create businesses by a specific cultural inheritance.2 In a Weberian logic, specific values were seen as congenial with starting entrepreneurial activities. Those were mainly monocausal explanations readily isolating the importance of gathering either family or ethnic resources.3 The emphasis on these resources and the role of social networks were particularly present in the theories about ethnic enclaves (Wilson and Portes, 1980; Portes and Manning, 1986) and middleman minorities (Bonacich, 1973). However, analyses based purely on cultural attributes proved to be dangerous and responsible for the stereotyping of certain immigrant groups (Chan and Cheung, 1985: 145). Differences in entrepreneurial rates of identical ethnic groups in diverse countries and cities confirm the necessity of finding other explanatory variables.4 To counterbalance the previous lack of economic environment analysis, Waldinger, Aldrich and Ward (1990) developed an interactive model, arguing that group characteristics should be considered in their interaction with an opportunity structure. In so doing, the authors opted to explain immigrant entrepreneurship within the demand–supply relation that is what the customers want to buy and what immigrants can provide. They include the market conditions within the opportunity structures, characterizing the relation between entrepreneurs, consumers (from an open or ethnic market) and competitors (native, co-ethnic or from another immigrant group). To explain the supply side, the authors included the predisposing factors that immigrants demonstrate towards entrepreneurship and resources mobilization in ethnic networks. The authors argue that ethnic strategies emerge in the interaction of opportunity structures and group characteristics. Accordingly, they believe that ‘The strategies adopted by the various ethnic groups in

Understanding the diversity of immigrant entrepreneurial strategies 63 capitalistic societies around the world are remarkably similar’ (Aldrich and Waldinger, 1990: 131). Although the interactive model provides an important contribution to the literature, namely because it was the first inclusive explanation of immigrants’ entrepreneurship opening the grounds for both theoretical discussion and empirical investigation, it proved to have certain limitations. As Rath (2000: 7) points out, Waldinger and his associates assume that immigrants define naturally ethnic entrepreneurial strategies just because they have a certain ethnicity or identify themselves with a group with ethnic cultural traditions. However, this being the case, how can business initiatives among immigrants that belong to groups with no prior history of entrepreneurship be explained?5 Following the interactive model, would this mean that their different economic behaviour is a consequence of not sharing a cultural identity with their co-ethnic group? Empirical research has shown that even immigrants embedded in their ethnic group can have a different economic integration, not reproducing their group options in the host society (Oliveira, 2004). And, as I will stress further, in those cases, entrepreneurial initiatives prove to be much more a result of human capital and individual characteristics than a product of ethnic resources. Owing to the lack of analysis regarding individuals’ resources, some important questions remain unanswered. For example, how can immigrants tied to an ethnic group with no past experience of entrepreneurship and not benefiting from any host encouragements still define a successful business? Against the Waldinger and associates’ hypothesis, immigrant entrepreneurs do not necessarily define ethnic strategies and can actually act as any other mainstream entrepreneur.6 Adding to that, other privileged connections and supports within non co-ethnics’ social networks can be mobilized. Consequently, not only may the various immigrant and ethnic groups in host societies around the world adopt a range of quite different strategies, one may also identify within the same city a rich multiplicity of immigrant entrepreneurial strategies. Light and Bhachu (1993) further suggest that the interactive model ignores the influence of the host economy on immigrant entrepreneurial initiatives. Furthermore, it fails to take into account the distinctiveness of, among other things, the banking system and the regulatory, institutional and policy frameworks and their role in either favouring or discouraging immigrant entrepreneurial purposes. In this sense, the mixed embeddedness hypothesis from Kloosterman and Rath (2001) provides a more wide-ranging explanation of immigrants’ entrepreneurship. As the authors suggest, immigrant entrepreneurship is a much more complex field than the analyses of demand and supply sides. They stress that previous research did not consider that opportunities on the demand side have to be accessible for the aspiring entrepreneurs. Accordingly, the authors consider the role that obstacles, rules and regulations stemming from public or semi-public institutions may play. Kloosterman and Rath (2001) argue that immigrants’ entrepreneurial strategies must also be explained within labour and entrepreneurial markets’ policies, migration laws, social benefits rights and the banking system. Even though the authors recognize that immigrants’ embeddedness in the cultural, social, economic and political spheres is fairly complex and can be relatively diverse, they do not take into account that immigrants knit, in their own way, the opportunities and resources that they access in order to define entrepreneurial strategies, and they do not necessarily mix all spheres in which they are embedded.

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There is also a more fundamental obstacle that explains the notable diversity of immigrants’ entrepreneurship among different groups and individuals: not all immigrants have access to the same resources and opportunities to define an entrepreneurial activity. Therefore, defining an entrepreneurial project is a creative process that can include different economic strategies, depending on the combination chosen of the resources and opportunities gathered. In other words, in the definition of an entrepreneurial project, immigrants do not necessarily bring together all spheres of their embeddedness (cultural, social, economic and political) but only those that give them the possibility to do so. There are at least three reasons for this shortcoming. First, opportunities available in open market and institutional encouragements7 can be quite appealing and contribute to the decline in the dependence on the resources controlled by ethnic institutions.8 As a consequence, there are cases where cultural embeddedness becomes less relevant for the immigrants’ economic integration. Second, while setting up a business, immigrants can also ignore structural opportunities and just follow what other co-ethnic entrepreneurs did with success. As soon as an ethnic entrepreneurship structure is settled, immigrants with similar aspirations (not being innovative at all) can just follow the patterns of others.9 In other words, although immigrants are embedded in the socio-economic environment of the host society (if no constraints are set on their investment), they can demonstrate lack of knowledge of the market demand for certain goods and services and just follow ethnic networks and their economic options.10 Third, and perhaps less considered in the general literature on immigrant entrepreneurship, is the case of immigrants that, even without ethnic resources and with no encouragements from the host context, can still set up a successful business. There is evidence that in those cases immigrants rely much more on personal resources (Oliveira, 2004). So, beyond a communal and a contextual reading of entrepreneurial strategies, it is also fundamental to consider the individual projects. Admitting this fact is the same as accepting that immigrants and natives may develop similar entrepreneurial strategies. With these contributions in mind, the framework for understanding immigrants’ entrepreneurial strategies in host environments is built on three changeable components: personal resources, group opportunities and host context structural opportunities. A heuristic model of immigrant entrepreneurial strategies In this section, I intend to define a heuristic model in which I will summarize the most relevant explanatory elements (and their relationships) to immigrant entrepreneurial strategies in host environments. I use the term ‘heuristic model’ because the variety of immigrant strategies is still being discovered. This model can highlight several ideal-types of entrepreneurial strategies opening the trail of explanations, but it is not intended to be exhaustive or static. The model follows other attempts to show that there are no random factors in immigrant entrepreneurship. Moreover, it intends to reflect the resourceful dealings that immigrants establish within their personal resources, social networks and structural opportunities (encountered in the host society) with the aim of defining an entrepreneurial tactic. Because opportunities are not necessarily clear or transparent11 to all actors, and because they are not available to all individuals or ethnic groups,12 immigrants’ entrepreneurial strategies are a result of negotiation, adaptation, imagination (towards innovative dynamics) and even reproduction (of entrepreneurial patterns already defined by others).

Understanding the diversity of immigrant entrepreneurial strategies 65 In other words, immigrants react to the opportunities and constraints with which they are confronted during the process of business creation. Thus immigrant entrepreneurs are not passive actors; neither have they a strict rational behaviour in their economic options. As Etzioni (1988) discussed, being rational does not imply cutting themselves off from all privileged contacts or social capital guaranteed through the community. In fact, the use of those resources and privileged relations can be part of a rational economic behaviour, put into practice in entrepreneurial strategies. Following on from this, this chapter suggests that immigrant entrepreneurial strategies emerge from an inventive and lively interaction of three components: entrepreneur personal characteristics, group opportunities and the structural opportunities of the host society. Thus there are three main entrepreneurship agencies: (a) the host society (labour market, policy and regulatory frameworks), (b) group opportunities, that is the co-ethnic group or other social networks in which immigrants are embedded, and (c) the immigrant personal resources (see Figure 5.1). The first entrepreneurship agency emphasizes the entrepreneurial opportunities that immigrants found either in the labour market or in the political and regulatory frameworks. In other words, it considers that, to do well in business, immigrants have to find vacancies in the entrepreneurial market and no constraints in the host country regulatory regime. The second (the group opportunities) considers the role of social networks in the immigrants’ economic options. As noted above, explanations of immigrant entrepreneurship had extensively considered the importance of ethnic resources. Recently, Light and Gold (2000) have even reorganized the theories produced around the connections between entrepreneurship and immigrant communities. The authors highlight the importance of ethnic and class resources in the development of businesses. Even though it is true that co-ethnic communities play a significant part in immigrant entrepreneurial strategies, it is possible to identify other relevant business resources’ suppliers within the social networks. As is highlighted below, family ties and privileged contacts within non co-ethnic groups can also motivate immigrants towards entrepreneurship. Finally, and perhaps less explored, is the consideration of the role of personal resources in entrepreneurial strategies. Those resources include predisposing factors such as savings, education, entrepreneurial and work experience, age, legal status in the host country, and aspiration levels. It is important to point out that the absence of opportunities in either one or two of these agencies does not necessarily mean that immigrants will not develop a business strategy, mainly because they can rely on only one strong source of entrepreneurial resources. That becomes particularly true in the cases of immigrants that belong to a group with no prior history of entrepreneurship and who are able to create a successful business. As a consequence, the flows between these three agencies become the vibrant core of the explanation as to why certain immigrants develop entrepreneurial activities and others are not able to do so. Before going into the details of the specific types of entrepreneurial strategies, it should be noted that, in general, although all business projects are defined within the interaction of those three agencies, a strategy reflects the sphere where the immigrant gathers more entrepreneurial opportunities and resources to succeed. Accordingly, ideal-types of entrepreneurial strategies are constrained in the access to personal resources, group opportunities or host society opportunities (or a bit of all defining mixed strategies).

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Handbook of research on ethnic minority entrepreneurship – – – – – – –

Education Age Business and work experience Personal savings Language knowledge Migratory experience Legal status in host context and citizenship

– Immigrant community and its position in the labour market – Ethnic resources: financial capital, workers, consumers, suppliers, associations, solidarity networks – Social networks: family, community (namely ethnic), friends, others (which include natives) – Family resources

(c) Personal Resources

(b) Group Opportunities

Social Strategies Ethnic Strategies

Personal Strategies

Family Strategies

Mixed Strategies

Immigrants’ Entrepreneurial Strategies

Mixed Strategies

Contextual Strategies

(a) Host Society Opportunities

Labour and Entrepreneurial Market

– Consumers: diversification of tastes (e.g. entrepreneurial opportunities within ethnic tourism) – Competitors

Figure 5.1

Regulatory and Political Context

– Immigration policy; special programmes towards immigrant entrepreneurs – Access to bank loans – Formal and informal economies – General rules (taxes, safe, health, etc.)

The main entrepreneurship agencies

In other words, depending on the predominant source of opportunities and resources it is possible to identify theoretically: (1) social strategies, mainly dependent on entrepreneurial resources gathered through social networks (which include the ethnic strategies and family strategies dependent on ethnic or family resources and goals), (2) contextual strategies, defined within the host society opportunity structure, (3) personal strategies based on

Understanding the diversity of immigrant entrepreneurial strategies 67 individual resources; and, finally, (4) mixed strategies, whenever it is not possible to identify a main source of the entrepreneurial motive or when the sources are equally distributed. Furthermore, in this dynamic process, immigrants can change the course of entrepreneurial tactics, depending on the resources and opportunities gathered over time and in host contexts (both countries and cities), since, as the human capital, host contexts are in permanent flux.13 Peters (2002) further suggests that it is also important to deal with the development of immigrants’ entrepreneurship over time. In other words, it is important to include the impact of generations on the immigrants’ entrepreneurial process (Peters, 2002: 39). Having that in mind, it is important to consider that entrepreneurial strategies are not constant in time and can change their nature: starting as personal strategies and then turning into family strategies through heritage processes. Hence it is suggested that the foundation of an entrepreneurial strategy is not only a creative exercise but also an unfinished process. Entrepreneurial Strategies’ diversity: evidence from immigrant entrepreneurs in Portugal14 This section makes an attempt to replicate and assess the main arguments proposed in the heuristic model and apply it to Portugal. The selected comparison groups are Cape Verdean, Chinese and Indian immigrants. I present both a cross-variable analysis and a correspondence analysis model based on a survey of 704 entrepreneurs conducted in 2002 in the Lisbon Metropolitan Area. Entrepreneurs from each group were selected on a random basis from the list enumerated through immigrants’ associations. Several entrepreneurs were also included in the survey through a snowball process conducted in neighbourhoods with a high concentration of immigrant businesses. Because those populations do not have similar propensities towards entrepreneurship in Portugal, the samples of the ethnic groups have a different number of entrepreneurs: 142 Cape Verdeans, 309 Chinese and 253 Indians. Before going into the specific types of entrepreneurial strategies highlighted in these three case studies I start with a characterization of Portugal as a host country to immigrant entrepreneurs. In so doing, I intend to include the immigrant entrepreneurial strategies within the existing economic, political and regulatory environments. Entrepreneurship among immigrants in Portugal Over the last 30 years, immigrant entrepreneurs have spread across Portugal.15 Revitalizing commercial streets with new products, defining new marketing tactics and opening new economic links with other countries, these entrepreneurs were responsible for the reconfiguration of immigrants’ economic integration in the country. Moreover, following the trend of other receiving countries, immigrants became more likely to be self-employed than Portuguese natives (Oliveira, 2004). Particularly taking into account the share of entrepreneurs in the correspondent labour force, immigrants have a greater propensity to become an employer than Portuguese natives have to be workers on their own account (see Figure 5.2). However not all foreigners prove to have the same propensity towards entrepreneurship (see Table 5.1). Africans are the group with the lowest rates of entrepreneurship, as Europeans (particularly from European Union), Americans and Asians have the highest rates. In view of this immigrants do not have homogenous conditions for entrepreneurship in Portugal.

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Handbook of research on ethnic minority entrepreneurship 30 25 20

% 15

Employers Persons working on own account

10 5 0 1996

1997 1998 Foreigners

1996

1997 1998 Portuguese

Source: Estatísticas Demográficas do INE e Relatórios Estatísticos do SEF.

Figure 5.2 Share of employers and persons working on their own account in the corresponding labour force, 1996, 1997, 1998 Even if it is true that cultural factors can influence the different economic performance of foreigner groups in Portugal, I will identify the role of contextual factors. Particular opportunities in the Portuguese economy and structural changes in the regulatory regime, in specific periods of time, had a crucial influence in the present incorporation of immigrants in the labour market and in the way foreigner entrepreneurs have been operating. Immigrant entrepreneurship in Portugal has been strongly oriented towards traditional segments (mainly retail, restaurants and construction). It is also within these sectors that work experience is accumulated in the Portuguese labour market.16 This is a result of the opportunity structure defined in recent years. While Africans, and particularly Cape Verdean immigrants, came to Portugal in the 1960s as part of a governmental labour force recruitment programme aiming to meet shortages in specific segments of the market sector (especially in the construction sector), Asian and South American immigrants arrived in the mid-1980s, when Portugal was starting to be recognized as an immigration country and was about to become part of the European Union. During this last period, there was an enlargement of the recruitment areas that led to the diversification of the socio-professional composition of the foreign populations in Portugal. Hence, in recent years, the Portuguese labour market started to be differentiated ‘ethnically’ (Baganha et al., 2000). The African labour force in Portugal is concentrated in construction and industrial activities (79 per cent in 1998) as wage earners and salaried employees (96 per cent in the same year), as Europeans and North Americans have been incorporated in highly qualified professions (41 per cent and 49 per cent, respectively) with an elevated share of entrepreneurs (37 per cent and 29 per cent, respectively). Moreover Asian immigrants also stand out in self-employment activities (26 per cent in

Understanding the diversity of immigrant entrepreneurial strategies 69 Table 5.1 Entrepreneurs in Portugal according to the region of origin and their share in the corresponding labour force in 1990 and 1998 Number of entrepreneurs

Share of entrepreneurs in the labour force (%)

Region of origin

1990

1998

1990

1998

Rate of change from 1990 to 1998 (%)

Europe Central and South America Africa North America Asia Rest

8 506 2 418

10 122 2 763

50.4 39.0

36.9 25.6

16.0 12.5

1 597 1 507 654 118

1 867 1 382 879 117

6.9 49.8 30.2

4.3 38.9 26.1

14.5
9.0 25.6
0.9

14 800

17 130

28.6

19.3

13.6

Total of foreign entrepreneurs

Source: Estatísticas Demográficas, INE.

1998), having the highest growth of entrepreneurial rates in the past decade (see Table 5.1). This last group has been linked particularly to retail and catering sectors (Malheiros, 1996; Oliveira, 2004). The existence of relatively low barriers to setting up a business in these traditional sectors (retail, catering and construction and so on), also explain the ‘ethnic’ differentiation of the Portuguese labour market. Moreover, as Rath (2002: 13) argues, the sector in which immigrants invest is also a consequence of the resources that they can collect: more or less capital (financial and social) and more or less labour, define different types of economic possibilities. Engelen (2001: 206) further suggests that investments in different goods markets generate different rules, needs, consumers, demands, suppliers and so on. Thus, because those activities do not need too much capital or specific skills, the investment becomes more flexible. Additionally the perceptions of racial discrimination in the access to the labour market also constitute an involuntary influence, either to become self-employed17 or to invest in specific segments of the opportunity structure. From the three case studies, Cape Verdean entrepreneurs prove to be more vulnerable with respect to discrimination in Portugal (see Table 5.2). As a consequence, the immigrants’ perceptions about their access to the labour market determine both the way they see the opportunity structure and their businesses options. Moreover, immigrants who lack community resources oriented towards entrepreneurship (the case of Cape Verdeans) become much more aware of constraints and barriers to entry into the labour market. However, the investments in sectors with low barriers bring high competition. In addition, the ‘ethnic’ differentiation identified in Portugal defines, in some cases, competition within the same ethnic group (see Table 5.3). It becomes clear that, depending on the sector of investment, the entrepreneur finds different competitors. The majority of Chinese invest in Chinese restaurants (68.3 per cent)

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Table 5.2 Entrepreneurs’ opinion about racial discrimination in the Portuguese labour market Origin of the entrepreneur Cape Verdean

Chinese

Indian

Total

Think that there is discrimination in the Portuguese labour market Think that there is no discrimination in the Portuguese labour market Think that there is discrimination but only in specific sectors of the Portuguese labour market Refuse to answer the question

N % N % N %

104 73.2 17 12.0 18 12.7

27 8.7 214 69.3 34 11.0

57 22.5 152 60.1 12 4.7

188 26.7 383 54.4 64 9.1

N %

3 2.1

34 11.0

32 12.6

69 9.8

Total

N %

142 100

309 100

253 100

704 100

Source: Oliveira (2003: 82).

Table 5.3

Competitors’ origin of the entrepreneurs questioned Origin of the entrepreneur

Competitors’ origin Do not have competitors Co-ethnic Portuguese (native) Other ethnic groups Co-ethnic and Portuguese (native) Co-ethnic and other ethnic groups Other ethnic groups and Portuguese (native) Undifferentiated Large shopping areas Total

Source: Oliveira (2003: 88).

Cape Verdean

Chinese

Indian

Total

N % N % N % N % N % N % N % N % N %

1 0.7 22 15.5 40 28.2 19 13.4 27 19.0 3 2.1 18 12.7 12 8.5 0 0.0

21 6.8 223 72.2 21 6.8 5 1.6 25 8.1 9 2.9 1 0.3 4 1.3 0 0.0

31 12.3 19 7.5 88 34.8 33 13.0 7 2.8 0 0.0 5 2.0 54 21.3 16 6.3

53 7.5 264 37.5 149 21.2 57 8.1 59 8.4 12 1.7 24 3.4 70 9.9 16 2.3

N %

142 100

309 100

253 100

704 100

Understanding the diversity of immigrant entrepreneurial strategies 71 so their main competitors are co-ethnic (72.2 per cent), different from Cape Verdeans who, because they are found in sectors such as construction (45.1 per cent) and retail (35.9 per cent), have Portuguese as competitors (28.2 per cent). The same happens with Indian entrepreneurs: because they gravitate to the retail sector (88.6 per cent), Portuguese natives are their most important competitors (34.8 per cent). Nevertheless, it should be pointed out that, because some immigrant entrepreneurs rely much more on ethnic resources to define their strategy, they have a larger number of coethnic competitors since they all share similar plans of social mobility.18 As I will present in more detail, this is the case of Chinese entrepreneurs in Portugal who mainly capitalize ethnic strategies. Furthermore, it should be pointed out that the immigrants with the lowest rates of entrepreneurship are also the group that is the largest foreigner recipient of unemployment benefits and ‘guaranteed minimum income’,19 according to Portuguese official statistics (mainly African and Eastern European citizens). In other words, immigrants that are benefiting more from resources made available by the Portuguese welfare state tend to have less entrepreneurial initiative. Accordingly, it should be discussed whether those resources are decreasing the entrepreneurial motivation of certain immigrant groups, mainly because, in case of exclusion from the Portuguese labour market, it becomes less risky to stay legally in the country through subsidies than by creating a business. Finally, there are also relevant characteristics from the Portuguese political and regulatory framework that had important impacts on immigrants’ propensity towards entrepreneurship. As Peixoto (2002) argues, the difficulties of controlling immigration flows to Portugal led to particular policies from the early 1990. In the past 15 years three regularization processes regarding illegal immigrants took place. However, those regularizations did not resolve only the problem of illegal immigrants residing in the country. As the data collected on immigrant entrepreneurs highlight, other illegal immigrants arrived from other European countries during these periods. While close to half of the Cape Verdeans entrepreneurs arrived to Portugal during the 1970s, nearly 80 per cent of the Indian entrepreneurs arrived in the mid-1980s and almost 70 per cent of the Chinese came during the 1990s (see Table 5.4). Additionally, whereas the majority of the entrepreneurs of Indian origin arrived in Portugal via Mozambique with Portuguese nationality,20 the Cape Verdeans and especially the Chinese used a tourist visa to make their way into the country. It is therefore not surprising that the majority of the Chinese questioned arrived in Portugal during the periods of extraordinary regularization21 (which took place in the 1990s) after other migration experiences.22 The different legal conditions (at the moment of arrival in Portugal, whether immigrants are residents, tourists or have citizenship) influence the initiation of entrepreneurial activity in Portugal. Collected data show that Indians, who arrived as citizens, started to become self-employed earlier than the other two groups. On average, the majority of Indians become entrepreneurs by the age of 25, while Cape Verdean started at about 30 years and Chinese 31 years of age. Portuguese nationality is perceived by immigrant entrepreneurs as the best legal condition to define an entrepreneurial strategy in Portugal since, among other things, it facilitates the access to bank loans. Having said this, it is not surprising that the majority of the entrepreneurs questioned intend to acquire Portuguese nationality in the near future

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Table 5.4

Year of arrival in Portugal according to entrepreneurs’ origins Origin of the entrepreneurs

Year of arrival in Portugal 1960s 1970s 1980s Since 1990 Born in Portugal Total

Cape Verdeans

Chinese

Indians

Total

N % N % N % N % N %

5 3.7 64 47.4 37 27.4 27 20.0 2 1.5

3 1.0 9 3.0 76 25.1 215 71.0 0 0.0

3 1.2 91 36.0 114 45.1 20 7.9 25 9.9

11 1.6 164 23.7 227 32.8 263 38.0 27 3.9

N %

135 100

303 100

253 100

692 100

Note: 13 entrepreneurs refused to answer this question (7 Cape Verdeans and 6 Chinese). Source: Oliveira (2003: 57).

(Oliveira, 2004). This fact also reflects the existence of barriers in the Portuguese regulatory and institutional environments for setting up businesses. Until 2001, immigrants that intended to set up a business needed to have an authorization of residence. To obtain this, some conditions were required, including proof of minimal income, the absence of a criminal record in the country and evidence of the legal status of the business. This last condition defines the need of the immigrant to resolve all bureaucratic proceedings of setting up a business before asking for residency in Portugal. However, because the authorization of residence should be granted in the country of origin, the immigrant had to come to Portugal in an earlier phase (with a temporary visa) to legalize his/her future entrepreneurial activity (Oliveira, 2004). Immigrants that were already residing in Portugal but with another legal condition could also require an authorization of residence if they worked as a wage earner or a salaried employee for a period of three years. The law approved in 2001 limits immigrants’ entrance according to the jobs availability in the labour market. Within this new legal framework temporary work stays were defined for the first time and the employment of illegal immigrants became subject to severe punishment. Even if this new law did not have a direct impact on immigrant entrepreneurs, it generated structural changes in the way entrepreneurs can operate. First, because entrepreneurs have now to declare the need for wage earners to the Employment Institute of the Portuguese Government (Instituto de Emprego e Formação Profissional), it became more difficult to contract (legally) co-ethnic workers. Consequently, since co-ethnic labour was one of the relevant resources of entrepreneurial strategies, this change may have important impacts on immigrants’ tactics. Second, with the new law and the reinforcement of the legal notion of temporary work visas, immigrants now apply for a ‘permit to stay’. To obtain this, they have to possess,

Understanding the diversity of immigrant entrepreneurial strategies 73 among other requisites, a work contract. The immigrants that get this permit only become able to work (legally) as wage earners or salaried employees. As a consequence, until the end of 2003, there were 183 655 legal immigrants that were not allowed to develop an entrepreneurial activity in Portugal but only work as wage earners. Furthermore, those immigrants can only apply for an authorization of residence and legalize a business after a period of five years working as a wage earner (Oliveira, 2004). After this brief characterization of the opportunity structure and the regulatory and political framework in Portugal, I will now analyse in more detail the diversity of immigrants’ entrepreneurial strategies. The option to compare Cape Verdean, Indian and Chinese entrepreneurs aims to assess different tactics of mobilizing resources in the definition of entrepreneurial strategies in a similar host society. The correspondence analysis model 23 The correspondence analysis model provides a multi-variate reading of immigrant entrepreneurial strategies, by examining the contribution of personal resources, ethnic opportunities (or opportunities gathered in other social networks) and contextual attributes (see Figure 5.2). The model is two-dimensional and explains 76.3 per cent of the total inertia (the first factor explains 54.2 per cent and the second 22.1 per cent).24 The contingency tables revealed a positive association between personal resources and Cape Verdean entrepreneurs, ethnic resources and Chinese entrepreneurs and family resources and Indian entrepreneurs. In other words, each population mobilizes different resources in the definition of the entrepreneurial strategy. Because Chinese have more difficulties in their integration into Portuguese society (they are not familiar with the laws and do not speak the language) they associate their entrepreneurial strategy with ethnic resources (for example, co-ethnic workers, loans from the community, co-ethnic suppliers). Indians and Cape Verdeans, although with diverse strategies, are not so confined within their communities. Both groups claim to have a high proficiency in Portuguese language and knowledge of Portuguese laws which might mean a higher integration into the Portuguese society. The correspondence analysis model reveals the complex nature of generalizations concerning immigrant entrepreneurial strategies, as it is greatly influenced not only by social networks (namely ethnic) but also by personal resources and the specific spatial and temporary contexts. (See Figure 5.3.) Ethnic strategies The ‘ideal type’ of ethnic strategy mobilizes essentially opportunities and resources intrinsic to a certain ethnic population. It is based on cultural, financial, human, political and social resources acquired through networks of solidarity and reciprocity inherent to an ethnic group. The Chinese entrepreneurs constitute the group who best illustrate this strategy in Portugal. Some researchers showed that ethnic resources might be fundamental to the development of an entrepreneurial initiative through the privileged access to capital,25 labour force, suppliers and so on (Waldinger et al., 1990; Light and Gold, 2000). On the other hand, the ethnic population itself might constitute a consumer market which encourages the growth of an entrepreneurial class (Chan and Cheung, 1985: 149; Portes, 1999: 58). In either case, the majority of entrepreneurs of immigrant origin studied here do not target a market of

74

–0.8

Family Strategies

Indians

Other work experiences Non co-ethnic labour

Experience in retail Business in retail 0.2

0.4 Never work as wage earner

Business inherited

0.6

Do not intend to return to the country of origin

Ethnic Strategies

–0.6

Correspondence analysis graph

Business in civil construction

Individual Strategies

Axis 1

–1

Have been Invest in the country of origin subjected to discrimination in Work experience in civil construction –0.8 the labour market

Cape Verdeans

Intends to return to the country of origin –0.4

Worked for Portuguese employers

Co-ethnic ties helped to find the first job in Portugal

Argues that immigrants are discriminated in the labour market

citizens

Immigration for economic reasons

Argues that immigrants Financial support from relatives are not discriminated in Not important young generation to continue the business the labour market Familiar with Portuguese laws Not familiar with Portuguese language Speak Portuguese language Did not have financial Privileged contacts with co-ethnic Chinese Business in catering support from friends 0 –0.6 –0.4 0 entrepreneurs 0.2 0.4 0.6 0.8 –0.2 Financial support by friends Work experience in catering Arrived in the 1980s Very important that young Co-ethnic and family Work experience with Personal savings Not familiar with generation continue the ties helped to find the co-ethnic employer Privileged contacts with Co-ethnic Did not have financial Portuguese laws business first job in Portugal Portuguese entrepreneurs labour support from relatives –0.2

Immigration caused by political instability in the country of origin

Figure 5.3

Axis 2

Understanding the diversity of immigrant entrepreneurial strategies 75 co-ethnic consumers but rather Portuguese clients (especially in the case of the Chinese26 and of the Indians). This tendency might be related to the investment sector of these entrepreneurs, but it can also be a temporary tendency given the recent settlement and small size of the Chinese population in Portugal: 11 per cent of the entrepreneurs of Chinese origin even complained about the lack of an ethnic labour force (see Oliveira, 2002). Among the ethnic resources, the availability of financial capital might have a vital function in the development of an entrepreneurial activity. A number of ethnic groups have developed financial practices with the goal of responding to the necessities of the community (Light and Gold, 2000: 116). Among the entrepreneurs questioned, 50.4 per cent created their business with the support of their families and 24.7 per cent had also the help of friends. In this way, and as suggested by other studies,27 ethnic entrepreneurs count on a number of capital sources apart from the official institutions. This shows the importance of the ethnic community. However, the sources of capital vary according to the origin of the entrepreneurs. While 44 per cent of the Chinese questioned identified the availability of financial support provided by friends as a complementary source of capital for the creation of a business, in the case of the Cape Verdeans the availability of this source is not very significant (9.2 per cent). Family economic support is also particularly important for the Chinese (66.7 per cent) and reduced in the case of the entrepreneurs of Cape Verdean origin (only 13.4 per cent). Hence, whereas Chinese entrepreneurs rely on family and ethnic resources, Cape Verdeans count on their own savings and personal resources to set up a business (78.9 per cent). This determines a different set of entrepreneurial investments: as the first group opens stores and restaurants, Cape Verdeans define small businesses as manpower with no need of infrastructures (such as recruiters of labour to the civil construction sector). The loans acquired through the ethnic group or family are normally tax-free, generating a sense of reciprocity in the community. Honour is a fundamental value for any Chinese to survive in an ‘adverse’ society. Failing to fulfil one’s duties towards the community may lead to exclusion from that community, and this can be economically fatal (Oliveira, 2002). Ethnic labour has also a competitive advantage for these businesses. As noted by researchers in other countries, businesses of immigrant origin employ predominantly coethnic workers (Chan and Cheung, 1985: 149). The networks of solidarity among immigrant populations allow the creation of an ethnic labour force which accepts labour conditions unacceptable to others: lower payment and longer hours (Waldinger et al., 1990: 142). Some employers make decisions on labour force recruitment based on ethnic preferences. The social networks are thus an effective source to locate potential employees.28 However, this study showed that the three populations of immigrant origin in Portugal have distinct options for hiring workers (see Table 5.5): while the Chinese had a strong preference for co-ethnic workers (52.4 per cent),29 the Indians prefer to hire non-coethnics. The majority of the Chinese questioned justified their option with reasons of trust and convenience when communicating in the same language. The Indians prefer not to hire co-ethnics because they quickly learn how a business works and rapidly open their own entrepreneurial activity, becoming competitors. These highly distinct strategies illustrate two different ideas regarding the opportunities commonly associated with co-ethnic workers. In the Chinese case, the entrepreneurs invest in employees with whom they established relationships of trust and solidarity, sustaining

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Table 5.5

Preferences on hiring workers according to group of immigrant origin Origin of the entrepreneurs

Preferences on hiring workers

Cape Verdeans

Chinese

Indians

Total

Hires preferentially co-ethnic workers Hires preferentially non co-ethnic workers Does not answer the question

N % N % N %

50 35.2 57 40.1 35 24.6

162 52.4 70 22.7 77 24.9

28 11.1 178 70.4 47 18.6

240 34.1 305 43.3 159 22.6

Total

N %

142 100

309 100

253 100

704 100

Source: Oliveira (2003: 98).

a circle of mutual reciprocity (as suggested by Portes, 1999, and Light and Gold, 2000). Mostly, employers hire co-ethnics who even speak the same dialect. This encourages a paternalist relationship between the workers and the employer. The instability of the Chinese worker, who most of the time does not mind working longer hours than the native Portuguese, is associated, in many cases, with their illegal status (Oliveira, 2003). Indians, in another perspective, highlight how the reciprocity requirement in social networks may generate conflicts within the co-ethnic community. And, as Light and Gold (2000: 127) also suggest, the inability to control competition can bring the end of favourable relations between co-ethnic employers and workers. Nevertheless, social networks are also used to find employment. That proves to be the case of the majority of entrepreneurs questioned: almost 55 per cent obtained their first job in Portugal through co-ethnic contacts (see Table 5.6). It is interesting to note that the ‘ethnic’ differentiation of the Portuguese labour market described above has also influenced the investments of different immigrant groups in Portugal, as those entrepreneurs have been investing in sectors where they accumulated work experience (Oliveira, 2004). As Waldinger and associates (1990: 133) argue, social networks are also important sources of information and advice on entrepreneurial strategies. As a consequence it is not surprising that the majority of the entrepreneurs questioned (55.8 per cent) have coethnic contacts within the same business sector. Once again, Chinese entrepreneurs stand out in that respect, having the highest percentage (71.8 per cent). The majority of Chinese entrepreneurs also meet their suppliers within their co-ethnic network (70.6 per cent). This illustrates once more the importance of social networks in their ethnic entrepreneurial strategies. Family strategies Family strategies are characterized by the resort to the opportunities intrinsic to a familial network. Although these entrepreneurial strategies can be personified in a single individual they are the result of a family project. They are inherited and maintained through the financial and social resources of the family.

Understanding the diversity of immigrant entrepreneurial strategies 77 Table 5.6 Strategy adopted to find the first job in Portugal according to the origin of the entrepreneur Origin of the entrepreneur

Contacting friends, relatives or other co-ethnics Contacting co-ethnic employees Contacting Portuguese (native) friends Through official announcements of available jobs As soon as arrive in Portugal invested as an entrepreneur Total

Cape Verdean

Chinese

Indian

Total

N % N % N % N % N %

88 62.0 15 10.6 12 8.5 19 13.4 8 5.6

216 69.9 10 3.2 2 0.6 2 0.6 79 25.6

82 32.4 7 2.8 8 3.2 17 6.7 139 54.9

386 54.8 32 4.5 22 3.1 38 5.4 226 32.1

N %

142 100

309 100

253 100

704 100

Source: Oliveira (2003: 101).

It is particularly interesting to inquire to what extent the family transmission of social and economic capital can become a decisive factor for entrepreneurial aptitude and predisposition: that is, how the family determine individual trajectories more or less directly translated into entrepreneurial trajectories.30 Thus, similarly to the Portuguese entrepreneurial structure, there is a proliferation of family enterprises among immigrant entrepreneurs, but only a very small number of companies are acquired by inheritance, donation or marriage (3.8 per cent).31 The entrepreneurs with an Indian background are the ones who have the least experience as employees. In fact, these are the entrepreneurs who more promptly create their own job, which substantiates the framing of the family project. It should be kept in mind that a great many (54.9 per cent) of these entrepreneurs developed their entrepreneurial activity or helped in a family business immediately after arriving in Portugal.32 In this way, and taking into account their acquisition of enterprises by inheritance, the transference to Portugal of family entrepreneurial strategies developed in Mozambique was verified (in some cases).33 On the other hand, Indian entrepreneurs are linked to activities in the commercial sector even if their professional experience is not limited to this sector (as shown by Figure 5.2). This shows that, in some cases, the entrepreneurial strategy is not a result of the individual’s entrepreneurial experience but from his/her family. Furthermore, similar to the Portuguese entrepreneurial structure of small size, family work has a preponderant role.34 Among the immigrant entrepreneurs questioned, only 27.4 per cent did not use family workers. When compared to the Chinese and Indians, the Cape Verdean entrepreneurs have the lowest number of family workers. Among those who have family workers, 13.1 per cent do not provide their employees with any sort of remuneration for their services. The Chinese hold the highest number of

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non-remunerated family workers: 16.2 per cent against 10.3 per cent of the Indian entrepreneurs and 11.3 per cent of the Cape Verdeans. However, it is important to mention that, in the Indian case, the entrepreneurial strategy is strongly based on family workers:35 55.6 per cent of those entrepreneurs did not have Portuguese workers and a mere 7.9 per cent had workers of other ethnic backgrounds (non co-ethnics and non-Portuguese natives). The characteristics of this strategy are constituted on the basis of family participation and family descent. The entrepreneurs of Indian origin also hold the highest number of family members in the same business sector (74.3 per cent). Moreover, they are the group who benefit the most from family financial support when developing the entrepreneurial strategy (51.8 per cent). Personal strategies As argued by Chan and Cheung, the proliferation of immigrants’ businesses must take into account not only the influence of the group and its resources (such as solidarity, cohesion, mutual trust and communication skills) but also the individual competencies or the personal resources of the entrepreneur (1985: 144). Indicators such as social class, qualifications, professional experience, age and migration experience are able to provide a concrete explanation of the way personal resources affect immigrants’ economic options. According to the proposed typology, individual strategies are mainly defined within the personal resources of the entrepreneur. Savings (as the main source of financial investment) and professional experience have a central role in those strategies. Professional experience provides the necessary knowledge to invest with security in a business activity.36 Thus it is not surprising that the groups questioned develop entrepreneurial initiatives in the same field as that of their previous economic activity. An association between the origins of immigrants and the field of activity was identified for the three case studies under consideration: Cape Verdean entrepreneurs had work experience in the construction sector, the Chinese had work experience in the catering sector, and the Indians in the retail sector. In either case, only 24.3 per cent of the individuals questioned said that the reason for developing an entrepreneurial activity was a good knowledge of a particular business sector. While Cape Verdeans refer mainly to individual reasons for developing entrepreneurial strategies, such as ‘I wanted to be independent’ (52.8 per cent), ‘I knew the business sector well’ (35.9 per cent) and ‘I wanted to have a better life’ (23.9 per cent), the Chinese and the Indians stated the importance of individual reasons but gave special emphasis to family requests and demands (25.2 per cent and 34 per cent respectively). Cape Verdean entrepreneurs appear to illustrate particularly well the individual strategies (as can be seen in Figure 5.2). The development of their activities is based mostly on their personal savings rather than on financial help from family, friends or other ethnic acquaintances. On the other hand they are associated with the establishment of their own business. Contrary to the other two groups, Cape Verdeans show the highest interest in returning to the country of origin (73.9 per cent). Hence, as argued by Bonacich (1973), perhaps it is this intention to return to the country of origin that generates the high predisposition for entrepreneurial activities of those particular immigrants, since they belong to a group with no history of entrepreneurship in Portugal. As shown here, the group of immigrant

Understanding the diversity of immigrant entrepreneurial strategies 79 origin with greatest predisposition to return to the country of origin is the same one that associates less its economic integration (in Portugal) with entrepreneurial strategies. Furthermore, they are also the entrepreneurs who invest the most in the country of origin. Among the 47.2 per cent Cape Verdean entrepreneurs investing in Cape Verde, 67.2 per cent buy property and housing and 17.9 per cent invest in the creation of new enterprises and businesses. These entrepreneurs also have privileged contacts with Portuguese (non-co-ethnics) in the same area of business. Additionally, they had come to Portugal through recruitment by a Portuguese employer. Nonetheless, they are also associated with the acquisition of a first job through a direct contact with a co-ethnic employer. Finally, and in contrast to entrepreneurs of Indian and Chinese origin, Cape Verdean entrepreneurs consider the continuation of their entrepreneurial strategies by the new generations more important. This attitude appears to be the consequence of the effort put into gaining their present position (as an entrepreneur), which is not such a common position among their group of origin. In this sense, will these individual strategies be transformed into family strategies in the future? The answer is still unknown. Conclusions The main contribution of this chapter was to propose a heuristic model on immigrant entrepreneurial strategies, which mainly takes into account the diversity of immigrant tactics and the limits of generalizations concerning immigrant strategies. Empirical comparative research conducted in Portugal served to frame the theoretical definitions more precisely and provide a stepping-stone for highlighting such a diversified and complex field. Furthermore, this chapter reports an attempt to replicate and evaluate that heuristic model by using the results of a survey of Chinese, Indian and Cape Verdean entrepreneurs conducted in the Lisbon Metropolitan Area. Using the theoretical framework presented I have found three different entrepreneurial strategies: ethnic strategies, family strategies and individual strategies. In each one the entrepreneurs mobilized preferentially different resources. As I stressed, the characteristics of the Portuguese economy and regulatory regime explain why only those strategies have been developed. Accordingly, research on different host contexts may assess the existence of other sorts of immigrant entrepreneurial strategies. The results of the study, which involved a correspondence analysis based on the survey, can be summarized in the following generalizations: (1) immigrant entrepreneurial strategies are quite diverse, depending on the resources and opportunities that they were able to gather in the spheres in which they are embedded; (2) Chinese entrepreneurial strategies were mainly dependent on ethnic resources, namely on financial capital, labour and suppliers. Ethnic ties prove also to be crucial in the accumulation of business know-how; (3) Indians defined their entrepreneurial options within family resources, which prove to be another important social network; and (4) Cape Verdeans, because of their community’s poor conditions in the Portuguese labour market and weak ties to entrepreneurship, defined their strategy within personal savings. Nevertheless, the experience acquired as employees (namely in the construction sector) gave them the necessary expertise to succeed in their businesses. Furthermore, dissimilarities identified in the three populations also suggest that not all spheres where immigrants might be embedded are utilized and, in consequence,

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it is suggested that the definition of an entrepreneurial strategy be brought into play. Immigrants neither find the same opportunities and constraints in those spheres of embeddedness, nor do they have the same pre-disposing factors to be an entrepreneur. Therefore, the definition of an entrepreneurial strategy is a creative process and results from individuals’ ability to negotiate and gather resources in a given space and period of time. One implication of these conclusions is that it is necessary to engage in a debate about the multiple factors to explain immigrant entrepreneurship in a multi-variate approach. Moreover, immigrant entrepreneurial strategies are not homogeneous, especially if one takes into account the differences in characteristics, resources and opportunities gathered and exploited by immigrants and ethnic groups in the definition of a strategy in a given country. Notes 1.

Research funded by Calouste Gulbenkian Foundation and Portuguese Science and Technology Foundation. 2. Zapalska and Edwards’ research on the Chinese highlights this cultural perspective. The authors argue that Chinese have a specific entrepreneurial culture imprinted in the Confucian ideology (2001: 289). 3. Conceptualized in Light and Gold (2000). 4. Rekers and Kempen (2000: 55–6) give several examples of immigrant entrepreneurs from the same ethnic group in different cities and countries, showing that these have different entrepreneurial behaviours. 5. See Light and Rosenstein (1995) for an example of Cubans and Koreans in the United States. 6. In Portugal, it is possible to identify to some extent several similarities between native entrepreneurial strategies and immigrant strategies, namely in the access to family labour and family financial support (see Guerreiro, 1996; Oliveira, 2003). 7. As the Hague case highlights (Santokhi, 2002). 8. Sanders and Nee further suggest that ‘the less dependence on ethnic resources, the weaker the social mechanisms that maintain bounded solidarity and enforceable trust within the ethnic group’ (Nee, 1996: 233). 9. A good example of this is that of Chinese entrepreneurs opening ethnic restaurants all over the world, following other innovative entrepreneurs that succeeded. 10. Although, as soon as they are settled into the labour market, they become aware (if they were not before) of competitors, suppliers’ routes, clients, rules and the rest. 11. As Kloosterman (2000: 93) suggests, ‘there is no concrete institutionalised “market for entrepreneurs” with clearly advertised vacancies and a more or less easily identifiable supply. Opportunities for the selfemployed (“vacancies”) may go unnoticed or neglected for all kinds of reasons’. 12. Light and Gold (2000) highlight how immigrants’ social class can define an unequal access to community resources. 13. As Barrett et al. (2001) suggest in the British case, changes in rules and regulations over time can give different effects towards immigrants and natives entrepreneurship. 14. Research funded by Gulbenkian Foundation and the Portuguese Foundation for Science and Technology. 15. It is important to take into consideration that Portugal only became an immigration country in the late 1970s. And the first law that regulated immigrants’ entrance, permanence and expulsion only dates back to 1981 (Law-Decree nº 264-B/81). 16. The cases studied also highlighted the importance of work experience in entrepreneurial options. The majority of the entrepreneurs questioned invested in the same sector where they worked before as wage earners: 45.1 per cent Cape Verdeans worked and invested in construction, while 68.3 per cent Chinese worked and invested in the catering industry. 17. See Boissevain (1984), Chan and Cheung (1985: 143), Jones et al. (2000: 39) and Rekers and Kempen (2000: 54). 18. Also suggested by Waldinger et al. (1990: 146). 19. The minimum income was established in 1996 in Portugal to combat exclusion and poverty (for more details see Baganha et al., 2000). 20. In fact there is even a certain imbalance on the distribution of citizenship among the entrepreneurs questioned: 85 per cent of the entrepreneurs of Indian origin hold Portuguese nationality, against 13.3 per cent of the Chinese and 50 per cent of the Cape Verdeans. 21. A high degree of non-answers by Chinese entrepreneurs should be noted. This fact can lead the researcher to believe that there are more illegal arrivals.

Understanding the diversity of immigrant entrepreneurial strategies 81 22. 23. 24. 25. 26. 27. 28. 29.

30. 31. 32. 33. 34. 35. 36.

132 out of the 359 Chinese entrepreneurs had other migration experiences of which only 16 occurred in non-European countries. The correspondence analysis is the categorical data analysis method developed by Benzécri (1980). The correspondence analysis model only includes the categories with absolute contributions above average within 23 variables. Chan and Cheung show how the existence of associations of rotating credit and cultural organizations with funds for informal support explains the strong entrepreneurial success of the Chinese and Japanese in Canada (1985: 144). This situation opposes the one described in the case of the Chinese in Toronto, with only 22 per cent of the entrepreneurs having non-co-ethnic clients while 54 per cent had exclusively Chinese clients (Chan and Cheung, 1985: 149). See Waldinger et al. (1990: 137–40) and Sanders and Nee (1996: 235). As shown by Light and Gold (2000: 119). In the Chinese case, this situation is even more apparent if we consider that 87.1 per cent of the entrepreneurs state that they do not have native-Portuguese workers and only 2 per cent have workers of other ethnic origins apart from the co-ethnic workers. On the other hand, only 24.9 per cent say they do not have co-ethnic workers. Guerreiro also notes the existence in Portuguese businesses of a social reproduction of the family trajectory with ‘entrepreneurial vocations’ (Guerreiro, 1996: 19). From the 27 immigrants questioned that said they had acquired a company through inheritance, donation or marriage, 19 were of Indian origin. By contrast, the Cape Verdean entrepreneurs had the highest number of employers before initiating an entrepreneurial activity. As had already been suggested by Ávila and Alves (1993). Waldinger et al. state that family work is important not only for ethnic enterprises but for all businesses of small size (1990: 142). Only 22.6 per cent of the Indian businesses do not have family workers. See Waldinger et al. (1990: 140).

References Aldrich, H. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Ávila, P. and M. Alves (1993), ‘Da Índia a Portugal – trajectórias sociais e estratégias colectivas dos comerciantes indianos’, Sociologia – Problemas e Práticas, 13 (115–33). Baganha, M.I., J.C. Marques and G. Fonseca (2000), Is an Ethclass emerging in Europe? The Portuguese Case, Lisbon: Luso-American Foundation. Barrett, G., T. Jones and D. McEvoy (2001), ‘Socio-economic and policy dimensions of the mixed embeddedness of ethnic minority business in Britain’, Journal of Ethnic and Migration Studies, 27(2), April, 241–58. Benzécri, J.P. (1980), L’Analyse des données. L’Analyse des correspondances, vol. 2, Paris: Dunod. Boissevain, J. (1984), ‘Small entrepreneurs in contemporary Europe’, in R. Ward and R. Jenkins (eds), Ethnic Communities in Business. Strategies for Economic Survival, London: Cambridge University Press, pp. 20–38. Bonacich, E. (1973), ‘A theory of middleman minorities’, American Sociological Review, 37, 583–94. Chan, J. and Y. Cheung (1985), ‘Ethnic resources and business enterprise: a study of Chinese business in Toronto’, Human Organization, 44(2), summer, 142–54. Engelen, E. (2001), ‘ “Breaking in” and “breaking out”: a Weberian approach to entrepreneurial opportunities’, Journal of Ethnic and Migration Studies, 27(2), April, 203–23. Etzioni, A. (1988), The Moral Dimension. Toward a New Economics, New York and London: The Free Press. Guerreiro, M.D. (1996), Famílias na Actividade Empresarial: PME em Portugal, Oeiras: Celta. Jones, T., G. Barrett and D. McEvoy (2000), ‘Market potential as a decisive influence on the performance of ethnic minority business’, in J. Rath (ed.), Immigrant Businesses. The Economic, Political and Social Environment, London: Macmillan Press, Ltd, pp. 37–53. Kloosterman, R. (2000), ‘Immigrant entrepreneurship and institutional context: a theoretical exploration’, in J. Rath (ed.), Immigrant Businesses. The Economic, Political and Social Environment, London: Macmillan Press Ltd, pp. 90–106. Kloosterman, R. and J. Rath (2001), ‘Immigrant entrepreneurs in advanced economies: mixed embeddedness further explored’, Journal of Ethnic and Migration Studies, 27(2), April, 189–201. Kloosterman, R., J. Leun and J. Rath (1999), ‘Mixed embeddedness: (in)formal economic activities and immigrant business in the Netherlands’, International Journal of Urban and Regional Research, 23, 253–67. Light, I. and P. Bhachu (eds) (1993), Immigration and Entrepreneurship: Culture, Capital and Ethnic Networks, New Brunswick, NJ: Transaction Publishers.

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Light, I. and S. Gold (2000), Ethnic Economies, San Diego and London: Academic Press. Light, I. and C. Rosenstein (1995), Race Ethnicity and Entrepreneurship in Urban America, New York: Aldine de Gruyter. Malheiros, J.M. (1996), Imigrantes na região de Lisboa. Os anos da mudança, Lisbon: Edições Colibri. Oliveira, C. (2002), ‘Immigrants’ entrepreneurial opportunities: the case of Chinese in Portugal’, special issue on Economic Growth and Innovation in Multicultural Environments (ENGIME), Fondazione Eni Enrico Mattei: Milan, Note di Lavoro 75.2003; also available at http://www.feem.it/NR/rdonlyres/076B874F-3A944754-9600-67DEB77/789/7503.pdf. Oliveira, C. (2003), Empresários de origem imigrante: estratégias de inserção económica em Portugal, Lisbon: ISEGI-UNL. Oliveira, C. (2004), Estratégias empresariais de imigrantes em Portugal, Lisbon: Immigration Observatory/High Commission for Immigration and Ethnic Minorities; also available at http://www.oi.acime.gov.pt/docs/pdf/ Estrat%20Empresariais%20Imigrantes%20em%20Portugal.pdf. Peixoto, J. (2002), ‘Strong market, weak state: the case of recent foreign immigration in Portugal’, Journal of Ethnic and Migration Studies, 28(3), July, 483–97. Peters, N. (2002), ‘Mixed embeddedness. Does it really explain immigrant enterprise in Western Australia?’, International Journal of Entrepreneurial Behaviour & Research, 8(1/2), special edition, ‘The economic context, embeddedness and immigrant entrepreneurs’, edited by J. Rath, R. Kloosterman and E. Razin, pp. 32–53. Portes, A.(1999), Migrações Internacionais. Origens, Tipos e Modos de Incorporação, Oeiras: Celta Editora. Portes, A. and R. Manning (1986), ‘The immigrant enclave: theory and empirical examples’, in S. Olzak and J. Nagel (eds), Competitive Ethnic Relations, Orleo and London: Academic Press Inc., pp. 47–68. Portes, A. and M. Zhou (1999), ‘Entrepreneurship and economic progress in the 1990s: a comparative analysis of immigrants and African Americans’, in F. Bean and S. Bell-Rose (eds), Immigration and Opportunity. Race, Ethnicity, and Employment in the United States, New York: Russell Sage Foundation, pp. 143–71. Rath, J. (2000), ‘Introduction: immigrant businesses and their economic, politico-institutional and social environment’, in J. Rath (ed.), Immigrant Businesses. The Economic, Political and Social Environment, London: Macmillan Press Ltd, pp. 1–19. Rath, J. (2002), ‘Needle games: a discussion of mixed embeddedness’, in J. Rath (ed.), Unravelling the Rag Trade. Immigrant Entrepreneurs in Seven World Cities, Oxford and New York: Berg, pp. 1–27. Rekers, A. and R. Kempen (2000), ‘Location matters: ethnic entrepreneurs and the spatial context’, in J. Rath (ed.), Immigrant businesses. The Economic, Political and Social Environment, London: Macmillan Press, Ltd, pp. 54–69. Sanders, J. and V. Nee (1996), ‘Immigrant self-employment: the family as social capital and the value of human capital’, in American Sociological Review, 61, April, 231–49. Santokhi, S. (2002), ‘Neighbourhood transformation and economic activities. Aspects of urban economic activities in segregated areas in The Hague’, paper presented in the Workshop ‘Communication Across Cultures in Multicultural Cities’, that took place in the Institute of Higher European Studies, The Hague, The Netherlands, 7 to 8 November. Waldinger, R., H. Aldrich and R. Ward (1990), Ethnic Entrepreneurs. Immigrant Business in Industrial Societies, Newbury Park, CA: Sage Publications. Ward, R. and R. Jenkins (eds) (1984), Ethnic Communities in Business. Strategies for Economic Survival, London: Cambridge University Press. Wilson, K. and A. Portes (1980), ‘Immigrant enclaves: an Analysis of the labor market experiences of Cubans in Miami’, American Journal of Sociology, 86(2), 295–319. Zapalska, M. and W. Edwards (2001), ‘Chinese entrepreneurship in a cultural and economic perspective’, Journal of Small Business Management, 39(3), 286–92.

6

Immigrant women in small business: biographies of becoming entrepreneurs Caroline B. Brettell

Lourdes ordered custom-made signs for her bakeries in red, white, and blue with her name printed at the bottom right-hand corner: LOURDES PUENTE: PROPRIETOR. . . . Lourdes felt a spiritual link to American moguls . . . She envisioned a chain of Yankee Doodle bakeries stretching across America to St. Louis, Los Angeles, her apple pies and cupcakes on main street in suburban shopping malls everywhere. Each store would bear her name, her legacy: Lourdes Puente, PROPRIETOR. (Cristina Garcia, Dreaming in Cuban)

In a 2004 report for the Brookings Institution, Audrey Singer (2004) writes about emerging and reemerging cities of immigration in the United States of the twentieth century. These are cities that witnessed a dramatic rise in the proportion of the population that was foreign-born during the 1980s and particularly the 1990s. While number of people is one way to assess the impact of immigration on local communities, most of us need to do no more than to walk through the urban landscape and take in the smells from Salvadoran pupuserias, Chinese dim sum shops, and Brazilian churrasquerias, or the sight of Indian sari and jewelry stores, Vietnamese nail salons, Korean dry cleaners and halal grocers. These are the immigrant entrepreneurs who, it is claimed, have revised small business in America in the face of the ‘Walmartization’ of both US cities and suburbs. The literature on immigrant entrepreneurship is by now extensive, beginning with early work by Bonacich (1973), Light and Bonacich (1988) and others (Portes and Manning, 1986; Zhou and Logan, 1989), extending to a host of group-specific studies (Gold, 1988; Hosler, 1998; Min, 1988; Min and Bozorgmehr, 2000; Miyares, 1998; Tseng, 1995; WaltonRoberts and Hiebert, 1997; Wong, 1998; Zhou, 1992) and, most recently, to particular urban contexts and to the global comparative context (Halter, 1995; Light and Bhachu, 1993). This literature is characterized by a few key debates. One focuses on group differences. Why, for example, do Asian immigrants start small business enterprises at a greater rate than Latinos (Butler and Herring, 1991; Chinchilla and Hamilton, 2001; Fernandez and Kim, 1998; Levitt, 1995; Raijman and Tienda, 2000, 2003; Yoon, 1991)? Some of the explanations for these differences point to the cultural traits that predispose groups such as the Chinese, the Jews, the Armenians and the Indian Gujaratis to selfemployment (Bonacich, 1973; Smith-Hefner, 1995).1 Others focus on differences in human capital and other class resources or social capital/ethnic resources that facilitate selfemployment (Bates, 1994; Chan and Cheung, 1985; Light and Bhachu, 1993; Zimmer and Aldrich, 1987). An equally important question is why the rates of self-employment are higher among the foreign-born by comparison with the native-born (Borjas, 1986). Here explanations focus on the structural/opportunity factors that advantage or disadvantage immigrants (Marger and Hoffman, 1992; Fawcett and Gardner, 1994; Waldinger et al., 1990). It is hard for immigrants to find employment in the mainstream economy because they lack the linguistic skills, because they cannot be accredited to work in the field they worked in 83

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prior to migration, or because of discrimination. Self-employment, in other words, permits labor market assimilation when other avenues are blocked (Alund, 2003). Finally, some scholars focus on outcomes, asking, for example, if self-employment increases earnings (Portes and Zhou, 1996) or if employment in the enclave economy is a cost or a benefit in relation to longer term social mobility (Bates, 1994; Fong and Ooka, 2002; Kaplan, 1998; Logan, Alba and Stults, 2003). Curiously, in this vast corpus of scholarship very little attention has been paid to immigrant women entrepreneurs. In this chapter I take up this issue. I begin with a brief review of the small extant literature on this topic, noting points of emphasis and key arguments. I then turn to several case studies of immigrant women entrepreneurs drawn from a larger sample of interviews with small business owners from diverse national backgrounds who have established themselves in the Dallas–Fort Worth (henceforth DFW) area. These interviews were collected in conjunction with a broader study of immigrant incorporation in the DFW metroplex.2 My discussion of these cases emphasizes the agency of women, examining their decisions to become entrepreneurs and some aspects of how they operate their businesses. Women as migrants/women as entrepreneurs Twenty-five years ago there was very little research on immigrant women, but as migration patterns have changed, so too has scholarship. Not only are women often the first to migrate (sometimes they receive the initial job contract), but in some international migration streams they outnumber men (Brettell, 2003; Donato, 1992; Constable, 1997; Ho, 1993). Indeed, the increasing numbers of women involved in both internal and international population flows has led some scholars to speak of the ‘feminization of migration’ (Castles and Miller, 1993). The growing literature on women immigrants has shown that gender is important in the decision to migrate (when, where and who) as well as in the process of settlement in the receiving society. It is apparent that, while some women still move as dependants (as wives, daughters, mothers), there are many who are labor migrants moving in search of economic opportunities that are sometimes distinct from those for men. Pessar (1999) has traced the trajectory of scholarship reflecting this change from the migrant as male, to the study of immigrant women, to the engendering of migration research.3 Much of engendered migration research has focused on the changes that occur in gender and kin relations as a result of migration (for example, Holtzman, 2000; Kibria, 1993; Pessar, 1984). Among the questions addressed are the following: does wage earning enhance the power and status of immigrant women within their households; does greater sharing of household activities emerge as a result of the work obligations of women; how do changes in employment, and family structure and life style affect women’s public activities as well as their own assessments of their well being (Chavira-Prado, 1992; Giles, 2002; Groves and Chang, 1999; Hirsch, 1999; Ui, 1991)? Recently Hondagneu-Sotelo (1999) has identified several additional questions that are now being explored: the nature of gendered transnational communities, the spatial contours of immigrant occupational sex segregation, and similarities and differences in the experiences of second-generation boys and girls. Despite a proliferation of research on women immigrants and on the role of gender in the migration process, only a handful of scholars have addressed the topic of immigrant

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women entrepreneurs. This is somewhat surprising because historians writing about the third wave of immigration to the United States have often indicated how important ‘Mom and Pop’ stores were as a path to economic incorporation. These were generally enterprises that relied on family labor and many were strongly patriarchal. And yet, as historian Donna Gabaccia (1994: 56) has pointed out, ‘within family businesses women have been apt to exercise managerial influence as operators of cash registers and keepers of business accounts. Immigrant businesswomen have often begun their careers as workers in family enterprises’. Gabaccia cites several examples of women who rose through the ranks: Ida Cohen Rosenthal who started in the family clothing business, designed the modern brassière, and launched Maidenform; Helena Rubenstein who founded an international beauty enterprise; and Nellie Cashman who ran restaurants and boarding houses in Alaska and Arizona. Historian Hasia Diner (1983) reminds us of the Irish women who ran boarding houses to provide support for their families. ‘Some of the Irish boarding houses run by women also expanded into hotels and restaurants. Irish women also set up dressmaking shops, millinery shops, grocery stores, book stores, and even breweries and liquor stores’ (Diner, 1983: 96). Alice Chai (1987a, 1987b) was one of the earliest scholars to examine the role of women in family-operated small businesses among post-1965 immigrants to the United States. Chai discusses Korean women who came to Hawaii with professional backgrounds but eventually found themselves helping out in family-owned grocery stores, restaurants and gift shops. Although they work longer hours, women prefer this kind of work, particularly its freedom and flexibility, to waged employment in factories or working for others in service sector jobs. Korean women in Hawaii view self-employment as an avenue out of a racist and sexist labor market and toward greater interaction with their spouses. Although not specifically addressing the issue, scholars working among Korean immigrants in other parts of the United States have equally noted the significant role of women as family laborers in small businesses. In the survey that he conducted in New York City, Min (1998) found that 38 per cent of the women in the labor force were working with their husbands in the same business; 12 per cent ran their own businesses independent of their husbands; and 36 per cent were employed in co-ethnic businesses. ‘When two partners run the same business, the wife is usually in charge of the cash register and the husband takes care of the total management of the store. The wife’s control of the cash register is one of the central factors that make Korean retail businesses, such as produce, grocery and liquor retail businesses, successful’ (Min, 1998: 40; see also Yoon, 1998). Min goes on to describe the way that the 1500 Korean-owned nail salons in New York operate. ‘Some Korean men just drive their wives to and from the nail shop and help them open and close it while they either babysit or play golf during the daytime’ (Min, 1998: 40). He notes the significant effect of this kind of role reversal on Korean men. Other scholars have also explored the impact of self-employment on gender roles. Espiritu (1999) observes that, for immigrant women in small businesses, their work is an extension of their domestic responsibilities. Often they find themselves cooking at the store. Indeed she argues that the Asian immigrant small business sector is built on the backs of Asian and other immigrant women. One of her points is that, depending on where they are in the labor market, there are different outcomes for Asian immigrant women. Overall, however, Espiritu’s conclusion is that in this form of family-based selfemployment women experience extreme isolation and family dependency. Gilbertson

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(1995) comes to a similar conclusion based on her research among Dominicans and Colombians in New York. Immigrant women who are employed in small businesses within enclave economies do not achieve the same level of success as their male counterparts. Indeed they are often highly exploited. However, and important to note, Gilbertson excluded the small number of female business owners from the research sample. Dallalfar (1994) is one of the few scholars to focus on female business owners. Indeed she notes the paucity of research on immigrant women as actual entrepreneurs, ‘as innovators who use their gender, class, and ethnic resources to start up businesses and introduce products and services in the ethnic economy’ (Dallalfar, 1994: 542). Dallalfar argues that the ethnic economy is a site of empowerment for immigrant women. She describes Iranian women in Los Angeles who are sole owners and operators of their businesses and often the primary breadwinners. These women are found in both family-run and homeoperated businesses. The home-operated businesses are generally characterized by minimal start-up costs, the use of personal savings as well as ethnic and class resources to get it underway, a largely co-ethnic clientèle, word of mouth as the primary mechanism for attracting clientèle, and cash-based exchange. In the family-run businesses, women work longer hours but are coequal partners. Again, personal savings and ethnic resources are helpful in starting these businesses. In both cases these businesses involve both social and economic transactions; work and social life are merged. Dhaliwal (1995) equally explores this blurring of boundaries between home and work in her analysis of the way gender ideologies are created and maintained in the everyday activities and interactions of one South Asian woman named Kaur, who works in a small grocery business. ‘The new gender arrangement (Kaur working outside the home) is made consonant with previous gender expectations and ideologies by framing Kaur’s work as an extension of family and household responsibilities’ (Dhaliwal, 1995: 81). There has been some work in the European context on immigrant women as entrepreneurs. Indeed, Bhachu (1988) describes another Mrs Kaur who, with her husband, runs a sports shop in London. She and her husband share both the work and childcare responsibilities. The most common reasons for starting a business cited by the Sikh couples Bhachu studied are the ceiling to promotion and discrimination elsewhere in the labor market and the desire to forge one’s own destiny ‘without whites telling us what to do’ (Bhachu, 1988: 94). And yet women often give up a waged job, which was important when the business was first set up, and move back into a kinship/gender system that is more patriarchal. They assume a subordinate position. By contrast, Josephides (1988: 43) argues that immigrant Cypriot women ‘perceive themselves as building up a family business with their husbands rather than working for them’ and hence being exploited. These women, she suggests, are ‘tenacious entrepreneurs’ who are ‘constantly looking for openings in the market’ (Josephides, 1988: 48). Clearly, differences in cultural background matter. In a special issue of the International Journal of Sociology, several authors (Apitzsch, 2003; Kontos, 2003) suggest that, by focusing on biographies of self-employment we will develop a better understanding of women as active agents in the entrepreneurial process. Why do they choose this avenue of labor market engagement? What motivates them and how might their motives be different, if at all, from those of their husbands? While these are questions that these authors apply to women entrepreneurs more broadly, they cer-

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tainly have application to immigrant women entrepreneurs more specifically. In the remainder of this chapter I discuss the biographies of several immigrant women entrepreneurs in the DFW area who have entered the realm of small business. These biographies were generated in the context of a structured research interview. They reveal the motives, choices and values of women who decided to become business owners. Immigrant women’s biographies of entrepreneurship4 Serving the ethnic community: the small grocery store business One of the most common enterprises opened by immigrant newcomers is the retail grocery store. While some of these stores cater to a broad customer base (for example, the Korean greengrocers scattered throughout New York City) more frequent are the storeowners who serve their own ethnic community, importing foodstuffs from the homeland that immigrants are accustomed to using in their cooking and consuming. Food, as anthropologists and historians argue, carries cultural meaning and therefore reinforces and communicates identity (Counihan, 1999; Gabaccia, 1998). These stores are often operated by an immigrant couple, sometimes with the support of other family members. But, as the examples presented here indicate, they can equally be the domain of women working on their own. Suma P. Suma P.’s family was originally from Gujarat, India, but she was born in Kenya. She came to the United States and Dallas in 1981 with her husband, when she was in her twenties. Her first job was at a McDonalds where she was employed for seven years. She started as a night manager and then worked her way up the ladder. In 1986, she decided that she wanted to stop working at McDonalds as a manager and to open her own grocery store. In 1987, a place became available in Irving. She put down $50 000 to rent it for a year and another $50 000 to import the food necessary to start up an import grocery store. Her husband supported her decision and helped to solicit the money, including a small loan from a bank. He also backed it himself. Suma said she decided to go into business for herself because she became tired of ‘working someone else’s hours and always being on call. I wanted to own my own time . . . and own myself. I did not like being tied down to a certain number of hours or a certain set of hours . . . I like to decide when to get up each morning, when to take a vacation, when to go home at night, and when to keep the shop closed. At McDonald’s these things were always at the whim of someone else. I felt like I had no control of my life’. She chose the grocery business because it did not require much in the way of start-up costs. She had no prior experience in this kind of business but she did not imagine that it would be too difficult. She is not sure that, had she known then what she knows now, she would have gone forward. When she began, other members of her family, including her husband, helped out with the financing, but she is the one who owns the business. She focused on the Irving area because the Indian population in this part of the metroplex was growing and there was no grocery store for them. They had to travel all the way to the Taj Mahal Grocery in Richardson to find what they needed. She located the store in a small shopping center where three other Indian businesses are now located. She hires Indians to work for her but only the management positions are full-time and pay well. For other positions there is a lot of turnover and she hires several times each year.

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Her store specializes in northern Indian food items. She sells everything, from various types of rice and flour, to candy and oils, pickles and relishes, hot sauces and all the spices and vegetables that are necessary for good Indian cuisines. The products are mostly imported from India and Britain. About 50 per cent of her customers are Indians and the rest are a mix of other nationalities. They find things less expensive here. She uses English, Gujarati and Hindi to speak with her customers. She does some advertising in Indian papers, magazines, radio shows and at Indian community events, but most of her customers come through word of mouth. Besides the flexible hours this line of work gives her the opportunity to deal with her community, something she finds most rewarding. She indicated that she felt lucky that things had worked out on the first try and in the first location. Suma sees a good future for her business. She has already expanded once and might do so again in the next five years. She says business was difficult in the short term after 9/11 but it improved in 2002. She said that she is ‘not a get-rich-quick type of person. I just want to own my business and run it well. I do not want to be a grocery mogul’. She would only recommend this kind of business to someone else if they have knowledge of Indian food. ‘Indians know when they walk into a store if the people selling the food know what they are doing. Incompetence is a sure way to have an unsuccessful business. I didn’t have to work hard to know this food because I am Indian . . . It is extremely important to know Indian culture and how the food fits in with that culture.’ Gloria G. Gloria G., who was born in El Salvador in 1963, owns two import grocery stores and three courier services. She first came to the United States in 1978 and found a job working in the laundry at one of the big hotels in Dallas. She then worked cleaning houses. Finally she started her business – something that had been a goal all along. She said that her father, who was in the hennequen business, and her grandfather had taught her the value of being her own boss. Her first business was a courier service, shipping goods to and from El Salvador. She said she started this business in order to remain close to people in El Savador. She had no training or previous experience although she had grown up in a family business environment and this helped. When she opened the grocery store she chose a location near her house that is in an area where many Salvadorans live. No one else in the area had opened a store. Spanish is a necessity for this line of work, English is not. Some 70 per cent of her customers are Central Americans – Salvadoran predominately, but also including Honduran and Guatemalan. The remaining 30 per cent are made up of approximately equal parts Peruvian and Colombian. Although she advertises in Spanish newspapers, on Spanish radio and sponsors soccer games, most people learn about the store through word of mouth. About 90 per cent are regulars. She would like to expand her appeal to Bolivians in the area who are beginning to come into the store but to do that she needs to import Bolivian products. Gloria G. used her personal savings to start the business and has secured a bank loan for expansion. At the beginning money was tight and she had to cut back on her own expenses in order to keep the business going. She began with $14 000 and the help of an American friend who showed her how to apply for permits and such. The greatest sacrifice she has made was her family. She had to spend so much time working that she had little time left for her daughters. Typically, she works 16-hour days, seven days a week. She devotes this much time because ‘it does not run as smoothly when I am not there’. Today her expenses are about $16 000 per month, her receipts about $29 000. She works from

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about 5:30a.m. to 11p.m. She estimates that the business would be worth about $130 000 if she wanted to sell it. She has several employees. She says that her main goal in hiring is to find someone who she feels is trustworthy. For this reason she never hires someone who just comes in asking for a job. She only hires people that she knows or people who are referred to her by close friends. As a result, most of the people she hires are from El Salvador. Gloria finds that her greatest challenge is balancing all her entrepreneurial enterprises. She wants to expand them all and that is difficult. She relies on the help of one of her daughters and has hired a good manager for the grocery stores. She wants to add a restaurant and needs to devote more energy to these plans. ‘In five years I see myself with a big restaurant full of people. I will not have to work so hard, maybe only ten hours a day.’ Gloria considers the DFW area a good place to start a business – much less expensive than other cities. And in America in general, especially by comparison with El Salvador, there are many opportunities: ‘Anyone who works hard can get ahead.’ She plans to retire some day, sell the businesses to her daughters (if they are able to handle it) and move to El Salvador. From the ethnic market to the mainstream: the restaurant business Immigrant entrepreneurs, as Waldinger and Der-Martirosian (2001) have noted, gravitate toward a narrow set of economic activities. One of these is the restaurant business. Ethnic restaurants clearly have a deep history in America, whether founded to serve the co-ethnic community or to serve a broader clientèle. The Chinese moved quickly into this particular niche (one of the few opportunities available to them early on) and, as Light (1972: 7) has noted, after 1896 they began to ‘win the patronage of the white middle class’ because ‘they served cheap and appetizing meals’. To a large extent where a restaurant is located will determine the customer base. Ethnic restaurants are often family-operated enterprises, frequently relying on unpaid family labor or on co-ethnic labor. But increasingly such restaurants employ a mix of immigrants. Vivian T. Vivian T. operates a Vietnamese restaurant, working herself in both the kitchen and the dining room. She was born in Vietnam in 1951. In Vietnam, she and her husband had a small market stall where they sold clothes. They came to the United States in 1986. Her first occupation was in home sewing: she worked for a company for almost a decade. Meanwhile her husband set up a construction firm. He also owns apartments where he does most of the repairs. Vivian opened the restaurant in 1995. Her husband technically owns the business but she is the manager. ‘He owns. I keep the money, lady first!’ He helped out a lot at first to do the work necessary to convert the space into a restaurant but she is the one in charge of daily operations. But, she added, ‘my husband and friends have always been involved in my decision making. They are still involved when I make plans for the future’. Given her background in Vietnam, starting a business seemed like the natural thing to do. ‘I wanted to be my own boss. I did not want to stay at home or work for others.’ She considered other options, such as opening a liquor store, a gas station, a hotel, or buying a Seven-Eleven. But she also had some friends who owned restaurants and that is what she settled on. In addition to applying for the proper licenses, she had to take a three-week class to get a Food Service Manager certificate. There is no Vietnamese or Asian restaurant in

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the area where they are located so she thought she would ‘give it a try’. The restaurant, which is located in what used to be a thrift store, serves authentic Vietnamese–Chinese food, ‘not like the Green Papaya which caters to American customers’. Vivian does not speak much English, although she wishes she knew more, because it would help. She is thinking she might go to school to study English. Her family helps her out and that is one reason why she employs them. When she opened she was thinking she would have primarily Asian customers. However it turned out that ‘Americans are nice and easy to serve, they just point to the name of the dish they want.’ Vivian said that, when she was getting started, many of her friends helped her out. She has a lot of friends and they ‘gave as much as they could’. She used credit cards to pay for the initial expenses. A lawyer whom her daughter knew helped with some of the original paper work to set up the business. It was hard at first to find a good cook, to decide what kind of food they would serve, and to build up a customer base. Now they have a good menu and a steady stream of customers, over 90 per cent of them Americans. Until recently they advertised on Vietnamese radio and in Vietnamese newspapers, and they are listed in the ethnic telephone directory. They also had stories in the Dallas Morning News and the Dallas Observer when they first opened. They have also served as a sponsor for Asian refugee community events which increases their visibility. Vivian believes customer service is very important. She does not see an emphasis on this at other Vietnamese restaurants. Her greatest challenge is finding and keeping good employees. She needs employees who can speak some English. The restaurant employs three Vietnamese cooks, two men and one woman. Two of them work full-time and the third part-time. Vivian’s son-in-law is one of the cooks and one of her daughters works at the restaurant full-time when she is not in school. Another daughter used to take care of all the paper work but after her marriage she stopped and now Vivian handles it with her husband’s help. There is also a young Mexican dishwasher. Vivian and her daughter serve the customers. There are no other waiters. She thinks that ‘it is better to have family members working, they are more trustworthy’. The expenses are between $20 000 and $25 000 per month; rent alone is $2300. She works long hours (the restaurant opens at 9 a.m. for coffee and closes at 10 p.m.) and has very little time for herself. Her daughter, who assisted with the interview, noted that, if there is a wedding or a party of some kind, she never goes because she cannot get away from the restaurant. The family wants her to give up the business for this reason and they are currently looking for someone to buy it. Vivian would like to open a small store next, a ‘dollar store’, or help her husband take care of his apartments. One day she would like to retire and return to Vietnam. She concluded by saying that, while there are opportunities in America, it can be difficult to get a business started and ‘women have to try harder and to learn more’. Angelica S. Angelica S. was born in El Salvador in 1940. Her father was a farmer who grew and processed sugar cane; her mother was a housewife. In 1974, she emigrated to Los Angeles where she and her husband had some contacts and where she knew there was a Salvadoran community. They lived in LA for three months. Angelica found work at a Sony circuit factory. Then her husband’s sister-in-law contacted them and told them that there were work opportunities in Dallas, so they decided to move there. This woman

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introduced her to a family for whom she worked as a nanny and housekeeper for several years. In the late 1990s, she saw an ad in a Spanish-language newspaper indicating that there was a restaurant in Irving for sale. She had not really considered going into business but the ad caught her attention and she bought the place. It was not planned, she insisted. Her husband did not even know until after the deed was done. He was a bit angry because he had been planning to return to El Salvador rather than start a business. They were already over 50 years of age. Angelica said she spent her savings, $24 000, to buy the restaurant. She then took out a $10 000 loan from a group called Accíon Texas, based in San Antonio, to remodel the place and buy equipment. She found out about Accíon Texas when she went to the Dallas Hispanic Chamber of Commerce looking for help and advice. She used some of her jewelry as collateral for the loan. The restaurant, which is located in a small strip mall where there are two other Salvadoran businesses, and in a neighborhood where many Central Americans have settled, serves Salvadoran and Mexican food. Angelica also sells imported cheeses and creams which are easy to get because so many people travel back and forth between the US and El Salvador. The language used in the restaurant is largely Spanish but Angelica needs English to deal with vendors, and with legal and insurance matters. She has learned all her English since coming to the US. Angelica said her husband works for her. ‘His help comes naturally, as part of our marriage.’ She hires other Salvadorans because they are aware of the customs and food habits of the majority of her customers. All of these employees have come through word of mouth or recommendations Angelica was attracted to the restaurant business because she had always liked to work in the kitchen. She had cooked a good deal and even catered some parties and banquets. But her inexperience was the most difficult initial problem. Her major sacrifice is the long hours she works: from about 6 a.m. to 10:30 p.m. Another challenge is the financing. She estimated gross annual receipts at $75 000, but she spends about $50 000. She was robbed once and changed the name of the restaurant in order to change the image. She also incurred the cost of installing an alarm system and security cameras. Angelica said she feels better working on her own, as it gives her more independence and personal time. However, she was quick to point out that she was very happy with the family she used to work for. She has tried to make some changes from time to time, expanding her menu, for example, to include some non-Hispanic dishes. But that did not work. Nor did launching a lunch buffet. She does not advertise in newspapers or radio, although she does carry a listing in the Hispanic Yellow Pages at a cost of about $1200 each year. Angelica plans to sell the restaurant eventually and retire to El Salvador. She wants to go home because the climate there is better for her health. Neither of her children, one of whom is a policeman and the other an interior designer, is interested in continuing it. ‘I do not care who I sell it to, as long as they pay what I ask.’ Woman to woman: personal care and into the mainstream Another sector that has attracted immigrants is personal care. Historically, the best example of this kind of business is the Chinese laundry. White men shunned this activity but needed the service; Chinese immigrant men satisfied their need. Koreans who own and operate dry cleaning enterprises are one late twentieth-century example of the personal care business niche. This niche is particularly suited to immigrant women. It requires a

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minimum amount of training and low overhead, and the potential for building up a largely mainstream customer base is great. The best example of a personal care niche into which many immigrant women have entered is the nail salon, an enterprise that was rare a quarter of a century ago but which has proliferated in cities across America during the decades of the 1980s and 1990s. It is a niche that has become particularly attractive to Vietnamese women. Donna N. Donna N. was born in Vietnam in 1973. Her father, who was an army nurse, came to the United States in 1981. Her mother joined him ten years later, bringing Donna with her. They settled in San Jose, California and Donna started beauty school. She pursued this profession because her aunt in San Jose had a beauty shop and had a place for her to work. Once she received her nail technician license she began work at her aunt’s nail salon in San Jose. ‘In Vietnam, people talk about being in the manicuring business. They say that if you are going to the United States you can go into the nail business. You do not need too much English to start and you can get a license in a short time. But now there are a lot of people, too many!’ Donna moved to the Dallas area in 1991 with a friend. ‘San Jose was too expensive and my friend knew someone who needed manicurists in her nail salons.’ She worked in two other salons before moving to her present location in one of the classier salons in north Dallas. She said that she heard from a friend of hers that the owner of this salon wanted to lease the space to a nail technician. She saw this as a good opportunity because she did not like the person she was working for. At the moment she operates under the name of the salon owner but her business is independent. She is located in the same neighborhood as where she previously worked so she is able to keep her former clients. She might not have been able to do it if she did not already have a solid client base, 100 per cent of whom are Americans. But she needs to give good service to retain them. She said that she is always thinking of ways to make her business better. At the moment, the business is growing but Donna acknowledged that she has ‘only two hands’. Donna hesitated to put a value on her business. ‘Clients can’t be bought’, she responded. She said that they are her best form of advertising. They bring in other clients. Donna says she pursued this kind of business because it matches her training and skills. She has a manicurist license and a small business license. She used her personal savings to get set up. She manages the scheduling, product ordering and customer relations aspects of her business. Breaking out of the ethnic mold: product markets and manufacturing The examples so far are those that one might expect among immigrant women entrepreneurs: small-scale businesses tied closely to the ethnic market or an ethnic background, or to minimal start-up costs, limited training and flexibility. There are, however, immigrant women who break out of these traditional molds and set up businesses based on experience and training they have acquired in the US, an innovative idea, or knowledge that they have brought with them from their own country. The final two cases offer examples of such enterprises. Rashmi S. Rashmi S. was born in Lahore in 1948 but her family moved to India after the partition and she was raised in Bombay. Her father was a surgeon in the Indian army.

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She pursued a Bachelors degree in interior design and then worked for several years as a flight attendant for Air India until her marriage in 1972. Rashmi went with her husband to Kuwait where he was employed in the construction business. For a time she also lived in London because that is where they decided to send their children to school. When the work in the Middle East began to decline she and her husband began to consider emigration to the United States, a country where her husband had received an engineering degree in the 1960s. They arrived in the US in 1987, settling in Richmond, Virginia, where her husband bought a company with a colleague. Rashmi was shocked by Richmond. ‘It was such a small place compared to London, and there were few foreigners.’ In 1989, they moved to the Dallas area. For a year Rashmi continued as a housewife and then, in 1990, she decided to start her company – a company that imports stone (largely granite and marble) from India to provide to architects, designers, contractors and individuals who are doing kitchens and bathrooms. ‘I was bored. My husband was gone a lot – finishing jobs in Europe and the Middle East – my children were gone a lot. I did not just want to sit at home.’ Rashmi said that she ‘got into’ stone by accompanying her husband to his construction sites and to the stone quarries that his father owned, and by remodeling her own home. She found that people working in this area did not really have a lot of knowledge so she saw an opportunity. She started the business herself. ‘I read a lot. I had to become knowledgeable because I was a woman working in a business where people do not expect to find women.’ Rashmi opened the business in northeast Dallas in a large warehouse building that her husband owned. He had a manufacturing plant there already and gave her a corner. At first her husband owned her business because she did not have a work visa, but now she is the full owner and has no partner. The operation was small when it started: she used savings she had put aside for her children’s education. ‘I have more than earned this back and my children have gone to good schools.’ Later, as the business began to grow, she took out some bank loans. The company now employs 22 individuals from diverse ethnic backgrounds who work the stone to suit customer needs. ‘I never knew that I could do this and particularly that I could manage 22 employees, but I have done it. I had to build my credibility and earn respect.’ Indeed, she was honored with a small business award by the Dallas Asian Chamber. Rashmi said she must have a good command of English because she buys material in Europe and the clients are largely English speakers. People learn about her business through word of mouth but she has also had articles written about her in trade magazines and she has had jobs in major hotels. In 2003, sales were above five million. Rashmi said that 9/11 had actually worked to her advantage because people were staying home, putting money into their homes instead of traveling. Rashmi thought that she had been in the right place at the right time in starting this business. She launched it during a building boom and a big expansion in housing. ‘America,’ she said, ‘is the land of opportunity and if you work hard as a woman you can make it. It is very different from England where things work much more on the old boy network system. I have a daughter there right now looking for a position in finance and finding it very difficult. If she came back here she would find a job in no time.’ When I asked her about Asian women in business she acknowledged that many were under the control of their husbands and that, other than doctors, there are not so many who start a business on their own, all from scratch. ‘They need to get into business and participate.

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They need to come out of their cocoons.’ She is, she thought, ‘a bit unique’, in having a business of this scale. Fatema M. Fatema M. was born in Pakistan in 1977, but grew up in Saudi Arabia. When she was 15, in 1992, her parents sent her to the US so that she could attend an English language school. She went to live with her aunt in Chicago, completed high school and then entered a Chicago-area university to pursue a degree in computer science. She met her husband, also a Pakistani, in a class. They were married in 2000. When Fatema was offered a job with Microsoft in Irving, they relocated to Texas. Her husband found a position with a financial firm. Both were on H1 visas, hoping eventually to secure their green cards with the assistance of their employers. But the economic downturn resulted in layoffs for both of them. After spending several months looking for work, Fatema, who by this time had a new baby, and her husband decided to open a cell phone store. They used the contacts they had to get the proper paper work and dealership authorizations. They used personal savings as well as loans from family members in Saudi Arabia and Pakistan. They used these funds to renovate the space they rented, to build up inventory and to advertise before their grand opening. Fatema even worked at a friend’s store for a month in order to learn the ropes. She said that her technical background made it easy to learn what was necessary to become knowledgeable about the product. Fatema said they chose the cell phone business because the start-up costs were low and because ‘cell phones are always in demand; there are always new accessories and new products and people like to change with the times’. They decided to locate their store in a northern suburb because it was close to where they lived and it was a growing area. People are moving in and they are looking for cell phone service. Fatema reported that their customers are 80 per cent American and 20 per cent Hispanic. Many are loyal and spread information about the store to their friends. Fatema does much of the work at the store herself because her husband has been travelling back to Pakistan frequently to take care of his elderly parents. She has one American employee. Fatema says she prefers this job now because she is her own boss, can set her own schedule, and accommodate her responsibilities as a mother. She can also take risks because it is her own store, and she is freer. The negative aspects of the business are that there are no fringe benefits and that they must have profits in order to make a living. The shortterm challenges are to balance the books at the end of the day and to meet the prices that bigger national chains set by offering similar deals. The longer-term challenges are to expand the customer base and to meet the estimated yearly profit. But Fatema is optimistic because ‘business is growing. The wireless industry is constantly changing and customers always want the latest gadgets that we sell’. Fatema has business ambitions. Her long-term goal is to own a lot of real estate and start a multinational business to import/export cell phones and accessories. Conclusion In general these female-owned and operated immigrant businesses are started up with small amounts of personal or family capital. Some women have no prior training or experience, others acquire the necessary short-term training, and still others draw on their own life experience or inner resources, some of them gendered resources, to make the business work. Like men who move to self-employment, these women are motivated by the desire

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to be their own boss. For them it is a step-up and a step toward the ‘American Dream’ and one they can take as individuals with minimal formal education. Several of these women began their working lives in the United States in more traditional labor market niches for immigrant women: in domestic service, in factories, or in home piecework. They used these positions as a springboard to self-employment, saving what they needed to get themselves launched. These women are equally attracted to self-employment because it offers them the ability to create a flexible schedule and hence balance home life with work life. Yet many of them also find themselves making domestic sacrifices because the business demands long hours and constant attention. What is most striking in the biographies presented is the agency of these women. In the cases presented here they generally came to the decision to start the business on their own; in some cases, with family advice; in one case without a spouse even knowing that the business had been purchased until after the fact. Indeed, in most of the cases presented here, it is the husbands who are in the secondary role, assisting when necessary but otherwise leaving their wives alone to operate the enterprise. The women whose cases are described here demonstrate astuteness in assessing market, including locational, niches for their businesses. They can be described as innovators who are introducing new products and services to both the ethnic and mainstream economies. Clearly one of the satisfactions that these women derive from their work is the social environment. They establish and value the rapport that they have with their customers. They value the connections that the business allows them to maintain with their own ethnic communities. Occasionally they even make donations to community events, something that serves to their advantage in raising their profile, particularly if they are in a business that depends on a co-ethnic clientèle. The cases presented here suggest that, perhaps, as broader feminist analysis has done already, we need to move away from an analytical framework that focuses on whether small business self-employment is emancipatory or exploitative for immigrant women and emphasize instead the agency of women who move into this sector and the values that shape their decision making. Equally, we need to assess the structural constraints and opportunities that are available to them and how these influence the decisions they make as they move into the role of immigrant entrepreneur. Notes 1. Werbner (1999) has recently expressed some important and grave concerns about this approach. Not only does it essentialize different populations, but it also defines ‘success’ for immigrants in a particular way. 2. The research was funded by the Anthropology Program of the National Science Foundation (BCS 003938). Other investigators involved with this project are James F. Hollifield, Dennis Cordell and Manuel Garcia y Griego. Any opinions, findings and conclusions or recommendations expressed in this chapter are those of the author and do not necessarily reflect the views of the National Science Foundation. 3. There are a number of edited volumes focusing on female immigrants or on gender and migration. Among them are Anthias and Lazaridis, 2000; Buijs, 1996; Chang, 2000; Simon and Brettell, 1986; and Willis and Yeoh, 2000. 4. The names used in these cases are all pseudonyms.

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Apitzsch, Ursula (2003), ‘Gaining autonomy in self-employment processes: the biographical embeddedness of women’s and migrants’ business’, International Review of Sociology, 13(1), 77–87 Bates, Timothy (1994), ‘Social resources generated by group support networks may not be beneficial to Asian immigrant-owned small businesses’, Social Forces, 72(3), 671–89. Bhachu, Parminder (1988), ‘Apni Marzi Kardhi: home and work – Sikh women in Britain’, in Sallie Westwood and Parminder Bhachu (eds), Enterprising Women, London: Routledge, pp. 76–102. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 38, 583–94. Borjas, Georg (1986), ‘The self-employment experience of immigrants’, Journal of Human Resources, 21(4), 485–506. Brettell, Caroline B. (2003), ‘Gender and migration’, Anthropology and Migration: Essays on Transnationalism, Ethnicity, and Identity, Walnut Creek, CA: Altamira Press, pp. 139–51. Buijs, Gina (ed.) (1996), Migrant Women: Crossing Boundaries and Changing Identities, Oxford: Berg Publishers. Butler, John and Cedric Herring (1991), ‘Ethnicity and entrepreneurship in America: toward an explanation of racial and ethnic group variations in self-employment’, Sociological Perspectives, 34, 79–94. Castles, Stephen and Mark Miller (1993), The Age of Migration. International Population Movements in the Modern World, New York: Guilford Press. Chai, Alice Yun (1987a), ‘Adaptive strategies of recent Korean immigrant women in Hawaii’, in Janet Shristanian (ed.), Beyond the Public/Domestic Dichotomy: Contemporary Perspectives on Women’s Public Lives, New York: Greenwood Press, pp. 65–100. Chai, Alice Yun (1987b), ‘Freed from the elders but locked into labor: Korean immigrant women in Hawaii’, Women’s Studies, 13, 223–33. Chan, Janet and Y. Cheung (1985), ‘Ethnic resources and business enterprise: a study of Chinese business in Toronto’, Human Organization, 44, 142–54. Chang, Grace (2000), Disposable Domestics: Immigrant Women Workers in the Global Economy, Cambridge, MA: South End Press. Chavira-Prado, Alicia (1992), ‘Work, health, and the family: gender structure and women’s status in an undocumented migrant population’, Human Organization, 51, 53–64. Chinchilla, Norma Stoltz and Nora Hamilton (2001), ‘Doing business: Central American enterprises in Los Angeles’, in Marta Lopez-Garza and David R. Diaz (eds), Asian and Latino Immigrants in a Restructuring Economy: The Metamorphosis of Southern California, Palo Alto, CA: Stanford University Press, pp. 188–214. Constable, Nicole (1997), Maid to Order in Hong Kong: Stories of Filipina Workers, Ithaca: Cornell University Press. Counihan, Carole (1999), The Anthropology of Food and Body: Gender, Meaning and Power, New York: Routledge. Dallalfar, Arlene (1994), ‘Iranian women as immigrant entrepreneurs’, Gender and Society, 8(4), 541–61. Dhaliwal, Amarpal (1995), ‘Gender at work: the renegotiation of middle-class womanhood in a South Asianowned business’, in Wend L. Ng, Soo-Young Chin, James S. Moy and Gary Y. Okihiro (eds), Reviewing Asian America: Locating Diversity, Pullman, WA: Washington State University Press, pp. 75–86. Diner, Hasia (1983), Erin’s Daughters in America: Irish Immigrant Women in the Nineteenth Century, Baltimore: The Johns Hopkins Press. Donato, Katherine M. (1992), ‘Understanding U.S. immigration: why some countries send women and others send men’, in Donna Gabaccia (ed.), Seeking Common Ground: Multidisciplinary Studies of Immigrant Women in the United States, Westport, CT: Greenwood Press, pp. 159–84. Espiritu, Yen Le (1999), ‘Gender and labor in Asian immigrant families’, American Behavioral Scientist, 42(4), 628–47. Fawcett, James T. and Robert W. Gardner (1994), ‘Asian immigrant entrepreneurs and non-entrepreneurs: a comparative study of recent Korean and Filipino immigrants’, Population and Environment, 15(3), 211–38. Fernandez, Marilyn and Kwang Chung Kim (1998), ‘Self-employment rates of Asian immigrant groups’, International Migration Review, 32(3), 654–81. Fong, Eric and Emi Ooka (2002), ‘The social consequences of participating in the ethnic economy’, International Migration Review, 36(1), 125–46. Gabaccia, Donna (1994), From the Other Side: Women, Gender and Immigrant Life in the U.S. 1820–1990, Bloomington: Indiana University Press. Gabaccia, Donna (1998), We Are What We Eat: Ethnic Food and the Making of Americans, Cambridge: Harvard University Press. Gilbertson, Greta A. (1995), ‘Women’s labor and enclave employment: the case of Dominican and Colombian women in New York City’, International Migration Review, 29, 657–70. Giles, Wenona (2002), Portuguese Women in Toronto: Gender, Immigration, and Nationalism, Toronto: University of Toronto Press. Gold, Steven J. (1988), ‘Refugees and small business: the case of Soviet Jews and Vietnamese’, Ethnic and Racial Studies, 11, 411–38.

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Groves, Julian McAllister and Kimberly A. Chang (1999), ‘Romancing resistance and resisting romance: ethnography and the construction of power in the Filipina domestic Worker Community in Hong Kong’, Journal of Contemporary Ethnography, 28, 235–65. Halter, Marilyn (ed.) (1995), New Migrants in the Marketplace: Boston’s Ethnic Entrepreneurs, Amherst: University of Massachusetts Press. Hirsch, Jennifer S. (1999), ‘En el Norte la Mujer Manda: gender, generation, and geography in a Mexican transnational community’, American Behavioral Scientist, 42, 1332–49. Ho, Christine G.T. (1993), ‘The internationalization of kinship and the feminization of Caribbean migration: the case of Afro-Trinidadian immigrants in Los Angeles’, Human Organization, 52, 32–40. Holtzman, Jon D. (2000), ‘Dialing 911 in Nuer: gender transformations and domestic violence in a Midwestern Sudanese refugee community’, in Nancy Foner, Rubén G.Rumbaut and Steven J. Gold (eds), Immigration Research for a New Century: Multidisciplinary Perspectives, New York: Russell Sage, pp. 390–408. Hondagneu-Sotelo, Pierrette (1999), ‘Gender and contemporary U.S. immigration’, American Behavioral Scientist, 42(4), 565–76. Hosler, Akiko S. (1998), Japanese Immigrant Entrepreneurs in New York City: A New Wave of Ethnic Business, New York: Garland Publishing. Josephides, Sasha (1988), ‘Honour, family, and work: Greek Cypriot women before and after migration’, in Sallie Westwood and Parminder Bhachu (eds), Enterprising Women, London: Routledge, pp. 34–57. Kaplan, David H. (1998), ‘The spatial structure of urban ethnic economies’, Urban Geography, 19, 489–501. Kibria, Nazli (1993), Family Tightrope: The Changing Lives of Vietnamese Americans, Princeton: Princeton University Press. Kontos, Maria (2003), ‘Considering the concept of entrepreneurial resources in ethnic business: motivation as a biographical resource?’, International Review of Sociology, 13, 183–204. Levitt, Peggy (1995), ‘A Todos Les Llamo Primo’ (I Call Everyone Cousin): the social basis for Latino small businesses’, in Marilyn Halter (ed.), New Migrants in the Marketplace: Boston’s Ethnic Entrepreneurs, Amherst: University of Massachusetts Press, pp. 120–40. Light, Ivan (1972), Ethnic Enterprise in America, Berkeley: University of California Press. Light, Ivan and Parminder Bhachu (1993), Immigration and Entrepreneurship: Culture, Capital, and Ethnic Networks, New Brunswick, NJ: Transaction Publishers. Light, Ivan and Edna Bonacich (1988), Immigrant Entrepreneurs, Berkeley: University of California Press. Logan, John R., Richard D. Alba and Brian J. Stults (2003), ‘Enclaves and entrepreneurs: assessing the payoff for immigrants and minorities’, International Migration Review, 37(2), 344–88. Marger, Martin N. and Constance A. Hoffman (1992), ‘Ethnic enterprise in Ontario: immigrant participation in the small business sector’, International Migration Review, 26(3), 968–82. Min, Pyong Gap (1988), Ethnic Business Enterprise: Korean Small Business in Atlanta, Staten Island, NY: Center for Migration Studies. Min, Pyong Gap (1998), Changes and Conflicts: Korean Immigrant Families in New York, Needham Heights, MA: Allyn and Bacon. Min, Pyong Gap and Mehdi Bozorgmehr (2000), ‘Immigrant entrepreneurship and business patterns: a comparison of Koreans and Iranians in Los Angeles’, International Migration Review, 34, 682–706. Miyares, Ines M. (1998), ‘Little Odessa–Brighton Beach, Brooklyn: an examination of the former Soviet refugee economy in New York City’, Urban Geography, 19(6), 518–30. Pessar, Patricia R. (1984), ‘The linkage between the household and workplace of Dominican women in the U.S.’, International Migration Review, 18, 1188–211. Pessar, Patricia (1999), ‘Engendering migration studies; the case of new immigrants in the United States’, American Behavioral Scientist, 42(4), 577–600. Portes, Alejandro and Robert D. Manning (1986), ‘The immigrant enclave: theory and empirical examples’, in S. Olzak and J. Nagel (eds), Comparative Race Relations, New York: Academic Press, pp. 47–68. Portes, Alejandro and Min Zhou (1996), ‘Self-employment and the earnings of immigrants’, American Sociological Review, 61(2), 219–30. Raijman, Rebeca and Marta Tienda (2000), ‘Immigrants’ pathway to business ownership: a comparative perspective’, International Migration Review, 34(3), 682–706. Raijman, Rebeca and Marta Tienda (2003), ‘Ethnic foundations of economic transactions: Mexican and Korean immigrant entrepreneurs in Chicago’, Ethnic and Racial Studies, 26, 783–801. Simon, Rita James and Caroline B. Brettell (eds) (1986), International Migration: The Female Experience, Totowa, New Jersey: Rowman and Allenheld. Singer, Audrey (2004), The Rise of New Immigrant Gateways, Washington, DC: The Brookings Institution, Center on Urban and Metropolitan Policy. Smith-Hefner, Nancy, J. (1995), ‘The culture of entrepreneurship among Khmer refugees’, in Marilyn Halter (ed.), New Migrants in the Marketplace: Boston’s Ethnic Entrepreneurs, Amherst: University of Massachusetts Press, pp. 141–65.

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Tseng, Yen-fen (1995), ‘Beyond little Taipei: the development of Taiwanese immigrant businesses in Los Angeles’, International Migration Review, 29, 34–45. Ui, Shiri (1991), ‘ “Unlikely heroes”: the evolution of female leadership in a Cambodian ethnic enclave’, in Michael Burawoy et al. (eds), Ethnography Unbound: Power and Resistance in the Modern Metropolis, Berkeley: University of California Press, pp. 161–77. Waldinger, Roger D. and Claudia Der-Martirosian (2001), ‘The immigrant niches: pervasive, persistent, diverse’, in Roger D. Waldinger (ed.), Strangers at the Gate: New Immigrants in Urban America, Berkeley, CA: University of California Press. Waldinger, Roger D. Howard Aldrich and Robin Ward (1990), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, New York: Sage Publications. Walton-Roberts, Margaret and Daniel Hiebert (1997), ‘Immigration, entrepreneurship, and the family: IndoCanadian enterprise in the construction of industry of Greater Vancouver’, Canadian Journal of Regional Science, 20, 1–20. Werbner, Pnina (1999), ‘What color “success”? Distorting value in studies of ethnic entrepreneurship’, Sociological Review, 47(3), 548–67. Willis, Katie and Brenda Yeoh (eds) (2000), Gender and Migration, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing Limited. Wong, Bernard (1998), Ethnicity and Entrepreneurship: The New Chinese Immigrants in the San Francisco Bay, Boston: Allyn and Bacon. Yoon In-Jin (1991), ‘The changing significance of ethnic and class resources in immigrant businesses: the case of Korean immigrant businesses in Chicago’, International Migration Review, 25(2), 303–32. Zhou, Min (1992), Chinatown: The Socioeconomic Potential of an Urban Enclave, Philadelphia: Temple University Press. Zhou, Min and John R. Logan (1989), ‘Returns on human capital in ethnic enclaves’, American Sociological Review, 54, 809–20. Zimmer, C. and H. Aldrich (1987), ‘Resource mobilization through ethnic networks, kinship and friendship ties of shopkeepers in England’, Sociological Perspectives, 30, 422–45.

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Migrant entrepreneurship from the perspective of cultural diversity Mediha Sahin, Peter Nijkamp and Tüzin Baycan-Levent

1 Migration in a modern society Modern cities mirror the openness of an industrialized global society, as they have become a meeting place of people from different national, cultural and migrant origins. In the past decades, most cities in the industrialized world and especially metropolitan areas in many countries have seen a huge influx of people with a different socio-cultural or migrant origin (Cross, 1992; Esping-Andersen, 1993; Massey and Denton, 1993). In an era of mass migration, migrant workers will be found in many different segments of the labour market, depending on their wage level and professional qualifications. In economic terms, their individual marginal productivity will determine which position they assume on the labour market (Sahin et al., 2006). Since entrepreneurship is one of the frequently used ways to escape unemployment in a host country, it is expected that migrants will attempt to choose self-employment. Entrepreneurship affects the economy both directly and indirectly, and at various levels, through innovation, competition and restructuring (Wennekers and Thurik, 1999). Empirical research has shown that both a higher rate of new business start-ups and a higher rate of turbulence (the sum of start-ups and closures) enhance, after a certain time lag, economic growth and job creation (Carree and Thurik, 2003). The study of migrant entrepreneurship started preponderantly in the USA (Light, 1972), while later studies on this topic also emerged across Western Europe for the United Kingdom and France (Simon, 1993) and in Israel (Razin, 1993). These studies recognized the significant share of migrants in SME activities. Research on migrant entrepreneurship in Europe lags behind research in the US. Recent papers in the rising literature on this issue in Europe and the US, and other immigration countries, include Verheul et al. (2001), Audretsch (2002), Blanchflower (2004) and Masurel and Nijkamp (2005). Since the early 1980s, self-employment among migrant minorities has increased significantly in Europe and migrant entrepreneurship has become an important topic in the EU, with a great impact on micro, meso and macro levels of development. The booming economy in Europe and the available opportunities in various market niches appear to have led to the emergence of a new breed of migrant entrepreneurs. The migrant minorities in Europe are expected to continue growing and thereby the business ownership among these migrant groups will grow as well. It is generally found that contemporary migrant communities generate entrepreneurs able to contribute more and more to economic growth and the welfare of the host countries (Rettab, 2001). Migrant entrepreneurs make a variety of contributions to the economic environment of their host and home countries. At the micro level, migrant entrepreneurs help to satisfy a variety of migrant needs and wants for both migrant and non-migrant consumers (Super, 2005). More entrepreneurship is not only desirable and attractive, but also unavoidable. The most important reason is that, 99

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because of globalization and increasing competition, there is an enforced tendency towards more flexible job relations in the business. With the advent of the era of mass migration in Europe, the issue of cultural diversity has gained increasingly societal and political interest, unfortunately often from a negative perspective. It has even become a source of considerable concern in European societies. Generally speaking, migrant minorities are found to have lower labour force participation rates and lower employment rates, to be less qualified, to accept relatively lower skilled jobs, and are particularly specialized in production. The majority of migrant minorities tend to earn relatively less than the population as a whole. Cultural diversity is the variety of human cultures in a specific region, or in the world as a whole (Wikipedia, 2006). In the context of migrant entrepreneurship, several scholars have highlighted the impact of different ethnic group cultures on entrepreneurship. They emphasize the importance of values like social or business attitude, close family and religious ties, and trust, which enable some migrant groups to compete successfully in business (Ward, 1983; Werbner, 1990; Waldinger et al., 1990). The literature also points out differences in entrepreneurial abilities; some people are more entrepreneurial than others. There are several reasons – such as economic and psychological motives (profit, propensity to take risk, a spirit of adventure, access to information or knowledge and desire to innovate) – why migrants opt for self-employment. The interaction between culture and migrant entrepreneurship is complex (Basu and Altinay, 2002). Cultural and socio-psychological attributes of different migrant groups affect their entrepreneurial behaviour. Ethnic minorities may differ in terms of their reasons for migration, their religion, their language, their educational attainment, their demographic background (whether other relatives are in business or not) and their access to family business networks. Some of these differences reflect cultural diversity among the relevant groups concerned. Culture, in the form of a family tradition in business and strong family ties, has an impact on business entry motives, on the financing of new start-ups and on the nature of business chosen. Some aspects of culture like family tradition seem to have a greater impact on entrepreneurship than others, such as religion (Basu and Altinay, 2002). It is still a source of debate in the literature whether specific forms of a religion do exert an influence on entrepreneurial behaviour. Furthermore, there is some evidence that suggests that the interaction between culture and entrepreneurship may change over time, that is between business entry and later business operations. Against this background, the aim of this chapter is to evaluate migrant entrepreneurship from the perspective of cultural diversity. The chapter investigates the socio-economic and cultural aspects of migrant entrepreneurship and then addresses different migrant group entrepreneurs in the Netherlands in order to compare the differences between various migrant groups and to explore the cultural diversity in migrant entrepreneurship. The next section examines the basic concepts of entrepreneurship and migrant entrepreneurship on the basis of main characteristics and a range of determinants from psychological and sociological to economic and demographic, and evaluates migrant entrepreneurship from a socio-economic and cultural diversity perspective. Section 3 evaluates the development of migrant entrepreneurship in the Netherlands since the 1960s. The following section, section 4, addresses four active and dominant migrant groups, viz. Turks, Moroccans, Surinamese, and Antilleans in the Netherlands, and compares these groups with each other as well as with native Dutch groups in terms of their entrepreneurial behaviour and performance. Therefore, the section highlights the socio-economic

Migrant entrepreneurship from the perspective of cultural diversity 101 and cultural differences among these groups. Section 5 concludes with recommendations for future research in this field. 2

Entrepreneurship and migrant entrepreneurship: a socio-economic and cultural diversity perspective

2.1 Basic concepts of entrepreneurship and migrant entrepreneurship Entrepreneurship is a multidimensional concept, the definition depending largely on the focus of the research undertaken (Verheul et al., 2001). Entrepreneurship or selfemployment normally involves setting up a new business or buying an existing business. Some people are more entrepreneurial than others. Entrepreneurship in the classical sense refers to the combining of resources in novel ways so as to create something of value (Aldrich and Waldinger, 1990). Another definition of an entrepreneur is ‘someone who specializes in taking responsibility for and making judgemental decisions that affect the location, form and the use of goods, resources and institutions’ (Hébert and Link, 1982). This definition is more from an economic point of view. In a textbook on economics (Stiglitz and Driffill, 2000), the entrepreneur is defined as a person who creates new businesses, brings new products to market, or develops new processes of production. In the literature the following four characteristics and main issues centring on entrepreneurship are also examined (Hébert and Link, 1982; Van Praag, 1996): (i) the position of the entrepreneur both in the surrounding economic system and within his own corporate organization; (ii) the identification of the economic tasks of the entrepreneur; (iii) the financial remuneration of the entrepreneur for his risk-taking activities, based on his economic motives; (iv) the dynamics in (local and global) markets, seen from the perspective of the entrepreneur. These four attributes of an entrepreneur show up with varying intensities in the literature on the essence of entrepreneurship. There are scientific contributions on entrepreneurship offered by Cantillon, Say, Marshall, Schumpeter, Knight and Kirzner, respectively. The pioneering study of Cantillon (1931) on the role of entrepreneurship made a main distinction between the following economic agents: (i) land owners who were financially independent; (ii) arbitrageurs (entrepreneurs) who were involved in risk taking activities with a view to profit-making, and (iii) ‘servants’ who were assured of a fairly stable income by means of a labour contract. In Cantillon’s view, the market economy was a ‘self-regulating network of reciprocal exchange arrangements’ which were able to produce equilibrium prices through free entry and exit of business firms. In Cantillon’s perception of entrepreneurship, the mediating role of the economic actor, who needs to anticipate uncertain future events and to see uncertainty as an economic opportunity, is more important than his innovative attitude. The ‘survival of the fittest’ would be best guaranteed by those entrepreneurs who know how to handle risk situations properly. Different determinants of entrepreneurship, which combine various factors into an eclectic framework, have been defined by Verheul et al. (2001): (i) psychological determinants, focus on motives and character traits; (ii) sociological determinants, focus on the collective background of entrepreneurs; (iii) economic determinants, focus on the impact of the economic climate and technological development; (iv) demographic determinants; focus on the impact of demographic composition on entrepreneurship.

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In the literature we observe also a broader treatment of business activities by migrant people. In recent years we have observed a significant shift in the orientation of migrant groups, namely towards self-employment (Baycan-Levent et al., 2003). This movement is generally referred to as migrant entrepreneurship (Van Delft et al., 2000; Masurel et al., 2002; Waldinger et al., 1990). The latter phenomenon distinguishes itself from ‘normal’ entrepreneurship through its orientation on migrant products, on migrant market customers or on indigenous migrant business strategies (Choenni, 1997). Migrant entrepreneurship is also generally regarded as an important self-organizing principle through which migrant minorities are able to improve their weak socio-economic position (BaycanLevent et al., 2003). There is a significant difference among various migrant groups. Chaganti and Greene (2000) make the following distinction into three groups of migrant businessmen: (i) immigrant entrepreneurs; individuals who, as recent arrivals in the country, have had to start a business as a means of economic survival (Butler and Greene, 1997); (ii) migrant entrepreneurs; who are united by a set of socio-cultural connections and regular patterns of interaction among people sharing a common national background or migration experiences (Waldinger et al., 1990); (iii) minority entrepreneurs who are business owners who are not of the majority population. The literature mentions both culture and the disadvantage context in explaining why migrants become self-employed (Johnson, 2000). Some migrants left their own country in the first place to start their own business in the host country, because they had no opportunity to do this in their own country (Choenni, 1997). This phenomenon stimulates the growth of self-employment drastically (Rath, 1998). According to Lee et al. (1997) there is a ‘social resources explanation’: the success of migrant minority businesses can in part be explained by the existence of such social resources as rotating credits, a protected market and a labour source. Another explanation and argument that migrant minorities are more likely to become entrepreneurs in comparison with native people can be related to the margination theory, stating the importance of a (negative) event, triggering the start-up of new firms (Verheul et al., 2001). According to this theory, the creation of an enterprise is not always the result of a deliberate and intentional act or a result of rational decision making. For most people, starting a business begins with the shattering of a previous life pattern. After this general overview of the concept of migrant entrepreneurship, we will investigate now migrant entrepreneurship from socio-economic perspective, including the main characteristics of migrant entrepreneurs, their motivation and performance. 2.2 Migrant entrepreneurship from a socio-economic perspective Within the literature migrant entrepreneurs are characterized by certain general features. These features of course do not apply to all migrant entrepreneurs; it is merely an indication of what the migrant entrepreneur is, and in what way they do differ from the regular entrepreneur. For individuals or people who are unable to adapt to a social system, such as migrant and migrant minority groups, their marginal social position is a driving force to become self-employed. Self-employment in this case is not only a means of earning a living; it is also a means of recognition and social acceptance (Veciana, 1999). Motivation is an important aspect of any form of entrepreneurship, but especially in migrant entrepreneurship (Masurel et al., 2005). Cantillon and Marx emphasized that profit may motivate people towards business entry and self-employment. The desire to take a risk and a

Migrant entrepreneurship from the perspective of cultural diversity 103 spirit of adventure may be another motive (Knight, 1921). Some have greater access to information or knowledge and wish to exploit that advantage (Kirzner, 1973). The entrepreneur may be driven not only by economic motives but also by psychological motives like the desire to innovate and create new products (Schumpeter, 1934). There is also a negative and a positive view in motivation of migrant entrepreneurship. Within the negative view migrant entrepreneurship exists because of forceful reasons, such as high unemployment rates and discrimination. Kloosterman (1998) stressed the fact that high levels of unemployment provide the motivation for migrants to become entrepreneurs. In countries with a high unemployment rate among natives, migrants are pushed out of the labour market and become entrepreneurs (Tubergen, 2004). It is argued that migrants opt for self-employment in order to avoid racial discrimination in the host country’s labour market, which forces them to accept low-paid jobs and blocks upward mobility (Ram, 1994). Some individuals may even have no other option but to choose selfemployment. This is frequently advanced in the context of migrant entrepreneurship. Recently, attention has been paid to monitoring the social and economic position of minorities. The latter has been found to be weak as compared to the native people. Migrant workers have a lower level of education, and their children exhibit higher dropout rates (Tesser et al., 1999). They often occupy unskilled and simple or very simple jobs (Veenman, 1999). Their unemployment rates are higher and their average incomes are lower in comparison with the native workers (Kee, 1993; Rettab, 1995). The level of education of these new entrants is a variable for which contrasting results have been obtained. The results vary on the existence of a significant impact and nature of this impact. Among the studies finding that education has a significant impact, the nature of impact varies from study to study. Some find a positive relation, while others find a negative one. Cooper and Dunkelberg (1987) and Robinson and Sexton (1994) show that the self-employment decision is influenced by educational attainment. However, a study at the macro level by Uhlaner and Thurik (2004) shows that a higher level of education in a country is accompanied by a lower self-employment rate. De Wit and van Winden (1989) reports that education is positively correlated with self-employment in the US, but negatively in the EU. Migrant minorities consist of two types of migrants. One is the first-generation group, consisting of traditional migrants who were directly recruited for employment reasons. This group is less educated, with most education being achieved in the country of origin. The second group is the second generation, consisting of young dependants born in the host countries, where their entire education has been attained. This group masters the language of the host country better than the first generation does, and is relatively more qualified and acquainted with the local labour market. Not surprisingly, this group is generally found to be more ambitious and selective in choosing a job. Mostly first generation migrant entrepreneurs undertake their own business impulsively without first deciding a good stocktaking market. As a consequence of this start they serve the same customers group with the same products and service as their competitors without any distinction. This leads to enormous price competition, a falling behind in entrepreneur’s income and a high fall-out percentage amongst young migrant businesses. Masurel and Nijkamp (2003) distinguish some general features that are typically applicable to migrant entrepreneurs, such as informal and formal networks, clients, business financing, workforce and geographic clustering. In cases of information gathering or help in certain situations

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migrants make use of their own migrant groups. This is also referred to as the ‘own group’. Usually, migrant entrepreneurs find a niche in their migrant community and start up in an ethically well-defined market, so as to provide typical services and products. An enclave economy can then positively affect the perspective of migrant entrepreneurs. Migrant groups that produce a strong entrepreneurial group can be of great economic significance for the migrant business community as well as for the total community, through job and opportunity creation (Rettab, 2001). Besides co-migrant clients, the migrant entrepreneur is also close to his own migrant group when it comes to the work force, or business financing. The social networks offer a flexible and efficient opportunity to recruit employees. Migrant entrepreneurs prefer hiring and supporting other migrants in their economic ventures as they enjoy privileged access to the migrant labour and can frequently employ paternalistic arrangements to extract more labour, as well as pay lower wages (Razin, 1989). Migrant entrepreneurs can satisfy special needs of co-migrant clients, since they share the same language, culture and religion and therefore communicate better. The migrant entrepreneur can also acquire financial capital and borrow production resources from the informal networks. While native entrepreneurs usually borrow their starting capital from the bank, migrant entrepreneurs are less likely to receive bank funding than native entrepreneurs are (Rath, 2000), and therefore often borrow capital from family or other group members. Migrant entrepreneurs usually join up less with native formal networks, like retailer groups, trade associations and franchise organizations. Foreign activities are usually concentrated in certain geographic clusters. We find this geographical concentration especially in the bigger cities, since migrants start their businesses in places where already a large population of people live with the same migrant background. If migrant businesses remain limited to the migrant market, their potential for growth is sharply circumscribed (Aldrich and Waldinger, 1990). The obstacle to growth is the migrant market itself, which can support only a restricted number of businesses, because it is quantitatively small and because the migrant population is often too impoverished to generate sufficient buying power to fuel growth (ibid.). Rath (2000) emphasized that the opportunities and strategies of entrepreneurs are closely linked to their embeddedness in the economic, political–institutional and social environments; these external factors, such as social embeddedness, also have a great influence on the start and development of migrant businesses. It is important to identify the causes and backgrounds of differences in performance of these groups, seen against the background of mainly American experiences. Are migrant entrepreneurs a ‘sign of hope’ for social cohesion problems in the city? Migrant groups that produce a strong entrepreneurial group can be of great economic significance for the migrant business community as well as for the total community, through job and opportunity creation (Rettab, 2001). Van Delft et al. (2000) revealed that migrant-related social networks may provide several advantages: they appear to be multifaceted and flexible, and offer good possibilities for the efficient recruitment of personnel and capital. The major advantage of migrant entrepreneurship may however be the fact that it may contribute to resolving the problematic employment situation of young people in migrant segments of the urban economy (Masurel and Nijkamp, 2005). 2.3 Migrant entrepreneurship from a cultural diversity perspective Culture can be described as the values, norms and attitudes in a group (Verheul et al., 2001). As mentioned before, cultural diversity is the variety of human cultures in a specific

Migrant entrepreneurship from the perspective of cultural diversity 105 region, or in the world as a whole (Wikipedia, 2006). The phenomenon of cultural diversity has been extensively investigated by Hofstede (1991, 2001). He interprets culture as a collective and interactive set of common identity values that are decisive for a group response (or behaviour) vis-à-vis its external environment. Cultural differences are the result of national, regional, migrant, social class, religious, gender and language variations. Culture manifests itself in different appearances in relation to geographic location, physical environment, nation, history, socio-economic traditions and conditions, political systems, religious circumstances, common language or dialect, technologies and work modes, or education and deeds. Clearly, culture is not always an unambiguous concept and may often be fuzzy in nature. Consequently, cross-cultural research is often based on qualitative characteristics of the target group and not so easy to quantify. The great merit of the work of Hofstede is that he has managed to design quantifiable indicators for crosscultural comparison. His research has prompted an avalanche of interesting research on cultural diversity, with a particular view to the development of cross-cultural comparative studies in industrial organizations and management practices. Interesting follow-up of his work can be found, inter alia, in Trompenaars (1993), Milberg et al. (1995), Verbeke (2000), Ardichvili and Kuchinke (2002), Christie et al. (2003), Shulruf et al. (2003), McSweeney (2002), Stephen et al. (2004) and Bergeron and Schneider (2005). The economic benefits of cultural diversity in the city may be manifold, as this may enrich the socio-economic opportunity base, create a varied supply of talents on the labour market, or enhance the creativity possibilities in the city (Jacobs, 1961; Florida, 2002). In the context of migrant entrepreneurship, several scholars have highlighted the impact of different migrant group cultures on entrepreneurship. The international literature on entrepreneurship and innovation pays much attention to the importance of cultural diversity in business behaviour. In the recent literature on cultural diversity we can observe two major strands (see, for an interesting overview, Vermeij, 2006), viz. the assimilation perspective and the identity perspective. The assimilation perspective takes for granted that interaction between different cultural or migrant groups may ultimately eliminate cultural boundaries (see Alba and Nee, 1997). The identity perspective on the other hand assumes that belonging to a migrant culture may have an indigenous meaning, as it creates a support system based on group identity (see Nagel, 2002). Three environmental factors may be distinguished that have an impact on someone’s migrant positioning: economic or socio-cultural competitive conditions (labour market, life style and so on) (see, for example, Olzak, 1992), resource mobilization (due, for example, to the strength or size of a specific population group) (see, for example, Moghaddam and Perrault, 1992) or social identity (on the basis of, for example, positive role models, high self-esteem or a high social status of some group members) (see, for example, Austin and Worchel, 1979). The assimilation–identity dilemma is not only (and perhaps not predominantly) determined by socio-cultural and migrant factors, but also (and perhaps mainly) by the economic context of migrants. In many cases, it turns out to be difficult for migrant groups to enter the regular labour market owing to language deficiencies, low skills, lack of network relations and so on. This may easily create a dual labour market system, in which migrant groups are condemned to the lowest segment as a result of filtering-down phenomena. This will not stimulate assimilation. Those who feel the drive to climb higher up the socio-economic ladder may then be forced to become self-employed and start their

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own business as a migrant entrepreneur, especially in those cases where the migrant market has a sufficiently large critical mass (cf. Halter, 2000). This may be another form of lack of assimilation (or group identity formation), although an expanding migrant business may again lead to more assimilation after a break-out strategy. In conclusion, cultural diversity is an essential component of the study of migrant entrepreneurship. Differences in culture – interpreted in a broad sense – may prompt different types of economic behaviour and entrepreneurship. The driving forces and the conditional framework of cultural diversity call for further empirical work. In what follows we will illustrate a few of the above-mentioned arguments by reference to some facts in the Netherlands. 3 Migrant entrepreneurship in The Netherlands In the 1960s, The Netherlands mainly recruited low-skilled workers from Spain, Italy and Greece, while later on guest-workers were acquired from Turkey and Morocco. Before the arrival of the first-generation migrants from Turkey, Morocco, Italy and Spain, the indigenous working population in The Netherlands had largely quit working in the industries. Therefore the arrival of these migrant groups was required to meet the need for lowskilled workers in the industrial sector. From 1956 to 1963, different industries also recruited workers from Surinam, but this recruitment stopped because of negative experiences with this group (Rath, 1998). Also large inflows of people from the Dutch Antilles could be observed. The 1960s were remarkable for the large-scale labour migration from countries from around the Mediterranean. At the beginning of the 1970s people thought the majority of the foreign workers should stay in The Netherlands only temporarily, but after a couple years it became clear that many migrants would settle there definitely. And finally, owing to conflicts in various parts of the world in the past decade – both inside and outside Europe – asylum seekers and refugees entered the Dutch society, for example from Yugoslavia, Somalia, Afghanistan and Iran. The Netherlands has shown a remarkable openness vis-à-vis foreigners, a situation that can clearly be observed in the history of Amsterdam. At present, the share of migrants in Dutch society is approximately 20 per cent, while the share of non-Western migrants is about 10 per cent (CBS, 2003, 2004). From the non-western migrant population, three groups have a dominant position (approximately 60 per cent): Turks, Moroccans and Surinamese. It is noteworthy that migrant entrepreneurship is typically occurring in the city. Amsterdam, for instance, has a rich variety of migrant entrepreneurs. For a long time Amsterdam was the place of settlement for major migrant groups of different national and cultural origin. Jewish people were a driving force, but not the only entrepreneurial group in the city (Lucassen and Penninx, 1994); other examples of early entrepreneurial groups were Belgian manufacturers, German bakeries and breweries, and Italian plaster sculpture sellers (Henkes, 1995; Miellet, 1987; Schrover, 1996). The rich history of the city of Amsterdam has clearly demonstrated that a large influx of dedicated and professional migrants from several countries has generated new production modes and innovations, which have contributed significantly to the wealth and international position of the city. According to Hessels et al. (2005) more highly educated people form a majority of those involved in early-stage entrepreneurial activity in The Netherlands. They also have a more positive perception of setting up their own firm compared to people with a more limited education and are comparatively often active in business services and

Migrant entrepreneurship from the perspective of cultural diversity 107 consumer-oriented sectors. If their skill levels are below average Dutch standards, they may most likely be found in lower segments of the labour market (Borjas, 1995). In general, their wages turn out to be lower than the Dutch average (de Graaff, 2002), but there is also a great variation in wage levels among different migrant groups. The tendency or ability to become self-employed differs also between native people and migrants; immigration involves taking risks and this is also the case for entrepreneurship. Migrants are therefore considered to have an appropriate attitude or mindset to start a business (Verheul et al., 2001). Jansen et al. (2003) concluded that, despite certain disadvantages compared with the native Dutch population, migrants from Turkey show the same rate of entrepreneurship. This group is definitely not afraid of taking risks. In their eyes, if it works out well, it is great. If not, it is just seen as a misfortune and they are helped and supported by family and friends to set up a new business when they go bankrupt. The Dutch are careful when compared to the Turks as they think ten times before starting off. The Turkish entrepreneurs on the other hand do believe in their motto ‘Pratik zeka’ which stands for ‘practical mind’. The next subsection will compare and evaluate in a more detailed way the entrepreneurial behaviour of different migrant groups in The Netherlands in order to highlight the socio-economic and cultural differences among them. 3.1 Socio-economic and cultural diversity in migrant entrepreneurship: evidence from The Netherlands In order to evaluate migrant entrepreneurship from the perspective of cultural diversity, in this section we address different migrant group entrepreneurs in The Netherlands and we compare the socio-economic and cultural differences between these migrant groups; therefore we aim to highlight the cultural diversity in migrant entrepreneurship. We focus mainly on four active and dominant migrant groups: Turks, Moroccans, Surinamese and Antilleans in The Netherlands and we compare these groups with each other as well as with native Dutch groups in terms of their entrepreneurial behaviour and performance. Our comparison and evaluation are, of course, limited to the available data. Since 1970, the number of migrants in The Netherlands has shown a rapid increase. Most migrants into The Netherlands originate from non-Western countries (Jansen et al., 2003), from Turkey, Morocco, Surinam and the Antilles. Table 7.1 illustrates in absolute Table 7.1 Important migrant minorities and natives in The Netherlands (2000–06) in absolute figures (1000)

Total population

Year

Turks

Moroccans

Surinamese

Antilleans

Dutch

2000 2001 2002 2003 2004 2005 2006

308.9 319.6 330.7 341.4 351.7 358.8 364.6

262.2 272.2 284.1 295.3 306.2 315.8 323.3

302.5 308.8 315.2 320.7 325.3 329.4 332.0

107.2 117.1 124.9 129.3 130.7 130.5 120.4

13 088.6 13 116.9 13 140.3 13 153.8 13 169.9 13 182.9 13 184.1

Source: CBS (2006).

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figures the number of migrant individuals living in The Netherlands. We can see that the Turkish migrant group is the biggest of the four migrant groups. The population increased each year for each group. The migrant populations from Turkey and Morocco into The Netherlands are very similar as regards their demographic composition. They are on average the least well educated and most often married, and most migrants from these countries consider themselves to be Muslim. The migrants from Surinam and Antilles are better educated, more familiar with the Dutch culture and language, and more often single or single parents. All migrant populations have in common that they are relatively young as compared to the native Dutch population (Jansen et al., 2003). Migrants from Surinam and the Antilles also have similar demographical characteristics. Their age distribution is similar to the age distribution of migrants from Turkey and Morocco. Regarding the labour force participation rate of women and the share of married couples in the total number of households, they have much in common with the native Dutch population. The educational level is lowest among migrant groups from Turkey and Morocco. Migrants from Surinam and the Antilles have on average higher educational levels, yet not as high as those of the native population. The above-mentioned migrants often find themselves in marginal economic positions. Entrepreneurship can be a way to improve the economic position of migrants (Choenni, 1997). The rate of entrepreneurship shows a considerable variation over time and between countries. This is especially true for populations of migrants. This is also the case for The Netherlands. More and more, entrepreneurship is recognized as an important source of job growth and economic development in The Netherlands (Van Stel et al., 2002). In recent years, entrepreneurship has increased among people of different migrant minority groups in The Netherlands. One in five newly set-up businesses in The Netherlands is undertaken by a migrant entrepreneur. This group is mostly working in the service sector and delivers high-quality products. It takes risks much more readily, because it is supported by parents. In Table 7.2 we can also see that the number among first and second generation entrepreneurs has risen steadily during the last decade. From the figures in Table 7.2 we can conclude that first generation migrants are far more entrepreneurial than the second generation migrants. Among the Turkish and Moroccan migrant groups it can be seen that men are relatively more entrepreneurial. The other two major groups of migrants from Surinam and the Dutch Antilles show that entrepreneurship is more or less evenly distributed among males and females. When considering the second generation migrants from the Turkish and Moroccan groups it can be seen that male entrepreneurs are relatively more common than female entrepreneurs. With the Surinamese and Antillean groups it can be seen that second generation women are more entrepreneurial. The net gender effect is very strong for the Surinamese population within The Netherlands. The labour force participation rate in general is relatively high for female migrants from Surinam. However, besides the relative high labour force participation rate, there is still a relative low entrepreneurship rate for female Surinamese migrants when compared to the native female Dutch population. On the other hand, the entrepreneurship rates for female Surinamese are still somewhat higher than entrepreneurship rates for female Turkish and Moroccan migrants. Female migrants from Turkey and Morocco are far less entrepreneurial than, for instance, the native Dutch females. This is probably

Migrant entrepreneurship from the perspective of cultural diversity 109 Table 7.2 Distribution of main migrant entrepreneurs in The Netherlands (1999–2003) in absolute (1000) and relative figures Turks Year total

Moroccans

Surinamese

Antilleans

m

f

total

m

f

total

m

f

total

m

f

First generation entrepreneurs

’99 % ’00 % ’01 % ’02 % ’03 %

7.2 91 8.2 88 9.6 87 9.9 86 10.2 86

5.9 92 6.8 89 8.0 88 8.3 87 8.6 87

1.3 87 1.4 82 1.6 84 1.6 84 1.6 80

2.5 89 3.0 88 3.5 88 3.7 88 3.9 89

2.2 92 2.6 90 3.1 89 3.3 89 3.4 89

0.3 75 0.4 80 0.4 80 0.4 80 0.5 83

5.1 80 5.6 79 6.2 79 6.2 78 6.3 79

3.5 80 3.9 80 4.4 81 4.3 78 4.3 78

1.6 80 1.7 77 1.8 75 1.9 76 2.0 80

1.1 70 1.2 67 1.4 71 1.4 64 1.5 71

0.7 70 0.8 67 1.0 71 0.9 64 1.0 71

0.4 80 0.4 67 0.4 67 0.5 67 0.5 71

Second generation entrepreneurs

’99 % ’00 % ’01 % ’02 % ’03 %

0.8 10 1.0 11 1.3 12 1.5 13 1.7 14

0.6 9 0.8 11 1.0 11 1.2 13 1.3 13

0.2 13 0.2 12 0.3 16 0.3 16 0.4 20

0.3 11 0.4 12 0.4 10 0.5 12 0.5 11

0.2 8 0.3 10 0.3 9 0.4 11 0.4 11

0.1 25 0.1 20 0.1 20 0.1 20 0.1 17

1.2 19 1.4 20 1.6 21 1.8 22 1.8 23

0.8 19 0.9 19 1.1 20 1.2 22 1.2 22

0.4 20 0.5 23 0.5 21 0.6 24 0.6 24

0.5 33 0.6 33 0.6 30 0.7 33 0.7 33

0.3 30 0.4 33 0.4 29 0.5 36 0.5 35

0.2 40 0.2 33 0.2 33 0.2 29 0.2 29

Total of entrepreneurs

’99 ’00 ’01 ’02 ’03

7.9 9.3 11.0 11.5 11.9

6.4 7.6 9.1 9.5 9.9

1.5 1.7 1.9 1.9 2.0

2.8 3.4 4.0 4.2 4.4

2.4 2.9 3.5 3.7 3.8

0.4 0.5 0.5 0.5 0.6

6.4 7.1 7.8 8.0 8.0

4.4 4.9 5.4 5.5 5.5

2.0 2.2 2.4 2.5 2.5

1.5 1.8 2.0 2.1 2.1

1.0 1.2 1.4 1.4 1.4

0.5 0.6 0.6 0.7 0.7

Note: Percentage mean: the share of migrant entrepreneurs of a generation cohort in the total of migrant entrepreneurs of the total population category concerned. Source: CBS (2006).

related to cultural and/or religious differences. Besides entrepreneurship rates, labour force participation rates are also much lower than those of native Dutch women. The combination of a high labour force participation rate and a low rate of entrepreneurship for female Surinamese migrants may be related to the relatively high share of single parent families for this migrant group (assuming that most of the single parents are women). Antilleans and Surinamese seem very successful in Table 7.3 and the second generation entrepreneurs in these groups have almost the same rate of profit as the first generation. When we looked at the migrants from Turkey and Morocco, the profit of the first generation entrepreneurs is much higher than that of the second generation. Although the Surinamese and Antillean group are much smaller than the other two groups, they have a higher profit. This may be caused by differences in their entrepreneurial behaviour.

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Table 7.3 Profit of migrant entrepreneurs in The Netherlands (1999–2003) in absolute figures (1000) Year

Turks (€)

Moroccans (€)

Surinamese (€)

Antilleans (€)

Profit of first generation entrepreneurs

’99 ’00 ’01 ’02 ’03

18.0 21.0 19.3 19.2 18.0

15.5 19.4 17.2 18.0 17.0

19.2 21.4 21.4 22.9 21.9

22.0 22.3 21.8 24.1 23.1

Profit of second generation entrepreneurs

’99 ’00 ’01 ’02 ’03 ’99 ’00 ’01 ’02 ’03

13.9 14.9 14.0 13.8 12.8 17.6 20.3 18.7 18.5 17.2

12.2 15.7 12.7 15.2 12.6 15.2 19.0 16.7 17.6 16.4

21.2 23.0 20.9 22.2 20.7 19.6 21.7 21.3 22.7 21.6

18.8 19.4 19.7 22.2 22.1 21.0 21.3 21.1 23.4 22.7

Profit of total entrepreneurs

Source: CBS (2006).

4 Retrospect and prospect With the advent of the era of mass migration in Europe, the issue of cultural diversity has gained increasing societal and political interest, unfortunately often from a negative perspective. It has even become a source of major concern in European societies. Modern societies in the Western world are increasingly faced with cultural diversity as a result of international migration. Diversity is increasingly valued and its social, cultural and economic benefits are recognized. Modern cities mirror the openness of an industrialized global society, as they have become a meeting place of people from different national, cultural and migrant origins. For example, an open city like Amsterdam will soon have a majority of people from a different migrant origin from the indigenous Dutch population. In order to evaluate migrant entrepreneurship from the perspective of cultural diversity, in this section we address different migrant group entrepreneurs in The Netherlands and we compare the socio-economic and cultural differences between these migrant groups. We focus mainly on four active and dominant migrant groups, namely Turks, Moroccans, Surinamese and Antilleans in The Netherlands, and we compare these groups with each other as well as with native Dutch group in terms of their entrepreneurial behaviour and performance. All in all, migrant entrepreneurs deserve more attention. In order to succeed in the current business climate it is essential that businesses recognize that customers all over the world have choice and consumers have to be pursued for their business. Working with migrant minority businesses offers the opportunity to do just that. Migrant minorities are usually a highly motivated and qualified entrepreneurial group. Migrant minority businesses mostly fall into the category of small and medium-sized enterprises (SMEs). Small and medium-sized enterprises play a significant role in the domestic economies of most

Migrant entrepreneurship from the perspective of cultural diversity 111 countries. Each and every successful self-employed migrant or minority business contributes to improved social and economic integration. A growing migrant economy creates a virtuous circle: business success gives rise to a distinctive motivational structure, breeding a community-wide orientation towards entrepreneurship. Migrant entrepreneurs also deserve more attention, since this group has to deal not only with arbitrary problems of entrepreneurship, but also with specific problems that occur among these group members. Firstly, communication is an important aspect which needs attention. One of the main problems is the distance involved and the loads of information sent via letters and on the Internet. This type of communication is not effective among migrant entrepreneurs, since they would prefer the personal approach. Secondly, the fact that most migrant entrepreneurs are uninformed and have a limited network is a main problem. Most of the time they are unaware of the rules and the facilities which are provided. They are usually unprepared and without a business plan. Developing role models would help in this case. Finally, the minimum contact between entrepreneurs and advice organizations such as business associations, Chambers of Commerce and native entrepreneurs is a problem as well. One important consequence is that migrant entrepreneurs do not make use of the information/ support/ assistance possibilities. Motives for not making use of the facilities are unfamiliarity, communicational problems and limited access to information. References Alba, R. and V. Nee (1997), ‘Rethinking assimilation theory for a new era of immigration’, International Migration Review, 31, 826–74. Aldrich, H.E. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Ardichvili, A. and K.P. Kuchinke (2002), ‘Leadership styles and work-related values of managers and employees of manufacturing enterprises in post-communist countries’, Human Resource Development Quarterly, 12, 363–83. Audretsch, D.B. (2002), ‘Entrepreneurship: a survey of the literature’, prepared for the European Commission, Enterprise Directorate General, Brussels, July. Austin, W.G. and S. Worchel (eds) (1979), The Social Psychology of Intergroup Relations, Monterey, CA: Brooks/Cole, pp. 33–47. Basu, A. and E. Altinay (2002), ‘The interaction between culture and entrepreneurship in London’s immigrant businesses’, International Small Business Journal, 20, 371–93. Baycan-Levent, T., E. Masurel and P. Nijkamp (2003), ‘Diversity in entrepreneurship: migrant and female roles in urban economic life’, International Journal of Social Economics, 30, 1131–61. Bergeron, N. and B.H. Schneider (2005), ‘Explaining cross-national differences in peer-directed aggression: a quantitative synthesis’, Aggressive Behavior, 31, 116–37. Blanchflower, D.G. (2004), ‘Self-employment: more may not be better’, Working Paper No. 10286, Cambridge, MA: National Bureau of Economic Research. Borjas, G. (1995), ‘Ethnicity, neighbourhoods, and human-capital externalities’, American Economic Review, 85, 365–90. Butler, J.S. and P.G. Greene (1997), ‘Migrant entrepreneurship: the continuous rebirth of American entrepreneurship’, in D.L. Sexton and R.W. Smilor (eds), Entrepreneurship, 2000, Chicago, IL: Upstart Publishing, pp. 267–89. Carree, M.A. and A.R. Thurik (2003), ‘The impact of entrepreneurship on economic growth’, in Z.J. Acs and D.B. Audretsch (eds), Handbook of Entrepreneurship Research, Amsterdam: Kluwer, pp. 437–71. CBS (Central Bureau of Statistics) (2003, 2004, 2006), Allochtonen in Nederland 2003, Voorburg. Chaganti, R. and P.G. Greene (2000), ‘Who are migrant entrepreneurs? A study of entrepreneurs’ migrant involvement and business characteristics’, Journal of Small Business Management, 40, 126–43. Choenni, A. (1997), Veelsoortig Assortiment, Amsterdam: Het Spinhuis. Christie, P.M.J., I.W.G. Kwan, P.A. Stoebel and R. Baumhaut (2003), ‘A cross-cultural comparison of ethical attitudes of business managers’, Journal of Business Ethics, 46, 263–87. Cooper, A.C. and W.C. Dunkelberg (1987), ‘Entrepreneurial research: old questions, new answers and methodological issues’, American Journal of Small Businesses, 1, 11–23.

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Cross, M. (ed.) (1992), Migrant Minorities and Industrial Change in Europe and North America, Cambridge: Cambridge University Press. Esping-Andersen, G. (ed.) (1993), Changing Classes. Stratification and Mobility in Post-Industrial Societies, London: Sage. Florida, R. (2002), The Rise of Creative Class, New York: Basic Books. De Graaff, T. (2002), ‘Migration, migrant minorities and network externalities’, Thela thesis, Amsterdam. Halter, M. (2000), Shopping for Identity, New York: Schoiken. Hébert, R.F. and A.N. Link (1982), The Entrepreneur, New York: Praeger. Henkes, B. (1995), Heimat in Holland, Duitse Dienstmeisjes, 1920–1950, Amsterdam: Babylon-De Geus. Hessels, J., N. Bosma and S. Wennekers (2005), Nieuw Ondernemerschap in Herstel, Zoetermeer: EIM. Hofstede, G. (1991), Culture’s Organization, Software of the Mind; Intercultural Cooperation and Its Importance for Survival, London: Mc Graw-Hill. Hofstede, G. (2001), Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, Thousand Oaks, London, New Delhi: Sage Publications. Jacobs, J. (1961), The Life and Death of Great American Cities, New York: Random House. Jansen, M., J. de Kok, J. Spronsen and S. Willemsen (2003), ‘Immigrant entrepreneurship in the Netherlands – demographic determinants of entrepreneurship of immigrants from non-western countries’ Zoetermeer: EIM. Johnson, P.J. (2000), ‘Migrant differences in self-employment among Southeast Asian refugees in Canada’, Journal of Small Business Management, 38, 78–86. Kee, P. (1993), ‘The economic status of male immigrants in the Netherlands’, (dissertation), University of Amsterdam. Kirzner, I.M. (1973), Competition and Entrepreneurship, Chicago: University of Chicago Press. Kloosterman, R. (1998), ‘Immigrant entrepreneurship and the welfare state’, in J. Rath (ed.), Immigrant Businesses on the Urban Economic Fringe. A Case for Interdisciplinary Analysis, Houndmills, Basingstoke: Macmillan Press. Knight, F.H. (1921), Risk, Uncertainty and Profit, New York: Houghton Miffin. Light, I. (1972), Migrant Enterprises in America, Berkeley: University of California Press. Lee, Y., T. Cameroen, P. Schaeffer and C.G. Schmidt (1997), ‘Migrant minority small business: a comparative analysis of restaurants in Denver’, Urban Geography, 18, 591–621. Lucassen, L. and R. Penninx (1994), Nieuwkomers, Nakomelingen, Nederlanders. Immigranten in Nederland 1550–1993, MES-Reeks 1, Amsterdam: Het Spinhuis. Massey, D.S. and N.A. Denton (1993), American Apartheid: Segregation and the Making of the Underclass, Cambridge, MA: Harvard University Press. Masurel, E. and P. Nijkamp (2003), ‘Allochtoon ondernemerschap’, in P. Risseeuw and R. Thurik (eds), Handboek Ondernemers en Adviseurs; Management en Economie van het Midden- en Klein Bedrijf, Amsterdam: Kluwer, ch. 11. Masurel, E. and P. Nijkamp (2005), ‘Migrant minority entrepreneurs and their lack of institutional collaboration reasons and perceptions in the franchise sector’, Tinbergen Institute, Amsterdam. Masurel, E., P. Nijkamp, M. Tastan and G. Vindigni (2002), ‘Motivations and performance conditions for migrant entrepreneurship’, Growth & Change, 33, 238–60. McSweeney, B. (2002), ‘Hofstede’s model of national cultural differences and their consequences: a triumph of faith – a failure of analysis’, Human Relations, 55, 89–118. Miellet, R.L. (1987), ‘Immigratie van Katholieke Westfalers en de Modernisering van de Nederlandse Detailhandel’, Tijdschrift voor Geschiedenis, 100, 374–93. Milberg, S.J., S.J. Burke, H.J. Smith and E.A. Kallman (1995), ‘Values, personal information, privacy and regulatory approaches’, Communications of the ACM, 38, 65–74. Moghaddam, F.M. and S. Perrault (1992), ‘Individual and collective mobility strategies among minority group members’, Journal of Social Psychology, 132, 343–58. Nagel, C. (2002), ‘Constructing difference and sameness’, Migrant and Racial Studies, 25, 258–87. Olzak, S. (1992), The Dynamics of Migrant Competition and Conflict, Stanford: Stanford University Press. Ram, M. (1994), Managing to Survive: Working Lives in Small Firms, Oxford: Blackwell. Rath, J. (1998), ‘Een Etnische Stoelendans in Mokum. Over de Economische Incorporatie van Immigranten en hun Nakomelingen in Amsterdam’, in A. Gevers (ed.), Uit de Zevende. 50 Jaar Sociaal-Culturele Wetenschappen aan de Universiteit van Amsterdam, Amsterdam: Het Spinhuis, pp. 235–49. Rath, J. (2000), ‘Introduction; immigrant business and the economic, politico-institutional and social environment’, in J. Rath (ed.), Immigrant Business: The Economic, Political and Social Environment, London: Macmillan Press, pp. 1–19. Razin, E. (1989), ‘Relating theories of entrepreneurship among ethnic groups and entrepreneurship in space – the Case of the Jewish population in Israel’, Geografiska Annaler, 71, 167–81. Razin, E. (1993), ‘Immigrant entrepreneurs in Israel, Canada and California’, in I. Light and P. Bhachu (eds),

Migrant entrepreneurship from the perspective of cultural diversity 113 Immigration and Entrepreneurship, Culture, Capital, and Migrant Networks, New Brunswick: Transaction Publishers, pp. 111–32. Rettab, B. (1995), ‘Economic performance of the immigrant workforce: case study of the Netherlands’, EUR Proefschrift. Rettab, B. (2001), The Emergence of Migrant Entrepreneurship: A Conceptual Framework, EIM/Business and Policy Research, Zoetermeer: EIM. Robinson, P.B. and E.A. Sexton (1994), ‘The effect of education and experience on self-employment success’, Journal of Business Venturing, 9, 141–56. Sahin, M., M. Rietdijk and P. Nijkamp (2006), ‘Ethnic employees’ behaviour vis-à-vis customers in the service sector’, Research Memorandum, 2006-2. Schrover, M. (1996), ‘Omlopers in de Keulse potten en pottentrienen uit het Westerwald’, in M. ’t Hart, J. Lucassen and H. Schmal (eds), Nieuwe Nederlanders. Vestiging van Migranten door de Eeuwen Heen, Amsterdam: Stichting Beheer IISG en SISWO/Instituut voor Maatschappijwetenschappen, pp. 101–20. Schumpeter, J.A. (1934), The Theory of Economic Development, trans. R. Opie from the 2nd German edn [1926], Cambridge: Harvard University Press. Shulruf, B., J. Hattie and R. Dixon (2003), ‘Development of a new measurement tool for individualism and collectivism’, paper presented at the NZARE/AARE Joint Conference 2003, Auckland, New Zealand. Simon, G. (1993), ‘Immigrant entrepreneurs in France’, in I. Light and P. Bhachu (eds), Immigration and Entrepreneurship. Culture, Capital and Migrant Networks, London: Transaction Publishers, pp. 125–39. Stephen, W.L., J.C. Crotts, and F.L. Hefner (2004), ‘Cross-cultural tourist behaviour: a replication and extension involving Hofstede’s uncertainty avoidance dimension’, International Journal of Tourism Research, 6, 29–37. Stiglitz, J.E. and J. Driffill (2000), Economics, New York: W.W. Norton & Company. Super, I. (2005), ‘Country of origin as a source of opportunity’, Masters thesis, RSM Erasmus University, Rotterdam. Tesser, P.T.M., J.G.F. Merens and C.S. van Praag (1999), ‘Rapportage Minderheden 1999, Positie in het Onderwijs en op de Arbeidsmarkt, Sociaal en Cultureel Planbureau’, The Hague. Trompenaars, F. (1993), Riding the Waves of Culture: Understanding Cultural Diversity in Business, London: Nicholas Brealey. Uhlaner, L. and A.R. Thurik (2004), ‘Post-materialism: a cultural factor influencing total entrepreneurial activity across nations’, papers on Entrepreneurship, Growth and Public Policy no. 70-2004, Max Planck Institute of Economics, Jena, Germany. Van Praag, C.M. (1996), Determinants of Successful Entrepreneurship, Amsterdam: Thesis Publishers. Van Delft, H.C. Gorter and P. Nijkamp (2000), ‘In search of migrant entrepreneurship opportunities in the city: a comparative policy study’, Environment and Planning C: Government and Policy, 18, 429–51. Van Stel, A., S. Wennekers, R. Thurik, P. Reynolds and G. de Wit (2003), ‘Explaining nascent entrepreneurship across countries’, paper presented at the BKERC Conference, Babson College, 4–7 June 2003. Van Tubergen, F. (2004), The Integration of Immigrants in Cross-national Perspective, Wageningen: Ponsen & Looijen b.v. Veciana, J.M. (1999), ‘Entrepreneurship as a scientific research programme’, Revista Europea de Dirrecion y Economia de la Empresa, 8, 2–10. Veenman, J. (1999), Participatie en Perspectief, Verleden en Toekomst van Etnische Minderheden in Nederland, Lelystad: K.V. bv. Verbeke, W. (2000), ‘A revision of Hofstede et al.’s (1990), Organizational Practices Scale’, Journal of Organizational Behavior, 21, 587–602. Verheul, I., S. Wennekers, D. Audretsch and R. Thurik (2001), ‘An eclectic theory of entrepreneurship: policies, institutions and culture’, Research Report 0012, Zoetermeer: EIM. Vermeij, C. (2006), ‘What is cooking?’, Ph.D thesis, Utrecht University. Waldinger, R., H. Aldrich, R. Ward and associates (1990), Ethnic Entrepreneurs, London: Sage. Waldinger, R.D., H.E. Aldrich, R. Ward and J. Blaschke (1990), Migrant Entrepreneurs: Immigrant Business in Industrial Societies, Newbury Park, CA: Sage Publications. Ward, R. (1983), ‘Ethnic communities and ethnic business: an overview’, New Community, 11, 1–9. Werbner, P. (1990), ‘Renewing an industrial past: British Pakistani entrepreneurship in Manchester’, Migration, 8, 7–41. Wennekers, S. and R. Thurik (1999), ‘Linking entrepreneurship and economic growth’, Small Business Economics, 13, 27–55. De Wit, G. and F.A.A.M. van Winden (1989), ‘An empirical analysis of self-employment in the Netherlands’, Small Business Economics, 1, 263–72. Wikipedia (2006), The Free Encylopedia.

PART II ETHNIC MINORITY SELF-EMPLOYMENT IN AMERICA

8

Ethnic business owners and their advisors: the effects of common ethnicity Linda M. Dyer and Christopher A. Ross

The presence of small businesses that are owned and operated by members of ethnic communities is a phenomenon that exists in most countries. In some countries, these ethnic businesses dominate important sectors of business activity, particularly in the developing world (Rapley, 1996). With increasing migration, the growing presence of ethnic businesses in the industrial countries of the world has been the subject of much study. Researchers and scholars in Canada, Europe and the United States, in particular, have been concerned with understanding the development and growth of ethnic small businesses. Ethnic small businesses in industrial countries face a number of obstacles and challenges that relate specifically to their ethnic character. Ethnic business owners often have different business norms and expectations, for example (Tracogna, 1998). They sometimes have difficulty getting financing, they may lack important managerial skills and they often lack access to critical mainstream markets. The ethnic owner may also experience problems with language and may be unfamiliar with the dominant business culture. Finally, many ethnic businesses operate in the retail and service sectors, and they are often cut off from the major business networks in the mainstream society. In short, ethnic firms generally exist in marginal sectors with low barriers to entry and intense competition, and display heavy reliance on the fellow-ethnic market for their customers (Phizacklea and Ram, 1995). An almost universal reaction, on the part of governments, to the challenges faced by ethnic small businesses is to establish programmes of support and advice. Many large ethnic communities have also established business associations and ethnic Chambers of Commerce that provide business support for their members. Of course, independent from these ethnically focused government or community organizations, there exists a wide array of trade associations, government-sponsored programmes, and private providers such as accounting firms, consulting companies, lawyers and other professionals in the mainstream culture who offer business support for small enterprises. The goal of this chapter is to examine the question: Does ethnicity matter? In other words, is there a specific advantage when the ethnic business owner receives information and advice about business activities from a fellow-ethnic advisor? Are there special benefits to be gained from membership of an ethnic Chamber of Commerce or business association beyond a mainstream business-support organization? Are government-sponsored ethnocentric programmes an effective tool for aiding communities? Does it profit an owner to select a business-support professional from within his or her own ethnic community, compared with approaching a mainstream advisor? Relatively few investigators have studied the relationships between ethnic minority enterprises and the providers of business development support, be they mainstream providers or ethnic-centred institutions (Ram and Barr, 1997). A notable exception is Oc and Tiesdell (1999), who found that 117

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one of the key needs of ethnic entrepreneurs was the availability of financial resources. Moreover, for business development support providers to be successful with ethnic businesses, they must demonstrate awareness and sensitivity, and must have credibility. We are unaware of any study in the small business literature, however, that specifically compares the usefulness of having a business-support advisor from within (as opposed to from outside) the entrepreneur’s own ethnic group. The format of this chapter is as follows: first we discuss the propensity of ethnic small business owners to use business-support advisors; next we describe some specific examples of ethnic institutions that provide advice to small firms; third we review the literature to construct a rationale for the potential advantages and disadvantages of an ethnocentric advising process; finally we present some exploratory empirical data related to this issue, and we draw some lessons for future research. Before proceeding further, we must first be clear that there are various meanings associated with the term ‘ethnic’. Confusion has often arisen because researchers tend to use the term ‘ethnic’ interchangeably with ‘immigrant’ and ‘minority’ business owners (Chaganti and Greene, 2002). These categories sometimes overlap, though not always. Ethnicity can also be defined as ‘identification with an ethnic group’, which is a psychological construct that goes beyond a straightforward focus on biology or birthplace. In this chapter we will use two definitions: ethnicity as the easily recognizable physical characteristics that can be readily observed in certain individuals, and ethnicity as the extent of their self-identification with a particular cultural or racial group. Advice seeking by ethnic small businesses Many businesses seek outside help and advice at some point in their life cycle. This help may be of a formal nature, with the hiring of fee-for-service consultants and professional advisors, or it may be of an informal nature with the business owner having discussions with family members, associates, customers or suppliers, for example (Mitchell, 2003). But what of the ethnic small businesses? Various studies show that, in the main, these ethnic business owners are seldom seekers of help and advice from mainstream institutions. They tend to avoid business support agencies such as Chambers of Commerce, commercial banks and government-sponsored institutions (Marlow, 1992). Ram, Sanghera, Abbas and Barlow (2000), in their study of ethnic minority businesses, state quite explicitly that their study ‘confirms the reluctance of many small businesses to utilise formal programmes of training’ (p. 339). Oc and Tiesdell (1999) and Young (2002) reported similar findings in their study of business support for ethnic minority businesses. But why would ethnic businesses avoid seeking help from business support agencies? This is an important question, especially since the problems they face are those that all small businesses encounter, and these are superimposed on the problems that are specific to ethnic small businesses, such as lack of familiarity with mainstream norms and expectations, lack of information, and lack of access to markets and to suppliers. Scholars have advanced several reasons to explain this behaviour on the part of these businesses. Ethnic business owners may regard such support as shameful or even insulting, or they may self de-select by assuming that their businesses did not qualify for support (Oc and Tiesdell, 1999). Other researchers argue that the absence of ethnic businesses in training schemes is the result of a mis-identification of the needs of these businesses and that there is little effort by the authorities to use professionals such as management consultants, bankers and

Ethnic business owners and their advisors 119 accountants, who are members of the target ethnic group. Many of the business people expressed an interest in having advisors from their own ethnic group because many of their problems were related to their ethnicity as opposed to the business (Marlow, 1992). Ethnic business-support institutions and advisors As a result of the perceived absence of sources of mainstream advice for ethnic small businesses, many ethnic communities have developed institutions that offer help and advice to business members of their community. Thus there is the Asian Institute of Management in the United Kingdom, and The Indus Entrepreneurs, which is an organization with 30 chapters in eight countries around the world. The Indus Entrepreneurs include the following ethnic groups: Bengali, East Indian, Nepali, Pakistani, Punjabi, Sri Lankan and Tamil. These are organizations, ethnic in character, that have been established to provide support to a specific ethnic group (www.tie-vancouver.org). Similar organizations exist in several different countries. Boissevain and his colleagues (1990) provide several examples of these specialized associations. Pakistani clothing manufacturers in Britain set up a trade association; Korean real estate developers created the Koreatown Development association in Los Angeles; in Berlin, a Turkish organization provided regular advice to its entrepreneur-members. Silverman (1999) describes how black manufacturers of beauty products in Chicago established an association to discuss marketing strategies. In some cases government provides the impetus for creating these ethnic business support services (Boissevain et al., 1990). In Montreal, for example, the provincial government created the Mathieu Da Costa Business Development Corporation in 1992 for the sole purpose of providing loans to the black community. In Toronto, Business Improvement Associations sponsored by the city government serve as ethnic resources when they are located in neighbourhoods that are predominantly ethnic. It might be useful to sketch, in some detail, the objectives of one of these ethnic organizations. The Montreal Association of Black Business Persons and Professionals (MABBP), located in Canada, is a good example. This organization was formally established in 1981. Its initial objectives were the following: 1. 2. 3. 4. 5.

To create a climate that encourages trade and industry for the association and its members. To promote opportunities for the association and its members in areas of business, the professions, science, arts and technology. To undertake business ventures and to hold real estate and other property. To provide representation for the black business community. To provide guidance and counselling advice and referral services to small and startup businesses.

Currently the MABBP provides professional business training for members and nonmembers, encourages cooperation between its members and promotes the business and services of its members. In addition, it tries to make it easier for young black professionals and business people to enter the marketplace and helps its members get experience in different areas of business management (MABBP.org, 2005). This organization was instrumental in lobbying the provincial government to create the Mathieu Da Costa Business Development Corporation mentioned above.

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In addition to these formal organizations, there are also private individuals who, on a fee-for-service basis, provide help and advice to members of their own ethnic community. These consultants have frequently been trained in mainstream educational institutions and thus have become familiar with the norms and expectations of the dominant business community. Their training, too, makes them familiar with the legal, marketing and financial systems. They are thus able to combine their knowledge of the dominant culture with their familiarity with the ethnic culture, and are able to play the role of a middleman. These consultants are often accountants, lawyers or business school professors, for example. It is the use of these formal institutions and individuals by ethnic businesses that concerns us in this chapter. To restate our original question: is it advantageous to an ethnic small business owner to seek advice from these ethnic business-support organizations and fellow-ethnic individual advisors? Does an ethnocentric advice process confer advantages beyond those available from mainstream business-support providers? Parenthetically, we are not unmindful of the fact that ethnic resources are just one set of factors that can influence business success. The functioning and success of a business also depends on ‘class resources’ such as education and financial capital (Marger, 1989). Basu and Goswami (1999) found, for example, that business growth among ethnic businesses is positively related to educational attainment, prior experience and personal financial commitment. The opportunities in the marketplace also have a significant impact on the development of the business. Without opportunity, resources will seldom be useful, although it is possible to use resources to create opportunity. Finally, the strategies used by the business will also have an impact. Our focus in this chapter, however, is on ethnic resources and our intent is to answer the question: does the use of these fellow-ethnic resources convey a competitive advantage to ethnic small businesses? Some scholars have argued that ethnic firms exist in a context of discrimination, limitation and disadvantage, and that any kind of ethnocentric strategy is unlikely to be advantageous in the long term (Ram and Barr, 1997). On the other hand, some scholars see the fact of ethnicity, ethnic values and culture as providing a distinctive advantage for entrepreneurial start-up and subsequent firm development. Advantages of same-ethnicity advising Greene (1997) explored the notion that an ethnocentric advising process might be advantageous. The researcher used a strategic management framework to assert that the use of ethnic organizations can fulfil the requirements of sustainable competitive advantage. Briefly stated, sustainable competitive advantage is secured when a resource adds value, when few competitors have access to the resource, and when it is difficult for others to duplicate. In her case study of Ismaili–Pakistanis in one American city, Greene concluded that their community association provides entrepreneurs with long-term access to funds and advice that could add value. Since access is limited to entrepreneurs from this particular ethnic group, other competitors cannot use the resource. Finally, the unique historical, cultural and social bonds within this community create a form of commitment between entrepreneurs and advisors that would be impossible to duplicate in mainstream associations. She concluded, therefore, that the ethnic community association creates a sustainable competitive advantage for these entrepreneurs. A more ‘micro’ approach to answering the questions posed in this chapter would allow us to discuss the process by which the interaction between an individual business owner

Ethnic business owners and their advisors 121 and an advisor of the same ethnic group is established, developed and leads to particular organizational outcomes. In this regard, it is useful to examine some of the work that has been done in the organizational behaviour literature on same-ethnicity dyads. Issues of race and ethnicity have been addressed under the general rubric of diversity research. Researchers have examined the performance of dyads or small groups that are ethnically homogeneous or heterogeneous and frequently have found that, when a group comprises people of different ethnic backgrounds, group performance is inhibited. This negative performance outcome seems to be related to group interaction problems: low cohesiveness, mis-communication and conflict (Kochan, Bezrukova, Ely, Jackson, Joshi, Jehn, Leonard, Levine and Thomas, 2003). Watson, Kumar and Michaelsen (1993), for example, studied culturally homogeneous (White) and heterogeneous (including White, Black, Hispanic, Asian and MiddleEastern) student work teams over a four-month period. The researchers found that intergroup interaction was significantly better in the homogeneous groups than in the culturally diverse groups, during the first three months. The diverse groups had more difficulty with agreeing on what was important, for example, or ensuring a free flow of information. Moreover, the homogeneous groups performed better on the tasks of case analysis – considering a range of perspectives, problem identification, generation of multiple alternatives and the quality of solutions. In a field setting, Kochan et al. (2003) studied workgroups in four large organizations, examining the effects of racial diversity on group processes such as communication, conflict, cohesion, information sharing and creativity. They also looked at the performance of the workgroup, and financial outcomes of the unit or firm as a whole. Although their overall results were somewhat ambiguous, some of the data were consistent with a negative impact of diversity. In one firm, for example, they found that racial diversity within teams inhibited constructive group interactions, which in turn had a negative effect on team performance. This was particularly true in units that had a competitive culture and growth-oriented strategies. In another firm, service teams’ ethnic diversity was negatively related to the achievement of team goals (Kochan et al., 2003). Consistent with these findings is Hill and Gant’s (2000) research on a mentoring programme at a large US firm. They found that same-race (black) mentor–protégé dyads had short and easy initiation periods, created a sense of identification and an increased level of intimacy, and so resulted in trusting relationships that enhanced the careers of protégés. On the other side of the coin, cross-race pairs posed more difficulties for the formation of trust. Thomas (1989) described tensions between black/white mentor–protégé dyads, which prevented the open exchange that is so desirable in an advising relationship. He notes that, because of these tensions, mentor and protégé keep their emotional distance, depersonalizing the relationship. The theoretical underpinnings of these negative effects of diversity on process and performance come from the social psychology literature (Harrison, Price and Bell, 1998). Two paradigms – the similarity-attraction hypothesis and the self-categorization approach – take centre stage. The similarity-attraction hypothesis (Byrne, 1971; Tsui, Egan and O’Reilly, 1992) posits that, when attitudes between two people are similar, this is a primary source of attraction between them. Similarity in attitudes or beliefs is inferred from a variety of readily observable characteristics, including physical traits such as sex, age or race. Put differently, people tend to assume that, if another person is physically similar to

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them, they will have common beliefs, values or personality. The outcomes of this attraction may be frequent communication, an interest in maintaining an affiliation with the other person, and the formation of interpersonal bonds. It is not even necessary that the two people interact for this preference to occur. Self-categorization theory (Ashforth and Mael, 1989) proposes that people define themselves in terms of an easily observable social category such as race, sex or membership of an organization. This self-categorization is the basis of self-identity, and leads to perceptions of in-groups (‘people who are like me’) and out-groups (‘people who are not like me’). People in one’s in-group tend to be seen positively, while those in the out-group are seen as less trustworthy and less cooperative, even when interaction with these out-group members is minimal or absent. Together, the similarity-attraction and self-categorization theories are consistent with the empirical finding that an ethnically similar other will be preferred to someone who is dissimilar, even before any significant interaction occurs. Moreover, the subsequent interpersonal processes will be smoother and performance will be better in homogeneous groups. By this reasoning, a business owner might prefer to choose a business-support advisor of his or her own ethnicity, and that relationship should lead to more successful outcomes. It must be noted that group process variables are particularly important in the development of the advisory relationship. A certain comfort level between advisor and entrepreneur is necessary before the latter will discuss confidential matters or express the uncertainties and doubt that are inherent in managing a business. When the entrepreneur and advisor achieve this comfort level, the open communication that ensues is the prerequisite to better-quality advice and more effective problem solving (Maister, Green and Galford, 2000). Similarly, Gumpert and Boyd (1984) speak of the loneliness of the small business owner, noting that input from a trusted confidant can reduce stress, provide comparative benchmarks which allow for improved decision making, and thus lead to better financial results. We can conclude from this review that, if the business owner and advisor are of the same ethnicity, their communication, the success of the relationship and the quality of their joint problem solving might be better than if owner and advisor are from different ethnic groups. The case for heterogeneity The desirability of same-ethnicity groups has not gone unchallenged, however. An increasingly diverse labour market and customer base have caused many business leaders and researchers to remark that ethnic diversity is now a social reality as well as a societal value (Kochan et al., 2003). Many people have a vested interest in finding ways in which effectiveness can be achieved within the inescapable context of workforce heterogeneity. Their goal is to build a case for the positive effect of ethnic diversity on organizational performance (ibid.). Indeed, some researchers have pointed out that the so-called ‘dark cloud’ of ethnic or cultural diversity may have a ‘silver lining’ (Watson et al., 1993). Ethnic diversity implies varied past experiences among people of different cultural or national backgrounds, and this variety should allow a group to consider a greater range of viewpoints and innovative ideas, which in principle should allow for superior problem solving. Under what conditions, then, would the proposed positive effects of diversity emerge? The longitudinal study of ethnically homogeneous versus heterogeneous groups conducted

Ethnic business owners and their advisors 123 by Watson and his colleagues (1993) found that the initial advantage accruing to homogeneous groups disappeared over time; by the end of the four-month period under study, intra-group processes were just as good in the heterogeneous groups, and the heterogeneous groups outperformed homogeneous groups in the range of perspectives considered, and the number of alternatives generated. The authors asserted that much of the earlier literature described simplistic tasks done by newly created groups, which lasted only for the duration of the research. Thus the comparatively good performance of same-ethnicity groups may be limited to newly formed groups. For normal, permanent workgroups, we might predict equality in group process and perhaps improved problem solving in heterogeneous groups. In other words, time might be an important moderator of the link between diversity and performance. Convergent evidence comes from a study by Harrison, Price and Bell (1998) who examined interdependent work teams in two settings: hospitals and grocery stores. Their research suggests that, over time, the negative effect of differences in observable physical characteristics like race, age and sex diminished. Instead it was ‘deep-level’ differences in job attitudes and organizational commitment which affected group processes. Apart from time, aspects of the organizational context also affected the diversity– performance relationship. Kochan et al. (2003) found that, when workgroups in an information-processing firm were specifically trained to manage intra-group processes, the negative effects of racial diversity were reduced. Watson et al. (1993) also suggested that an environment that provided feedback about group processes could resolve problems with group interactions. Similarly, Kochan et al. (2003) studied 480 retail branches of a financial services firm, and found that, when the branch culture affirmed that diversity was a source of learning and a valued resource, racial diversity had a positive effect on performance. Finally, in another information-processing firm, Kochan and his fellowresearchers (2003) found that, when ethnically diverse service teams existed within ethnically diverse organizational units, the diverse teams performed better than homogeneous teams. We draw two lessons from this review. First, we propose that the advantage of having a same-ethnicity advisor would obtain early in the relationship, during the original choice of the advisor and the early, ‘getting-to-know-you’ period. Ethnic homogeneity would be less important over time, however. Deeper-level similarities in attitudes or values might be more predictive of success in mature relationships between advisor and business owner. Second, we note that context variables such as the ethnic make-up of the business environment in which the owner finds him- or herself could be an important moderator of the link between ethnic homogeneity and the success of the relationship that develops. Stated differently, the organizational context might be an important variable to explore. Several business-related variables might influence the salience of ethnicity in the organizational context. One such variable is the extent to which the business encourages fellow-ethnic customers. Some retail outlets provide ethnic products and clothing, some restaurants prepare ethnic food; there are ethnic media businesses and other services established to cater to the needs of an ethnic clientèle. For the owner, involvement in the ethnic community may be one way to promote the business and expand his or her customer base. This community involvement, and the frequent interactions with fellowethnic customers, would serve to increase the salience of ethnicity to the business owner. Another variable likely to affect the salience of ethnicity in the organizational context is

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the number of employees who are from the same ethnic background as the owner. Again, frequent workplace interactions with employees who have common cultural practices, values and communication patterns may increase the extent to which ethnicity is salient to the business owner. We must also reconsider the notion of self-categorization (Ashforth and Mael, 1989), that is, the extent to which the business owner sees his or her own ethnic identity as relevant (Donthu and Cherian, 1994). The ethnic self-identity of any individual varies along a continuum, and might depend on geography, social surroundings or other antecedent conditions (Stayman and Deshpande, 1989). Thus variation in ethnic identity may certainly be related to race and place of birth, but can also result from influences such as the neighbourhood in which one lives, the size of the ethnic group relative to the mainstream, or even the time of year, in particular, around the dates of traditional ethnic holidays. Within any (demographic) ethnic group of business owners, therefore, there will be some to whom ethnicity is seen as relevant to a wide range of their activities, and who strongly identify with their ethnic group, and others to whom their own demographic characteristics are essentially irrelevant to their daily lives or their business activities. Thus any exploration of the link between advisor ethnicity and organizational outcomes should take into account the ethnic self-identity of the owner. In summary, after looking at the relevant literature in organizational behaviour, small business management and strategic management, we return to our broad question: does ethnicity matter in the business advisory process? Our review of past research has revealed several variables that seem worthy of investigation. They include the ethnicity of the owner and the advisor, the quality of the interaction between them, the length of time they have known each other, the ethnic make-up of the business environment, including the ethnicity of employees and customers, the ethnic self-identification of the owner, the owner’s membership of ethnic associations, and the performance of the firm (Figure 8.1).

Owner/advisor dyads Same ethnicity Different ethnicity

Quality of interaction Ease of communication Interpersonal liking Range of viewpoints Conflict Creativity

Outcomes Business performance Satisfaction

Ethnic self-identification Organizational context Fellow-ethnic customer base Fellow-ethnic employees

Figure 8.1

Effects of ethnicity on owner/advisor interactions and business outcomes

Ethnic business owners and their advisors 125 Empirical work: procedures We proceeded to collect data from a small sample of ethnic business owners. Our aim was to take a preliminary look at the major variables that emerged in order to develop propositions for testing our theoretical framework. This initial exploration is not presented as a definitive test of hypotheses; rather, it could aid methodological choices for future research. We approached 140 small business owners from six ethnic minority groups: Black, Chinese, Greek, Italian, Middle-Eastern and South Asian business owners. These groups were selected because they are the major ethnic groups in the two cities in which data were collected. We used a snowball sampling technique to develop the sample; starting with key contacts in Montreal and Toronto, we created a list of potential participants from each of the six ethnic groups under study. After each interview, we asked the respondent whether he or she could suggest the names of other owners who might be willing to participate. It was important as well to ensure that all our business owners did not belong to the same network, so a number of ‘cold calls’ were made, and the same snowball techniques were used to get further names from the networks of these new participants. In the end, we were able to achieve a diverse sample of respondents. About 75 per cent were male, and 58 per cent of them had a university education. The representation from each of the six ethnic groups was roughly equivalent, ranging from a low of 14 per cent (Greek) to a high of 21 per cent (South Asian). The owners had been in business for an average of 10.5 years, with an average of 20 full-time employees and modal annual sales of (Canadian) $50–500 thousand. The firms were widely diverse as to industry: food services (19 per cent) and retail trade (17 per cent) were the modal categories, but information industries, finance and insurance, manufacturing firms and a range of other service firms were among those represented in the sample. A semi-structured interview was conducted with each participant. During the interview, owners were asked about the person they would approach most frequently for information and advice as they faced business problems, or as they dealt with the general challenges of life in their firms. Thus their choice of a primary advisor was elicited in free response. Follow-up interview questions asked the participant about the characteristics of the advisor, including ethnicity and the length of time they had known the advisor. We also asked them to describe the nature of their interactions with the advisor, in particular, whether it was a collegial/professional relationship, or whether the advisor could be considered to be a mentor or a friend. The owners’ membership of ethnic associations was also part of the interview data: we asked whether participants currently belonged to trade, professional or ethnic associations. After the interview, each participant completed a paper-and-pencil questionnaire. One of the measures, ethnic self-identification, was a two-item scale taken from Donthu and Cherian (1994) which measured the owners’ perceptions of identification with an ethnic group and the importance of maintaining this ethnic identity. Each question had a rating on a five-point scale: a five on the scale represented very low identification, while a score of one represented very high ethnic identification. In our sample, the reliability of this two-item scale was 0.73. We also measured two aspects of the organizational context; the percentage of employees from the same ethnic group as the owner was measured with one item on the written questionnaire, and a similar question asked the owner to estimate the percentage of fellow-ethnic customers who patronized the business.

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We measured business performance by questioning the business owners about their perceptions of success. This ten-item measure was part of the paper-and-pencil questionnaire and was adapted from Beal (2000). The respondent rated on a five-point scale the importance to the business of five performance measures of sales and profits. Next, the respondent’s satisfaction with the same measures of business performance was rated, also on a five-point scale. For each performance indicator, importance was multiplied by satisfaction and the products were averaged to form a composite measure of business success. This measure was found to have good reliability in the sample (alpha0.87). Finally one question asked for their view of the usefulness of the advice provided by ethnic associations. Empirical work: findings Use of fellow-ethnic business-support advisors Of the 140 business owners, we found that a relatively small proportion participated in an ethnocentric advice process. Nearly 20 per cent of them told us that there was no specific person who could be identified as a primary advisor. Many others did not provide details about the ethnicity of the advisor. Of the remaining owners, 37 had advisors of the same ethnicity as themselves, while 28 had advisors from a different ethnic group. Some 65 per cent of the owners with same-ethnicity advisors said that the relationship was like that of a mentor or a friend. In comparison, 42 per cent of the owners with different-ethnicity advisors categorized the relationship in these terms. This is suggestive, but not statistically significant (see Table 8.1). Of course, the small sample size meant that our test had low statistical power. Our measure of the interaction process was also quite rudimentary. For this reason we will not rule out the possibility that same-ethnicity advising leads to a more congenial interaction between owner and advisor, which is consistent with what one would expect, given the review of past research. In the future, however, it would be useful to have a larger sample size and a more detailed, multi-item measurement of the interaction process, which could be used to determine the level of intimacy and trust between the business person and the advisor. On average, the owners had known their advisors for just over 11 years. The sameethnicity owner/advisor dyads relative to the heterogeneous dyads were in existence for a Table 8.1

Ethnicity of advisor, process and context variables, and outcomes Closeness of interaction*

Time advisor known (yrs)

Ethnic identity**

Fellowethnic customers

Fellowethnic employees

Perceptions of success

Same ethnicity Different ethnicity

65%

14.2

2.64

24.4%

48.3%

2.51

42%

8.7

2.92

17.0%

27.4%

2.86

p-value

0.109

0.041

0.053

0.240

0.012

Advisor ethnicity

0.487

Notes: * % who said advisory relationship was like that of a mentor or a friend; ** five-point scale; a lower value is associated with a stronger ethnic identity.

Ethnic business owners and their advisors 127 longer time – the former for 14.2 years and the latter for 8.7 years. This is an interesting result which suggests that same-ethnicity dyads are more stable than dyads made up of different ethnicities. It is likely that the stability of same-ethnicity dyads is the result of the social comfort engendered by shared experiences, ease of communication, commonly held beliefs, language and attitude towards the mainstream society held by the members of the dyad. These shared beliefs and attitudes provide the foundation for an enduring relationship. This finding is consistent with the view that the most successful relationships occur when advisors are of the same ethnic group as the advisee (Hill and Gant, 2000; Thomas, 1989). Only 18 of the participants had new advisory relationships, that is, less than one year old. Because of the small sample size, we were unable to examine directly the notion that a positive effect of same-ethnicity pairings would obtain early in the relationship, but that this would disappear over time. We noted, however, that longer relationships tended to be closer relationships. Advisors who were described as mentors or friends had been known for 13 years on average, whereas the professional or collegial relationships were 7.5 years old, on average. The sample size issue poses a real challenge to future research in this area. We believe that it would take a very large sample indeed to get a reasonable sub-sample of new relationships, some of which are same-ethnicity and others that are different-ethnicity dyads. A more efficient way to achieve this might be to approach a large business-support agency, perhaps governmental or para-public, which employs advisors of diverse ethnicities. In this context, researchers might be more successful at finding an adequate sample of new, naturally occurring, homogeneous and heterogeneous owner–advisor pairs. We can also comment on the proposed relationship between the choice of a fellowethnic advisor and the ethnic self-identity of the owner. It turned out that the participants whose advisors were of the same ethnicity as themselves also had a significantly stronger identification with their ethnic group. This is a simple non-causal analysis, of course, but it seems a more likely explanation that the relatively enduring characteristic that is ethnic self-identity would have an effect on the choice of advisor (rather than the reverse cause – that choosing an advisor would affect self-identity). The participants also described the salience of ethnicity in the business context in which they operated their firms. They reported that, on average, about 10 per cent of their customers were fellow-ethnic, (median  10 per cent; range  0 to 95 per cent), and that just under one-quarter of their employees were fellow-ethnic (median  23 per cent; range  0 to 100 per cent). Having a large proportion of customers from their own ethnic group was not related to having a same-ethnicity or different-ethnicity advisor. On the other hand, owners whose advisors were fellow-ethnic operated firms in which, on average, just under half the employees came from their own ethnic group. Owners with differentethnicity advisors had a significantly smaller proportion of employees from their own ethnic group. To summarize the results of our empirical work so far: owners with same-ethnicity advisors tended to have a stronger ethnic identity, to have known their advisor longer, and to have a larger percentage of fellow-ethnic employees relative to different-ethnicity dyads. Taken together, we might speculate about an ethnocentric ambiance in the daily activities of the business. Ethnic ambiance here describes a situation where the owner’s ethnic identity and the large percentage of fellow-ethnic employees create a company culture in which

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internal communication may take place in the language of the ethnic group, ethnic music may be played, and holidays and celebrations may conform to ethnic norms. In a situation such as this, the internal operations of the business and the self-image of the owner are internally consistent and mutually reinforcing. This ambiance may be linked to choice of a same-ethnicity advisor. While the percentage of fellow-ethnic customers was not related to advisor ethnicity, in many businesses customer ethnicity has a lesser impact on the firm’s culture than does employee ethnicity. Future empirical research could explore the notion of ethnocentric ambiance, to clarify the concept and develop valid measures for it. We noted earlier that biology does not overlap fully with ethnic identity; in the same way, ethnic business ownership need not mean that the business has an ethnocentric culture. Finally, there was no direct impact of advisor ethnicity on business success, measured in terms of self-reported financial performance. Nor was the type of relationship between owner and advisor linked to success. We could draw a conclusion that fellow-ethnic understanding in the advice process has no direct impact on business performance. The small sample and the weakness of our measure of interaction processes make any conclusion premature, however. Furthermore, the measure of success could be expanded beyond satisfaction with overall financial performance. We might be more likely to find relationships if we included more proximate outcomes of advice as mediating variables. Such mediators might include the launching of new products or services, improved business strategies, or simply the quality of recommendations of the advisor. An owner–advisor pair may share great empathy, but if the advice given is inappropriate, it cannot be expected to result in positive outcomes for the business. Clearly this part of the framework would benefit from further investigation, with a larger sample and improved measures. Use of ethnic associations About 40 per cent of our respondents told us that they did not belong to any business associations at all. Just 42 owners said that they belonged to an ethnic business association and 72 belonged to mainstream trade or professional organizations. Thirty-two belonged to both types of associations, while just ten belonged to an ethnic association only. There was no statistical relationship between having a fellow-ethnic advisor and belonging to an ethnic business association. This suggests that, for this sample, the individual advisors described above are independent service providers and not part of the service offerings of an ethnic association. Again, the extremely small size of some of these sub-samples means that these findings are suggestive only. It is interesting, though, that there was a significant relationship between ethnic identity and membership of organizations; however, the relationship was in a direction opposite to that expected (Table 8.2). In other words, having a stronger ethnic identity decreased the likelihood that the owner would restrict his membership to ethnic associations only. Further, the proportion of fellow-ethnic employees was not significantly linked to the type of associations to which the owners belonged. Thus the notion of ethnocentric ambiance proposed above has no impact, or a negative impact, on association membership. This is difficult to explain without a better understanding of why owners choose to join the various types of business associations. We recommend that future research should explore the motivation behind these membership decisions. Another finding of interest was that the percentage of fellow-ethnic customers was significantly higher among the owners who belonged to ethnic associations, compared to

Ethnic business owners and their advisors 129 Table 8.2

Membership of associations, context variables and outcomes

Membership Ethnic association only Both ethnic and trade/professional Trade/professional association only p-value

Ethnic identity**

Fellow-ethnic customers

Fellow-ethnic employees

Usefulness of associations*

Perceptions of success

3.33

51.3%

44.3%

3.50

2.11

2.74

24.3%

38.3%

3.81

2.50

2.67

16.6%

29.4%

3.82

2.77

0.005

0.508

0.766

0.201

0.016

Notes: ** Five-point scale; a lower value is associated with a stronger ethnic identity; * five-point scale; a lower value is associated with a lower level of usefulness.

those who belonged to mainstream trade / professional associations or to both types of associations. Since there was no significant difference in the usefulness of the advice provided by various types of associations, it may be that the decision to join an ethnic association may be a marketing strategy for businesses with a large percentage of fellow-ethnic customers: owners realize the importance of establishing and maintaining social connections with their customers, and what better way could there be than by being a member of the community’s association? By this symbolic gesture, the firm’s visibility is enhanced, the owner and the business are seen as an integral part of the community and, consequently, they are more likely to be part of the evoked set of the potential customers. Consistent with this view is the idea that small business owners often intuitively practise cultivating relationships (Barnes, 2001). The suggestion above that future research should seek to understand the motivation for joining associations would allow us to test these ideas about membership as a marketing strategy. Finally, as with the ethnicity of the advisor, belonging to a specifically ethnic organization did not predict the owners’ ratings of business performance. Put differently, an ethnocentric approach to joining business associations was unrelated to perceived success. We recall the point that ethnocentric focus in business activity may stem from the business owner being shut out of mainstream society (Chaganti and Greene, 2002; Ram and Barr, 1997). Although the business may be growing, the owners might feel less than successful if they think they are ‘stuck’ in an ethnic market, and that long-term growth is likely to be limited. In other words, they may be experiencing competitive advantage, but they doubt that it will be sustainable. A more detailed measure of success, and what it means to the owner, could clarify these relationships. Conclusion This chapter examined research which suggested that same-ethnicity dyads between owner and advisor, as well as membership in ethnic associations, would have some effect on the success of the advice relationship and the success of the enterprise itself. We presented some preliminary empirical work that explores some of the variables that emerged from the literature, and that will help sharpen methodological choices for future research. We found that business owners who used advisors from their own ethnic group tended to

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have a longer-lasting relationship with the advisor, to have a stronger ethnic identity and to employ a larger percentage of fellow-ethnic employees. Moreover, membership of ethnic associations correlates with a larger number of fellow-ethnic customers. However, none of these factors had any effect on the measured success of the enterprise. Several limitations to our tentative findings obtain. We have already made reference to the size of the sample as a major limitation. In addition, the sample was restricted to the cities of Montreal and Toronto, where there is a concentration of diverse ethnic groups. This choice of locale may have an impact on target customers, products and services provided, the effectiveness of the various ethnic associations and the availability of fellowethnic advisors. Resources may vary, depending on whether the ethnic groups are geographically concentrated or dispersed. In addition, it is likely that some ethnic groups are better organized than others, or longer-established in Canada, for example Italians relative to Middle-Easterners. This difference may have an impact on how much assimilation into the mainstream culture has taken place. We made no predictions here about inter-ethnic differences, but neither do we rule out the possibility. Another limitation is that we did not control for industry; it would be wise to do so, since this would make comparisons about financial performance more meaningful. Finally, our data were crosssectional, but our framework describes a process; a better test of hypotheses about the advising process would collect measurements at more than one point in time. Nevertheless, this chapter revealed some intriguing areas for research into the choices made by ethnic small business owners as they try to solve their operational and strategic problems. The pattern of findings suggests the concept ‘ethnocentric ambiance’ of a business may be useful in the study of ethnic entrepreneurship. Ethnocentricity is not itself a business objective, but the objectives of the business owner may make ethnicity highly relevant or completely irrelevant to the firm. What emerges too is the need to measure explicitly the owner’s motivation for choosing an advisor or association, the need to define success in the advisory process, and the need to improve measures of the key variables in the framework. When ethnicity is personally salient to the small business owner as well as being particularly relevant to business activities, choosing ethnic resources for advice may seem to be an attractive option. Owners may be encouraged in this course of action by governments and communities, which continue to invest resources in the creation of ethnocentric structures for the support of ethnic small businesses (Oc and Tiesdell, 1999). But promoting an ethnocentric focus in business advising is not always appropriate. The literature is equivocal about the wisdom of having a same-ethnicity advisor and, on the basis of our results, we suggest that there may be some circumstances that call for it and others which do not. Possibly the pressure for the creation of ethnocentric institutions and programmes is political, and this makes it very difficult to evaluate the usefulness of these programmes objectively. There is a role for such institutions and for spending resources on them. If resources are distributed carte blanche, however, the inefficiency of such indiscriminate activity is bound to be exposed, which will only sour the whole project. It would be wiser to identify the areas where ethnicity matters – where an ethnocentric focus will be useful on pure business grounds – and to concentrate resources on those. References Ashforth, B. and F. Mael (1989), ‘Social identity and the organization’, Academy of Management Review, 14, 20–39.

Ethnic business owners and their advisors 131 Barnes, J. (2001), Secrets of Customer Relationship Management, Toronto: McGraw-Hill. Basu, A. and A. Goswami (1999), ‘South Asian entrepreneurship in Great Britain: factors influencing growth’, International Journal of Entrepreneurial Behaviour and Research, 5(5), 251–66. Beal, R. (2000), ‘Competing effectively: environmental scanning, competitive strategy and organizational performance in small manufacturing firms’, Journal of Small Business Management, 38(1), January, 27–47. Boissevain, J., J. Blaschke, H. Grotenberg, I. Joseph, I. Light, M. Sway, R. Waldinger and P. Werbner (1990), ‘Ethnic entrepreneurs and ethnic strategies’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs, London: Sage Publications. Byrne, D. (1971), The Attraction Paradigm, New York: Academic Press. Chaganti, R. and P. Greene (2002), ‘Who are ethnic entrepreneurs? A study of entrepreneurs’ ethnic involvement and business characteristics’, Journal of Small Business Management, 40, 126–43. Donthu, N. and J. Cherian (1994), ‘Impact of strength of ethnic identification on Hispanic shopping behaviour’, Journal of Retailing, 70, 383–93. Greene, P. (1997), ‘A resource-based approach to ethnic business sponsorship: a consideration of Ismaili–Pakistani immigrants’, Journal of Small Business Management, October, 58–71. Gumpert, D. and D. Boyd (1984), ‘The loneliness of the small-business owner’, Harvard Business Review, November–December, 18–24. Harrison, D., K. Price and M. Bell (1998), ‘Beyond relational demography: time and the effects of surface- and deep-level diversity on work group cohesion’, Academy of Management Journal, 41, 96–108. Hill, S. and G. Gant (2000), ‘Mentoring by minorities for minorities: the organizational communications support program’, Review of Business, 21, 53–7. Http://www.MABBP.org (accessed 17 Feb, 2005). Kochan, T., K. Bezrukova, R. Ely, S. Jackson, A. Joshi, K. Jehn, J. Leonard, D. Levine and D. Thomas (2003), ‘The effects of diversity on business performance: report of the diversity research network’, Human Resource Management, 42, 3–21. Maister, D., C. Green and R. Galford (2000), ‘What is a trusted advisor?’, Consulting to Management, 11, 36–41. Marger, M.N. (1989), ‘Business strategies among East Indian entrepreneurs in Toronto: the role of group resources and opportunity structure’, Ethnic and Racial Studies, 12(4), 539–63. Marlow, S. (1992), ‘The take-up of business growth training schemes by ethnic minorities’, International Small Business Journal, 10(4), 34–45. Mitchell, B. (2003), ‘Ethnic entrepreneurship: preliminary findings from a South African study’, Journal of Small Business and Entrepreneurship, 17(1), Fall, 47–62. Oc, T. and S. Tiesdell (1999), ‘Supporting ethnic minority business: a review of business support for ethnic minorities in city challenge areas’, Urban Studies, 36(10), 1723–46. Phizacklea, A. and M. Ram (1995), ‘Ethnic entrepreneurship in comparative perspective’, International Journal of Entrepreneurial Behaviour and Research, 1(1), 48–62. Ram, M. and P. Barr (1997), ‘Ethnic minority enterprise: an overview and research agenda’, International Journal of Entrepreneurial Behaviour and Research, 3, 149ff. Ram, M., B. Sanghera, T. Abbas and G. Barlow (2000), ‘Training and ethnic minority firms: the case of the independent restaurant sector’, Education and Training, 42(4/5), 334–41. Rapley, J. (1996), Understanding Development, Boulder, Colorado: Rienner Publishers. Silverman, R. (1999), ‘Black business, group resources and the economic detour’, Journal of Black Studies, 30, 232–58. Stayman, D. and R. Deshpande (1989), ‘Situational ethnicity and consumer behaviour’, Journal of Consumer Research, 16, 361–71. Thomas, D. (1989), ‘Mentoring and irrationality: the role of racial taboos’, Human Resource Management, 28, 279–90. Tracogna, J. (1998), ‘Business immigration: opportunities for local economic development’, http://www. ecdevjournal.com/pubs/1998/art012_98.htm (retrieved 2005-02-17). Tsui, A., T. Egan and C. O’Reilly (1992), ‘Being different: relational demography and organizational attachment’, Administrative Science Quarterly, 37, 549–79. Watson, W., K. Kumar and L. Michaelsen (1993), ‘Cultural diversity’s impact on interaction process and performance: comparing homogeneous and diverse task groups’, Academy of Management Journal, 36, 590–602. Young, M.(2002), ‘An examination of information sources and assistance programs available to minority-owned small businesses’, Journal of Developmental Entrepreneurship, 7(4), 429–44.

9

Ukrainian farmers in Canada Tom Allen

Introduction It has been widely recognized that entrepreneurship is a major factor in promoting economic growth. Typically, when a discussion is held concerning entrepreneurship, it usually refers to an individual: a man or woman who perceives an opportunity, assumes the risk and creates an organization to exploit it, thus stimulating the economy in a small incremental way. Occasionally, it is not an individual but rather a group of individuals who perceive an opportunity and collectively pursue similar but individual ventures. Such an occurrence can be referred to as ‘mass entrepreneurship’ and has occurred several times in Canadian history. European fishermen came to Eastern Canada to start fishing operations in order to harvest the abundant supplies of cod fish; French and British fur traders established trapping and trading operations across Canada; and pioneers came to the provinces of Ontario and Quebec in Central Canada to establish agrarian ventures. However, by far the largest and most dramatic instance of mass entrepreneurship in Canadian history occurred in the late nineteenth and early twentieth centuries when hundreds of thousands of European immigrants came to Western Canada in pursuit of land. They risked their wealth, their standard of living and even their lives in their quest to establish agricultural ventures and to find a better way of life for themselves and their children. Mass entrepreneurship, like individual entrepreneurship, stimulates the economy, but in a monumental, nation-changing way. This chapter will look at one aspect of the mass entrepreneurship movement that changed the Canadian prairies from an area of virgin prairies sparsely populated by nomadic Indigenous Nations to one of the world’s major producers of agricultural commodities. In the period from 1896 to 1913, over one million people moved to the prairie region of Western Canada. This chapter will focus on the large number of Ukrainian immigrants who came to Canada in the first wave of Ukrainian immigration. A wave of immigration lasting from 1891 to 1914 and resulting in approximately 170 000 Ukrainians coming to the region in hopes of acquiring agricultural land. It must be noted that, while the prairie region of Western Canada was first developed as an agriculture-based economy, within a hundred years agriculture was no longer the dominant industry. Many of the immigrants from around the world who flocked to the undeveloped prairie region in their quest for freedom and adventure did not remain in the agricultural industry. Those who succeeded in establishing a successful farm were often unable to pass the land on to later generations as the adoption of technology changed the agricultural industry from a labour-intensive to a capital-intensive industry. By the end of the twentieth century, there was a transformation of the self-sufficient agricultural communities, based on the tradition of the homeland of the immigrants, to a social structure of an assimilated, urbanized society. Settling the Canadian West In the last part of the nineteenth century a large portion of the region that was to become the Western Provinces of Canada was purchased by the government of Canada from the 132

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Hudson Bay Company. An area including this region had been granted to the Hudson Bay Company by the British Crown in 1670. In the 1870s, treaties were signed with the Aboriginal population and the area was made available for agricultural settlement. Within the almost two million square kilometres of the three prairie provinces in Canada lies a geographic sub-region of arable land referred to as the ‘prairies’. This sub-region is defined by the Rocky Mountains to the west; the rocks, lakes and trees of the Canadian Shield to the north and east; and by the forty-ninth parallel to the south. It was an inhospitable region sparsely populated by several nomadic Indigenous Nations who depended largely on the large bison herds as an economic base – a base that provided them with food, shelter and clothing. In 1870, there were only about 1600 white settlers in the whole region as well as 9800 Métis people. In fact it has been estimated that there was only a total population of 73 000 in the entire region at that time (Conway, 1994: 21). Despite the small population, the land was similar to farmland in North and Eastern Europe and large parts of it were capable of producing annual grain crops and livestock. After the Confederation of Canada in 1867 the new government initiated action to make the Canadian prairies an integral part of Canada. A national policy was implemented that consisted of three basic parts: a transcontinental railway, settlement of the prairies and a system of protective tariffs to keep out cheap American goods. The first step by the Canadian government prior to the implementation of the new national economic policy was the signing of a series of treaties with the nomadic First Nation Peoples of Western Canada. The treaties basically moved the First Nation Peoples onto small isolated reservations and opened the way for settlement of the now empty prairies. In 1896, 140 million acres of land were available for settlement in the prairie region. The railway arrived in the prairie region in the 1880s, reaching Calgary in 1883, and the first part was realized. Central Canada hoped that a settled West would result in the development of new trading opportunities for Central Canada as the withdrawal in 1866 of a reciprocity treaty between Canada and the United States had resulted in the loss of attractive American markets and new trade opportunities were desperately needed. Central Canada was also looking for a hinterland that would supply raw materials for the their factories. In 1903, Wilfrid Laurier, Prime Minister of Canada, wrote: The best way you can help the manufacturers of Canada is to fill up the prairie region of Manitoba and the Northwest with a prosperous and contented people, who will be consumers of manufactured goods of the east. (Conway, 1994: 29)

Now tariffs were imposed on American imports as Central Canada expected that the protective tariff would force the settlers to buy Canadian produced supplies. They hoped this policy would lead to a growing industrialization in Central Canada as they supplied the expanding home market (Conway, 1994). Now all that was required was a multitude of settlers to develop the empty land into an agricultural hinterland. A system of holding and settling land was developed for Western Canada in order to prepare for an anticipated settlement. The Canadian government assigned surveyor John Stoughton to split the area up in such a way as to allow for the development of farms (Herk, 2005). The land holding and settlement system chosen by Stoughton for Western Canada was a modified version of the one that had been introduced in the United States by then President Abraham Lincoln. This system consisted of a basic square survey that divided the arable country into townships of six sections by six sections, each section a

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mile square, and quarter sections that were one half mile by one half mile. The Dominion Lands Act of 1872 copied the American Homestead Act of 1862 and enabled every man of twenty-one years of age or older to claim a 160-acre homestead for a filing fee of $10. This Act ensured the dispersion of settlers by requiring each settler to cultivate a minimum acreage, build his house on his homestead quarter and to maintain residence there for at least six months of the year for a minimum of three years as a requirement for obtaining title to the land (Fowke, 1957). The forced dispersion of farming people resulted in a drastic and unforeseen change for the settlers who came from Europe or Central Canada, where agricultural communities had developed around compact farming villages, often located beside rivers, streams or other transportation modes. The Dominion Lands Act discussed previously promoted a farming settlement that was widely dispersed geographically and that in many cases also resulted in a cultural mosaic. Since homesteads were selected on a first-come, first-served basis, people from divergent ethnic backgrounds often settled in close proximity to each other. This occurred in spite of early attempts by settlers from Ontario to build a British society in the West. Their efforts were thwarted by a failure to attract British or Canadian settlers in sufficiently large numbers. Consequently, the Canadian government was forced to look to non-British regions for prospective immigrants. It became evident that Eastern Europe was a region containing a large number of eager prospective immigrants. The Canadian government relaxed their homestead policies to encourage the immigration of various ethnic groups to Western Canada. In some cases tracts of land were set aside exclusively for a particular group. The first ethnic groups to come were Russian Mennonite immigrants who settled in areas such as Rosthern Saskatchewan. They were followed by a group of Icelandic immigrants who settled in the Gimli district of Manitoba. In a short time the Mennonites and Icelanders were followed by large numbers of other East Europeans from the regions of Galicia, Ruthenia, Slovakia, Bosnia and Herzogovina. The Eastern European diasporas in particular tended to settle in distinctive regions in compact communities. Nevertheless, they were still subject to the provisions of the Homestead Act requiring that individual farms be established instead of small villages surrounded by farming land. Fortunately there was one important consequence of allowing ethnic groups to settle in blocks, albeit scattered blocks: it encouraged the retention of ethnic cultural identity and retarded the assimilation process. One of the largest and most recognizable groups to immigrate to the Prairie region was the Ukrainian immigrants. They settled in diasporic communities across the Prairie region, creating and maintaining an identity that persevered for generations. It was not until the latter part of the twentieth century that the distinctive rural Ukrainian communities began to disappear. This occurred when a radical change in the agricultural industry resulted in a rural–urban migration that devastated many of the small prairie communities. At this time the small diasporic communities were largely assimilated into the larger and more sparsely populated prairie society. The Galacians The government of Canada in particular encouraged Ukrainian settlers from the AustroHungarian Empire to consider migrating to the Canadian prairies. This group was commonly described as Galacians after the ancient region they originated from, a region that encompasses the western portion of present-day Ukraine and some parts of what is now southeastern Poland. While many of the Ukrainian immigrants did come from Galacia,

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a significant number also were native to Bukouyna. This was an historical part of the Austro-Hungarian Empire that is now part of Southwestern Ukraine and Northern Romania. The two regions were adjacent to each other and, while there were differences in culture and religion, both groups spoke the Ukrainian language. The Ukrainians may not have been liked by many of the English–Canadians but they were a particular favourite of Interior Minister Clifford Sifton, who pronounced: I think a stalwart peasant in a sheepskin coat, born on the soil, whose forefathers have been farmers for ten generations, with a stout wife and a half-dozen children is good quality . . . These men are workers. They have been bred for generations to work from daylight to dark. They have never done anything else and they never expect to do anything else. (Lehr, 1985)

It should be noted that the German-speaking Mennonites and Hutterites as well as the Russian-speaking Doukhobors also emigrated from the Galacia region of Eastern Europe. The Ukrainian immigrants discussed in this chapter refer to the true Ukrainians who spoke the language and whose ancestors had resided for centuries in the regions of Galacia and Bukouyna. The Ukrainians were one of the oldest Slavic people of Eastern Europe and had occupied the land north of the Black Sea lying between the Wisla and the Volga Rivers for centuries. Despite periods of independence the Ukrainians had almost continually suffered under the control of various foreign powers. By the 1890s, the situation had turned desperate for many Ukrainian people. Although serfdom had been abolished in 1848, the poverty experienced by the peasants had never been worse. A limited land base combined with unsympathetic Polish landlords forced many peasants into a state of destitution. Land holdings usually consisted of a couple of acres, or less, if the peasant was one of the fortunate few who owned land; more commonly the peasant farmer simply worked for a Polish landlord. It was the custom for the Ukrainian peasants to divide their property among their sons. This practice caused a continual fractionation of property size with each generation. By the 1890s, the situation had developed to the point where most sons were inheriting too little land to sustain a family and the only alternative was for some to leave for less populated areas where land was still available in sufficient quantities to support a family (Stechishin, 1992). With little hope of bettering their position at home it is little wonder that many Ukrainians began to look abroad for opportunities to better their lot. One of the few possible avenues for betterment was emigration to the New World. Brazil and Argentina had been identified as potential sources of land, as had Canada. If land had been available the United States would probably have been a preferred destination; however, by the end of the nineteenth century, little land was left for settlement in that country. It should be noted that desperate economic conditions were not the only reason Ukrainians emigrated to Canada. Stechishin (1992) argues that this was only one of many reasons for leaving. He suggests that the reasons for emigrating may have also included social, nationalistic, political, religious and perhaps even psychological factors. The Eastern European social system with a strict class distinction could definitely have been a factor in the decision of many to emigrate. As well, religious and political intolerance may have been contributing factors. There were probably also some adventurous types who possessed a thirst for new experiences. Whatever their reasons, the Ukrainians did immigrate to Canada by the thousands.

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As is often the case, the actions of many are influenced by the opinions of one. This was the case in Galacia as one man, Dr Osyp Oleskiw, is often credited with being the father of the Ukrainian immigration movement to Canada (Stechishin, 1992). Dr Oleskiw was an agronomist and an economics professor in L’viv. He visited Canada in 1895 and upon his return to Ukraine extolled the virtues of Canada as a preferred emigration destination. He was a strong advocate of emigration to Canada rather than to Brazil or Argentina, both of which had also become destination points for Ukrainian emigrants. He felt that the Canadian prairie region was more similar to the homeland than other regions and could better support the Ukrainian immigrants. Dr Oleskiw also argued that the Ukrainians’ traditional homeland was not capable of supporting the current population, especially noting the desperate economic conditions of the peasants and thus reinforcing his argument that Ukrainian peasants should consider an empty country like Canada as the preferred destination when looking for land. Dr Oleskiw argued for agricultural settlements in Canada, but it should be noted that not all Ukrainian immigrants were homesteaders. Although a policy of ‘Only farmers need apply’ was a supposed cornerstone of the Canadian immigration policy until 1906 (Thompson, 1998: 75), many immigrants found work in railroad construction, while others found employment in factories, shops and as farm labourers. However, Ukrainians by the tens of thousands did file for homesteads and although many failed to establish successful homesteads, there were thousands who became successful farmers. Dr Oleskiw envisaged an orderly and controlled immigration of hand-picked and wellfunded peasant farmers who would be assisted by the Canadian government. During his visit to Canada, he lobbied the Canadian Department of the Interior for special concessions for Ukrainian immigrants, but was unable to get a commitment to assistance. However, he was not deterred by the lack of monetary support from the Canadian government and, on his return to the homeland, he used every opportunity to promote Canada as the preferred emigration destination (Stechishin, 1992). The first wave of Ukrainian immigrants occurred during the period 1891 to 1914. The numbers were small at first but in 1896 the first significant group of Ukrainian settlers arrived in Canada and settled in the Edna district of Alberta. The Ukrainian settlers continued to come to the Edna area for the next 15 years, until the settlement stretched from east of Edmonton to the Saskatchewan border. This resulted in the largest bloc settlement of Ukrainians in Canada. This first group of immigrants was followed in rapid succession by others who settled in communities scattered across the North-West Territories – an area that was to become the three prairie provinces of Manitoba, Saskatchewan and Alberta. The Ukrainian settlements were located in a rough line from southeast of Winnipeg to northwest of Edmonton. This line included communities like Stuartburn and Dauphin in Manitoba, Yorkton and Kamsack in Saskatchewan, and Edna and Vegreville in Alberta. This grouping of communities was sometimes referred to by the non-Ukrainian community as the ‘kielbasa curtain’ or the ‘perogy line’ (Thompson, 1998: 169). These pioneer immigrants had settled in the parkland areas of Western Canada and, while not the easiest land to settle, it was productive after the trees had been cleared and the sod broken. The early years for the agricultural entrepreneurs The early homesteaders were entrepreneurs in the truest definition of the term. Whether one employs the view of an entrepreneur as someone who assumes the social, psychological and

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financial risks necessary to start and run a small business (Hisrich and Peters, 1992), or identifies entrepreneurship as a principal agent of change in society (Tropman and Morningstar, 1989), these homesteaders were true entrepreneurs. This group was willing to leave their traditional homeland for an unknown wilderness because of their desire to develop a new venture (a farm) that would provide them and their children with a better life. They were willing to risk their savings and, in some instances, their lives to make this dream a reality. Many of the Ukrainians had left their homeland with limited money and by the time they reached Western Canada had used up what little financial resources they had. Thus they lacked the means to return to their homeland even if they wanted to, creating a tremendous incentive to succeed in their new venture. The immigrants may have left desperate conditions in the homeland but most were illprepared for the circumstances they were to face in their new country. In many instances they arrived in Canada penniless and had to spend the first winter in the harshest of conditions. Food was often in short supply, or non-existent, and often it was only the generosity of their neighbours that kept them from perishing. The first task of a newcomer was to build some form of shelter to house them and their family over the first winter. For many, the building was a co-operative effort with the more established residents helping the newcomers. Despite this collaborative effort the first home was often little more than a dug-out shelter, basically a hole in the ground with a roof over the top. As noted previously, many of the Ukrainian settlers ended up in the parkland region of the prairies, land that was characterized by rolling terrain, a significant amount of tree cover and often soil that was quite rocky in nature. The English–Canadian settlers had previously claimed much of the best farmland, therefore the Ukrainian settlers were forced to settle on marginal land or land covered in bush. This land usually required extensive clearing of bush before it was productive and stones were always a challenge. In spite of the less than ideal land, the majority of the Ukrainian settlers persevered, as the effort and determination of the Ukrainian settlers was incredible. A shortage of cash meant that the husband would work off the homestead while the wife and children struggled to claim the holding. The wives of these early settlers suffered the greatest hardships when their husbands had to leave to seek work. The wives were left to manage the family and start developing the farm, often with few resources and meager accommodations. The contribution of the Ukrainian women cannot be overstated and, as noted by a British Canadian: ‘The average Ukrainian woman often contributes more to the farm than does the average hired man, she follows the family to the field where she may hoe or drive a gang plow, stook, etc.’ (quoted in Thompson, 1998: 83). Dr Oleskiw had been adamant that the Ukrainians who wanted to emigrate should be adequately prepared, but unfortunately many were not. The financial resources that immigrants had available when they arrived in Canada were the critical factor in whether the settler could quickly clear and cultivate his land, or whether he had to find employment off the farm in order to survive. The quicker the farm was developed the sooner it became a viable economic unit able to support the settler and his family. Agriculture provided the economic base for the Ukrainian settlements, but this primary industry did require an extensive support system. That is, opportunities existed to develop new ventures providing the supplies and services needed by the homesteaders. However, the diasporic communities had developed a solidarity based on common and unique language, culture and religion. This made it difficult for non-members to develop ventures

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serving and supporting the diaspora community. Therefore these opportunities could best be realized by Ukrainian-speaking entrepreneurs. As a result, Ukrainian entrepreneurs quickly established restaurants, retail shops, farm supply shops and service industries to support the diasporic community and the communities became self-sustaining enclaves that resisted assimilation. A period of prosperity during the 1920s came to an abrupt end in 1929 when the Great Depression of the 1930s devastated prairie agriculture. The impact of the collapse in the economy was compounded by a decade of severe drought. The agricultural industry was hit especially hard, with a 94 per cent decline in net money income from 1929 to 1933 (Conway, 1994: 99). The Ukrainian farmers were negatively affected by the depression but often less so than some of their neighbours. The Ukrainian farmers were less likely to practise a mono-culture system of agriculture dependent on growing one crop: wheat. Rather they tended to be mixed farms that produced a variety of crops and animals, making them more self-sufficient at least in regard to the production of food. Prejudice and discrimination Early attempts to establish a British society in Western Canada had proved unsuccessful because of a lack of settlers but this did not mean that the English were ready to accept the Eastern Europeans with open arms. A daily paper in Winnipeg, the Nor’Wester, published an editorial on 23 December 1896 that began with the title, ‘Undesireable Immigrants’. Parties of Galician immigrants continue to arrive in Winnipeg. If our foreign immigration agents cannot send us a better class of immigrants than these it is almost time to consider whether we might not dispense with immigration agents altogether. (Stechishin, 1992, p. 135)

The prejudice was compounded by the fact that the Ukrainians dressed differently, often worshipped at a different church and spoke a language unfamiliar to their British and Western European neighbours. The Cyrillic alphabet used in the written Ukrainian language was totally foreign to the English westerners and probably contributed to the uneasiness and mistrust felt towards these Eastern European newcomers. The extreme prejudice of some was especially apparent when a local branch of the Ku Klux Klan was established in Saskatchewan. The Klan attacked Eastern Europeans, Catholics, Jews, Orientals and, for that matter, anything or anybody they considered to contradict true morality, British Institution and the Anglo-Saxon ‘race’ (Conway, 1994: 129). The silver lining to the prejudice cloud was the increased resistance to assimilation, as the communities often became more united in reaction to the prejudice. Creative destruction: rapid change in the agriculture industry Joseph Schumpeter (1934) described entrepreneurship as a process. He also argued that it was a force of ‘creative destruction’ whereby the creation of new and modern ways of doing things destroyed the traditional manner of getting things done. The Ukrainian immigrants left a labour-intensive peasant agricultural economy in the homeland with the hope of bettering their lot in the new land. They left farms that were often less than five acres in size for homestead farms of 160 acres. The tools used in creating the new homesteads were only slightly different from those used for centuries in Eastern Europe. The basic tools of the Ukrainian settlers were oxen and walking ploughs combined with a variety of hand tools such as grubbing hoes and scythes. While the homesteads of 160 acres must have seemed

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enormous to the new settlers working with primitive tools, in fact these farms were already too small as a wave of technology was changing the agricultural industry forever. Innovations in technology soon meant that the old traditional manner of farming was being replaced by a new mechanized way of getting the job done. The adoption of this new technology resulted in changes to the agricultural industry whereby traditional labour-intensive methods were replaced by modern technologyintensive methods. The technological change had started in Western Europe in 1769, when James Watt patented an improved steam engine, a technology that later led to the development of powered farm machinery. By the 1850s, the agrarian industrial revolution had spread to North America with Cyril McCormick’s introduction of a mechanical harvesting machine. This tool allowed two men to cut as much grain in a day as four or five men using scythes. This also meant that a single person could farm much greater tracts of land than had ever been possible before. Steam tractors were introduced into Canada by the end of the nineteenth century and were quickly replaced by the internal combustion engine as farmers eagerly adopted the labour-saving innovations. By the early twentieth century, progressive farmers in Western Canada were using mechanized equipment and power units to replace the labour-intensive job of breaking virgin sod with ox and plough. The mechanical harvester, followed by steam engines and gasoline-powered tractors, were in turn followed by chemical herbicides that further reduced the labour required to farm a given amount of land. The technology revolution reduced the per unit cost of producing wheat and, despite temporary blips, the reduced cost has resulted in a reduction in the real price of wheat almost continually over the last 90 years, as shown in Figure 9.1. The second consequence of the technological changes was not only to enable farmers to increase the size of their holdings but also to force them to expand. The reduced price that farmers realized for their grain could only be compensated for by growing more 1200

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wheat, and the most common strategy to achieve greater output was to acquire a bigger land base. It was apparent that the first homesteads were too small and almost immediately farmers expanded by buying their neighbour’s land. By 1916, the average farm size in Saskatchewan had increased to 354 acres, from the initial homestead size of 160 acres, and the farms continued to increase for the rest of the century (see Figure 9.2). There are only a finite number of acres of arable land and expanded farm size necessarily meant fewer farms, and fewer farms meant fewer people and fewer and/or smaller communities. In many instances the communities had hardly become established before they started to die. Stabler, Olfert and Fulton (1992), in their study of Saskatchewan communities, note, ‘Changes in transportation as well as in production technology rendered the initial system of communities obsolete almost before it was fully in place.’ Changes in the way agricultural products were produced, transported and stored were instrumental in the reorganization of the industry. However, the rate of change and the way in which technology was adopted were not consistent across the prairies. Areas close to major centres, or in regions more geographically conducive to mechanized farming, adopted technology first. Areas that had significant tree cover, poorer quality soils or that were isolated were slower to change. Many of the Ukrainian communities fitted the latter description and to some extent were isolated from the more drastic effects of technological change until later in the twenthieth century. Maintaining the identity The English–Canadian Westerners were determined to create a society that reflected English-based conformity but the ethnic identity of the Ukrainian immigrants was not easily changed. When the Ukrainian immigrants came to Canada about a hundred years

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ago, they established communities that developed a unique identity based on the culture, language and religion brought from the homeland. However, this identity was not simply a continuation of their Galacian identity but rather a Ukrainian–Canadian identity. The Ukrainian immigrants had survived under numerous masters, such as Poland, Russia and the Austro-Hungarian Empire, in the homeland and consequently did not have a strong sense of being ‘Ukrainian’ when they arrived in Canada. However, they did miss their own church and, when a priest arrived, they quickly developed spiritual communities. Supporters of both the Ukrainian Orthodox and Ukrainian Catholic Church were present among the immigrants and many communities were highlighted by churches of both religious rites. No matter which faith was supported, the development of a strong faith community further helped to develop a strong Ukrainian identity in the diasporic community (Stechishin, 1992). An educational system serves many functions in a community, one of which is to maintain the culture. The fact that Amish communities in the Eastern United States and Hutterite communities in Western Canada have been able to maintain their strong identity is due in no small part to the way that they have been able to control the schooling of their children. The early Ukrainian community leaders organized schools either on their own or with government support. The Province of Manitoba allowed bilingual education, thus enabling the Ukrainian students to be taught solely in Ukrainian. However, the provinces of Saskatchewan and Alberta had a different policy and would allow Ukrainian to be taught for only one hour a day. This did allow for some Ukrainian instruction in the school, combined with informal instruction at home and in the community. Special teacher training schools were established in Winnipeg, Regina and Vegreville to produce Ukrainian language teachers. While the schools did not exist for long, they did turn out over 250 teachers. The graduates of the bilingual teacher training schools became the educated leaders of the diasporic communities and they led the movement that defined a Ukrainian national identity within the framework of Canada (Stechishin, 1992). Unfortunately for many small rural communities, the educational system changed radically in the second half of the twentieth century. For the first half of the twentieth century, educational services were provided in small community schools across the prairies. The small schools quickly became Ukrainian cultural centres in the diasporic communities and made an enormous contribution to warding off unwanted assimilation (Stechishin, 1992). However, small schools were not considered efficient and with the advent of better roads and improved transportation it became economical to centralize the educational system. Between 1951 and 1971, almost three thousand schools in rural areas and small communities of Saskatchewan were closed (Stabler, Olfert and Fulton, 1992: 2). As schools were closed, students were transported by school bus into nearby communities, often outside the diasporic community. The students were now exposed to other students, teachers and cultures that were from a completely different ethnic origin. Until this time the Ukrainians, like other ethnic minorities, may have used the English language when needed, but Ukrainian persisted as the language of the home. The closing of the local schools was a catalyst for greater assimilation of the Ukrainian diaspora into the English–Canadian society. The students were now exposed to the English language for greater periods of time and speaking in Ukrainian, or with a Ukrainian accent, often resulted in ridicule. While some large urban schools were still able to offer Ukrainian

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language instruction, it became increasingly rare, with instruction offered largely in English with limited second language instruction, usually in French. The future The time when agriculture was the largest and most powerful sector in the Canadian economy is long past. Farms have become large professionally managed businesses and the percentage of the population associated with the agrifood sector has declined significantly. Some of the current farms may be owned and operated by direct descendants of the original Ukrainian immigrants, but the owner is just as likely to be of German, French, American or First Nation ancestry. The original treaties have been subject to numerous claims for remedy and a very significant amount of land in the northern fringe of the prairie region, home of many of the original Ukrainian immigrants, has now been regained by its original occupants, the First Nation Peoples of Western Canada. Unfortunately, many of the small Ukrainian communities have disappeared, the farms have been sold, the schools closed and the churches are no longer in use. The rural–urban transition is reflected in the current populations of the five largest prairie cities: Winnipeg, Regina, Saskatoon, Calgary and Edmonton. The 2001 Census of Canada reported that the total population of the three prairie provinces was just over five million people in 2001, with approximately 565 000 individuals self-declaring as being of Ukrainian descent. At the present time over 60 per cent of the Ukrainian–Canadians on the prairies reside in one of the five largest cities. The original Ukrainian settlers prospered and multiplied, but they were unable to maintain most of the small agrarian-based communities. It is only in some of the larger rural communities like Dauphin in Manitoba, Kamsack in Saskatchewan and Vegreville in Alberta that a strong Ukrainian–Canadian culture is still dominant. It is fortunate that, although the farms are becoming fewer and the communities have often disappeared, the cultural identity is still strong. Descendants of those original immigrants have gone on to become premiers of provinces, governor generals of Canada, as well as successful doctors, lawyers and teachers; for that matter they are evident in every fibre of modern prairie society and all proclaim themselves proudly to be Ukrainian–Canadians. The Ukrainian diaspora has not disappeared; the onion bulb towers of Ukrainian Orthodox Churches in larger centres, and prominent edifices like the Ukrainian Easter Egg, ‘Pysanka’, of Vegreville attest to that. Descendants of the original peasant immigrants have maintained a cultural and ethnic identity while becoming almost totally assimilated into the economy of Canada. Bibiliography Agricultural Statistics (2003), Saskatchewan Agricultural, Food and Rural Revitalization. Conway, J. (1994), The West: The History of a Region in Confederation, 2nd edn, Toronto: James Lorimer. Cox, W.M. and R. Alm (1999), Myths of Rich and Poor, Jackson, TN: Perseus Books Group. Fowke, V.C. (1957), The National Policy and the Wheat Economy, Toronto: University of Toronto. Hay, A.H. and G.S. Basran (eds) (1992), Rural Sociology in Canada, Toronto: Oxford University Press. Herk, C. (2005), ‘How the West was divided’, Canadian Geographic, Jan./Feb. Hisrich, R.D. and M.P. Peters (1992), Entrepreneurship: Starting, Developing, and Managing a New Enterprise, 2nd edn, Homewood, IL: Irwin. Holt, D.H. (1992), Entrepreneurship: New Venture Creation, Englewood Cliffs, NJ: Prentice-Hall. Kotash, M. (1992), All of Baba’s Children, Edmonton: NeWest Press. Lehr, J.C. (1985), ‘ “The peculiar people”: Ukrainian settlement of marginal lands in Southeastern Manitoba’, in David C. Jones and Ian MacPherson (eds), Building Beyond the Homestead: Rural History on the Prairies, Calgary: University of Calgary Press.

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Morris, M.H. (1998), Entrepreneurial Intensity: Sustainable Advantages for Individuals, Organizations, and Societies, Westport, CT: Quorum Books. Regehr, Ted (1979), Remembering Saskatchewan: A History of Rural Saskatchewan, Saskatoon: University of Saskatchewan Extension Division. Schumpeter, J.A. (1934), The Theory of Economic Growth, Boston: Harvard University Press. Stabler, J.C., M.R. Olfert and M. Fulton (1992), The Changing Role of Rural Communities in an Urbanizing World, Regina: Canadian Plains Research Centre. Statistics Canada (2001), Census of Canada, community profiles. Stechishin, Julian, V. (1992), A History of Ukranian Settlement in Canada, Saskatoon: Ukrainian Self-Reliance League of Canada. Thompson, J.H. (1998), Forging the Prairie West, Toronto: Oxford University Press. Tropman, J.E. and G. Morningstar (1989), Entrepreneurship Systems for the 1990s, New York: Quorum Books.

10 Business engagement of Chinese immigrants in Canada Peter S. Li

Chinese immigrants, like their counterparts in the US, are known to have been enterprising in small businesses in their host country. This historical image of Chinese immigrants in Canada is certainly justified, especially in view of the harsh treatment of the Chinese in the late nineteenth and early twentieth centuries, when they were excluded from many lines of work owing to racial discrimination and legislative restriction. However, since the end of the Second World War, many changes have taken place in Canada and in the Chinese–Canadian community. A monolithic understanding of Chinese immigrants’ engagement in business is no longer adequate. The purpose of this chapter is to provide an overview of the changes in business engagement among the Chinese in Canada, and to offer some explanations as to how and why these changes have come about. Defining immigrant business engagement Several terms have been used to refer to the phenomenon of immigrants engaging in business, as opposed to engaging in employment. These terms include ‘ethnic entrepreneurship’, ‘immigrant businesses’, ‘immigrant self-employment’ and ‘immigrant enclave economy’. Despite obvious differences in these terms, they have been used casually and broadly to describe a similar phenomenon: the tendency of some ethnic or immigrant groups to engage in business. The notion of entrepreneurship implies an ideological predisposition or a spirit, like the Weberian notion of ‘spirit of capitalism’. The term also implies that it is the possession of a venturing spirit and certain cultural qualities that propel some immigrant groups into business venture. Thus the term assumes a Weberian orientation and the thrust of explaining immigrant entrepreneurship involves why some immigrants possess the venturing spirit and cultural qualities to enable them to take a chance and succeed in businesses (see Redding, 1993; Wong, 1988). The term ‘immigrant business’ suggests that there is a certain characteristic of the business that is linked to immigrants. Often such a linkage is loosely implied to mean immigrant ownership of businesses, but there are other features which also enrich or complicate the notion of ‘immigrant business’, such as that the clientèle which the business serves is of the same ethnic background as the business owner, the merchandise marketed or services provided are of a particular cultural flavour, and the location of the business is among residential neighbourhoods of immigrants. Thus the term ‘immigrant business’ tends to suggest some combinations of the above features to refer to the operation of immigrant business owners serving immigrants in immigrant-congregated neighbourhoods. The term also suggests the use of business firms, as opposed to using individual owners, as the unit of analysis (see Ip, Lever-Tracy and Tracy, 2000). 144

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The notion of ‘immigrant self-employment’ refers to the labour market activity of individual immigrants in terms of whether an individual is employed by others or selfemployed. The assumption is that individual immigrants who engage in self-employment do so as a business operation, earning an income through some business activities and paying out expenses related to the business operation. Thus the term ‘immigrant selfemployment’ is often used as an indicator of the level of business ownership or engagement, although the analysis of self-employment is often performed at the individual level (see Light and Gold, 2000; Portes and Zhou, 1996; Waldinger et al., 1990). ‘Immigrant enclave economy’ represents a more mature theoretical notion that seeks to capture the relationships of a type of economic structure that is linked to the interdependence of businesses owned by immigrants of similar ethnic background as well as the mutual dependence between immigrant owners and workers (see Sanders and Nee, 1987; Wilson and Portes, 1980). Despite the potential theoretical richness of the term, it has been used broadly to refer to the success of businesses in immigrant enclaves or immigrant-congregated locations. For the purpose of this chapter, the term ‘business engagement’ is used as a more neutral term to refer to immigrant ownership or proprietorship of businesses. Such businesses include, but are not limited to, those that provide ethnic-specific goods and services, businesses that provide professional and other services to immigrant communities and the general population, as well as corporate businesses linked to immigrant investment and offshore capital. Historical patterns of Chinese business engagement in Canada The Chinese immigration to Canada began in 1858, largely as a response to the discovery of gold in the Fraser Valley of British Columbia. Initially Chinese miners came from the west coast of the US, but later from China directly. However, a larger scale of Chinese immigration to Canada only began as Canada faced acute labour shortages in developing the West. Chinese workers were brought to Canada from China to build railroads, to clear forests, and to work in fish plants and canneries. At the height of the construction of the western section of the Canadian Pacific Railway between 1881 and 1884, about six to seven thousand of the 16 000 Chinese entering Canada were estimated to be directly employed by railway contractors (Lee, 1967: 128; Campbell, 1969: 37). As was to be expected, the vast majority of the Chinese in Canada in the latter half of the nineteenth century belonged to the working class, although there has always been a small number engaging in business. Based on the records of Chinese entering Canada between 1885 and 1903, about 6 per cent of the Chinese arrivals indicated that they were merchants or storekeepers (Li, 1998: 24). The later half of the nineteenth century also saw the development of Chinese quarters, dubbed ‘Chinatowns’, in Victoria and mining centres of British Columbia (Anderson, 1991; Lai, 1988). The small Chinese mercantile class was mainly made up of those engaged in import and export businesses, supplying Chinese miners with provisions and equipment, and running businesses that serviced the growing Chinese community (Lai, 1988: 187–9). The Chinese merchants were also involved in labour contracting to bring Chinese workers to Canada; some speculated in land development (Lai, 1988: 189–90). Thus the early business development of the Chinese in Canada was mainly tied to the growth of the Chinese population, but the

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businesses quickly branched out into different areas, including exporting and importing, land speculation and providing goods and services to the Chinese community. Towards the end of the nineteenth century and in the early twentieth century, Canada developed many policies that aimed at restricting further entry of the Chinese to Canada and limiting the rights of those already in Canada. The federal government passed the Chinese Immigration Act in 1885 to impose a head tax of $50 on practically every Chinese entering Canada, and the tax was raised to $100 in 1900 and then to $500 in 1903 (Li, 1998). In 1923, the federal government passed the Chinese Immigration Act that prevented further immigration of Chinese; the Act was not repealed until 1947. Even before the exclusion, the provincial government of British Columbia passed numerous laws to limit the economic and political rights of the Chinese, barring them from voting and taking up certain professions and jobs (Li, 1998). At the same time, white workers were increasingly hostile to the Chinese labourers and demanded their exclusion from jobs in the core labour market. Organized labour and politicians too were using the Chinese immigration issue as a basis to advance their interests (Li, 1998). The hostile economic and social atmosphere made it increasingly difficult for the Chinese to compete with white workers for unionized employment and high-paying jobs, and many Chinese retreated to ethnic enclaves by operating small businesses such as laundries and restaurants that provided personal services to the larger population. The white population seemed to accept the Chinese in the role of personal service providers as they did not pose much competition for white workers (Li, 1998). Data from the Canadian censuses indicate that, in 1920, 23 per cent of the Chinese in Canada’s labour force were in personal services, while store owners, restaurant keepers and laundry owners made up another 20 per cent, but only 0.2 per cent of the Chinese workers in Canada were employed in the food canning industry (Dominion Bureau of Statistics, 1936). Earlier statistics in the city of Victoria indicate that 29 per cent of the Chinese were engaged in food canning in 1901 (Royal Commission, 1902). By the 1920s, the Chinese in Canada had expanded their business operations to personal services and food services, largely as a means of economic survival. Engagements in these lines of services persisted throughout the first half of the twentieth century, and the food service industry remained an important sector of employment and self-employment for the Chinese in Canada even after the Second World War. Prior to 1900, close to 98 per cent of the Chinese in Canada were concentrated in British Columbia. The intensification of the anti-Chinese movement on the west coast had the effect of dispersing the Chinese community to the interior of Canada (Li, 1998). The Chinese migration followed the railroad line, settling in the prairies and eastern provinces. As a result, Chinese-operated small businesses also grew in various parts of Canada. Not much has been written about the organization of Chinese-operated firms developed during the period of exclusion. A study of Chinese-operated restaurants in the prairie towns of Canada in the 1920s and 1930s described such business as typically small, poorly decorated and labour-intensive. Interview data from Chinese old-timers suggest that these operations provided an economic refuge for many Chinese during times of economic hardship. Ironically, the absence of family members made it necessary for the Chinese men to go into business partnership, by earning meagre capital to start the business and sharing the labour to operate it. The informal partnership system, usually based on kinship and friendship ties among immigrants originating from the same hometown region, allowed

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the Chinese to economize on capital cost and labour cost in running a business. These features explained why the Chinese restaurants remained economically viable even during the Great Depression. The partnership business among the Chinese immigrants declined after the Second World War as more Chinese were allowed to bring their families to Canada. The family members provided the additional labour power to run the restaurant, and the partnership-based Chinese restaurants were turned into family-operated businesses. Chinese immigration to Canada after the Second World War The repeal of the 1923 Chinese Immigration Act in 1947 and the subsequent liberalization of immigration policy made it possible for Chinese immigration to Canada to resume, first mainly as family members and, after 1967, as independent immigrants as well (Hawkins, 1988; Li, 1998). In 1967, Canada adopted a universal point system to assess all prospective immigrants irrespective of origin, and the emphasis on educational credentials facilitated the entry of Chinese immigrants with professional and technical skills. These changes hastened the growth of the Chinese community in Canada and, in particular, the expansion of the Chinese middle class. Shortly after the Second World War, the Chinese population in Canada was about 33 000 in 1951, compared to 47 000 in 1931 (Li, 1998: 67). Undoubtedly, the exclusion of Chinese from entering Canada between 1923 and 1947 had an effect on the size of the Chinese community. The Chinese Canadian population grew rapidly after the 1960s, rising from 58 000 in 1961 to 119 000 in 1971, then 289 000 in 1981 and to 634 000 in 1991 (Li, 1998: 67). By 2001, the Chinese–Canadian population had reached over a million people, accounting for 3.5 per cent of Canada’s total population (Chui, Tran and Flanders, 2005). Occupational data from the Canadian censuses indicate that the Chinese middle class, broadly defined as those in managerial, professional, technical and supervisory jobs, grew from 23 per cent of the Chinese work force in Canada in 1981 to 28 per cent in 1991 (Li, 1998). By 2001, Chinese in managerial and professional positions accounted for 33 per cent of all Chinese in Canada’s labour force, but if those in semi-professional, supervisory and administrative and senior clerical positions were included, then as many as 48 per cent of the Chinese in the Canadian labour force could be classified as belonging to the middle class.1 The rapid expansion of the Chinese–Canadian population in the period between 1981 and 2001, and the affluent Chinese consumer market that has been created by the emerging Chinese middle class, have created new business demands for professional and other services. Several studies have noted the impact of the increased migration of Chinese capitalists, financiers and professionals, including importing investment capital to Canada and changing the consumer demand of the Chinese–Canadian consumer market (Wong, 1993, 1995, 1997; Li, 1992; Li and Li, 1999). These changes have created the conditions for the diversification of business engagements among the Chinese immigrants in professional services, corporate-style firms and other capital-intensive investments (Li, 1990). Correspondingly, there are other changes in the conventional Chinese-operated businesses in retailing and food services in major cities across Canada. Chinese business engagement in food services and professional services By the 1980s, it became clear that Chinese engagement of business in Canada extended far beyond the historical proprietorship in small-scale and family-operated firms mainly

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in retailing and personal services. At least four types of Chinese investment and business in Canada can be identified: (1) the traditional type of family-operated and individualowned Chinese businesses, mainly in personal services such as food services and retailing; (2) professional firms owned and operated by Chinese professionals in such fields as medicine, law and accounting, and financial and investment services that emerged after the Second World War and proliferated in more recent decades; (3) firms in Canada owned or controlled through foreign investments by corporations with headquarters in Asia and sometimes subsidiaries in Canada; and (4) capital-intensive investments of business immigrants that resulted mainly from Canada’s business immigration programme that has been put in place since 1985 (Li, 1993). Data from the 2001 Census of Canada on employment and self-employment indicate that 12.8 per cent of the Chinese were self-employed, compared with 12.3 per cent among white Canadians. Thus data on self-employment do not suggest that contemporary Chinese Canadians are more inclined toward business engagement than majority Canadians. However, Chinese Canadians tend to show a different pattern of concentration in business engagement than majority Canadians. For example, about 18 per cent of the self-employed Chinese were in wholesale and retail businesses in 2001, and another 12 per cent in accommodation and food services, compared with 11 per cent of self-employed majority Canadians in wholesale and retailing and less than 4 per cent in accommodation and food services. These differences indicate the persistence of Chinese businesses in retailing and food services which continued to provide an important source of employment and self-employment for some Chinese Canadians. However, there has been relative decline in the food service industry, where the Chinese had gained a strong foothold. For example, in 1986, about 19 per cent of the Chinese in the workforce were in the industry of accommodation and food services, compared to only 12 per cent in 2001. At the same time, there are noted changes in the Chinese-operated food service businesses. A study of business transition among Chinese immigrants in Richmond, British Columbia shows that, in the 1980–90 decade, there has been a faster increase of Chineseoperated professional-service business firms than of food retailing and other service operations (Li, 1992). At the same time, the business survival rate, defined as the proportion of firms that survived after ten years, tends to be much higher among professional businesses (77 per cent) than retailing and other business (41 per cent). The study found that small Chinese restaurants had to adjust to the more sophisticated consumer demands for fine cuisine, as the number of affluent Chinese immigrants increased (Li, 1992). Consequently, the Chinese food retailing business underwent a drastic transformation, with the smaller food service operations rapidly being replaced by larger and more upscale restaurants. Several factors explain these developments. The rapid increase in the Chinese population has broadened the clientèle for professional and entertainment services. In particular, the growth of Chinese professional service firms has been made possible by the emergence of the new Chinese middle class. At the same time, the intensification in the capital flow from Hong Kong to Canada that followed the expansion of Canada’s Business Immigration Programme in 1985 and also resulting from overseas expansions of Asia-based Chinese-owned corporations facilitated the increased capitalization in the food and entertainment establishments and real estate development in Canada (Li, 1992). The continuous growth of the Chinese middle class created an affluence market that prompted the development of businesses geared towards providing many diverse services

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to the Chinese community. Undoubtedly, the entry of Chinese to professional and technical occupations also made it possible for Chinese service providers to open up new lines of businesses. Data from the 2001 Census of Canada indicate that self-employed Chinese Canadians were more likely to be in professional services than majority Canadians. As many as 28 per cent of self-employed Chinese were in professional and technical services, including real estate, financial and insurance businesses, compared with 20 per cent of self-employed white Canadians in these types of businesses. At the same time, there has been a steady growth of Chinese in professional occupations. By 2001, as many as 52 per cent of Chinese in the labour market were in the fields of management, business, natural science and health, compared with 44 per cent in these fields in the total Canadian population (Chui, Tran and Flanders, 2005). These statistics clearly show the increase in the supply of Chinese–Canadian professionals and the demand for professional services brought about by the expansion of the Chinese middle class. Over time, these changes have stimulated the development of professional service businesses among the Chinese communities in Canada. Asia-based Chinese investments in Canada Since the mid-1980s, there has been an increase in offshore Chinese investments in Canada. For example, statistics on foreign investments in Canada indicate that there has been a substantial inflow of capital from Hong Kong. In the mid-1980s, direct investment from Hong Kong was only about $170 million per year, but it quickly increased to $426 million in 1986, and to $967 million in 1988. By 1990, direct investment in Canada from Hong Kong had risen to $1.3 billion, which made up about 15 per cent of the total foreign investments from all Pacific Rim countries. Between 1983 and 1990, investments from Pacific Rim countries quadrupled, but that from Hong Kong increased ninefold, whereas those from Japan rose only by three times (Li, 1993). Another way to assess the impact of Hong Kong capital on Canada is to consider the foreign-controlled investment in Canada, based on long-term capital investments in industries. In the early 1980s, Hong Kong-controlled investment in Canada was below $300 million per year. By 1986, it had jumped to $582 million and, by 1987, to $2.1 billion, which was only slightly behind Japan’s investment of $2.5 billion. Between 1980 and 1987, the capital investment from Hong Kong increased 17 times, whereas that from Japan only quadrupled (Li, 1993). The media had reported some of the major capital investments by Hong Kong capitalists throughout the 1980s and 1990s, such as the 1986 sale of 43 per cent of Husky Oil Limited for $473 million and of the 86 Expo site in Vancouver for $320 million to Hong Kong billionaire Li Ka-shing, who, through his control of the Hutchison Whampoa group of companies in Hong Kong, also owned 9.9 per cent of the Canadian Imperial Bank of Commerce (Financial Post, 30 November, 1987, p. s 8; May 28–30, 1988, p. 1). In 1987, Li Ka-shing made a $600 million bailout to rescue Nova Corporation, based in Calgary, and its Husky Oil Limited, in exchange for a total control of 86 per cent of Husky Oil (Globe and Mail, 24 October, 1991, p. B1). There were other less well advertised investments from Hong Kong. For example, Stanley Ho, a casino owner and financier, bought Le Méridien Hotel of Vancouver for $47 million in 1988, and paid $3 million in 1989 to acquire an interest in SemiTech Microelectronics Incorporated, which owns 51 per cent of the Hong Kong-based Semi-Tech Microelectronic (Far East) Limited, chaired by

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Stanley Ho (Globe and Mail, 8 April, 1989, p. B6). In 1992, the Techtronic International Company Limited of Hong Kong, through its branch company Telexel Holding Limited, paid $28.8 million to purchase the cellular telephone manufacturing operations of the Alberta-based Novatel Communications Limited (Globe and Mail, 22 May, 1992, pp. B1, B4). In 1993, Westcoast Petroleum, based in Calgary, was sold in a private sale to Hong Kong billionaires, Chen Yu-Tung, Stanley Ho and Lee Shau-kee, for $248 million (Globe and Mail, 18 February, 1993, pp. B1, B7). As large Hong Kong capital made its way to Canada, the structure of controlling interest becomes increasingly complex. The interlocking pattern of control and ownership is a clear indication that, since the mid-1980s, major capital investments from Hong Kong have been linked to multinational corporations based in Canada and the Far East. The ability of Hong Kong multinational companies to set up branch offices in Canada also made it difficult to separate Chinese-operated corporations in Canada from offshore investments. For example, the Pacific Place Development project on the 200 acres of the former Expo site in Vancouver has been controlled by Concord Property and Finance Group of Vancouver, whose chairman is Victor Li, a naturalized Canadian citizen and the son of Li Ka-shing (Globe and Mail, 19 October, 1991, p. B1). Fifteen per cent of the interest of the Pacific Place project has been held by another Hong Kong tycoon, Cheng Yu-tung, who, through his New World Development Company Limited of Hong Kong, also owned major hotels and properties in Toronto, Vancouver and Montreal. Another area of major Hong Kong investment is in commercial real estate, especially in the Vancouver area. One report indicated that Asian investors, not all from Hong Kong, control about 25 per cent of the 500 commercial properties in Vancouver’s West End alone in the early 1990s (The Province, 21 July, 1991, p. 38). The media have reported substantial commercial properties in other Vancouver areas either owned or controlled by Hong Kong corporate elites and their companies. For example, the Pacific Landmark office tower on West Pender Street was developed by the Great Eagle Property Development Group, controlled by the Lo family of Hong Kong. The English Bay Village in Vancouver, the Aberdeen Centre in Richmond, and the Parker Place next door are projects of Fairchild Holdings Limited, controlled by Thomas Fung, the son of Fung King-hey, the founder of Sun Hun Kai Securities of Hong Kong. Caleb and Tom Chan, whose family made its fortune in the garment industry in Hong Kong, moved to Vancouver from San Francisco and bought the Burrard Building and the Hotel Georgia in Vancouver, and some development projects in Whistler. The Lin family, which built its garment empire in Hong Kong through its company Lai Sun Garments, bought the Delta Mountain Inn at Whistler and the 1300 block West Georgia Street in the early 1990s (The Province, 21 July, 1991, p. 38). The entrenchment of Hong Kong capital in British Columbia and the growth of the Chinese immigrant population have attracted other Asian investments. For example, President Asian Enterprises of Taiwan, in a joint venture with President Canada Syndicates Incorporated, a Vancouver-based company that operated immigrant investor funds, built Asia Town of Richmond, a hotel and shopping mall complex that housed a 200-room hotel, a supermarket and a five-storey shopping and office centre. Some of the capital came from the Taiwan-based company, and some from the Vancouver immigrant investor fund (Globe and Mail, 16 November, 1992, pp. B1, B10). Many major firms whose headquarters are based in Asia have been extending their branch offices in Canada. As of 1991, there were 31 major mainland-Chinese companies

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operating out of British Columbia: 17 firms were in the import and export business, five were in real estate and investment, five were engaged in transportation and travel services, including Air China, and the remaining ones in other industries. Major companies of Hong Kong also set up subsidiaries in Canada, as with, for example, the high-profile Hong Kong Bank of Canada and Jardine Matheson Canada Limited (The Province, 21 July, 1991, pp. 41, 44). Investments of Chinese business immigrants Since 1978, Canada has amended its immigration policy to allow the admission of entrepreneurs as immigrants without being assessed on the basis of occupational demand or arranged employment. To qualify as an entrepreneur immigrant, a person had to establish or purchase a controlling interest in the ownership of a business in Canada, providing employment to at least five Canadians; the entrepreneur was also required to participate in the daily management of the business (P.C. 1978-486). But it was not until 1985 that the policy of admitting business immigrants was expanded to include entrepreneurs, investors and self-employed persons. To qualify as an investor, a person must have a successful track record in business or commercial undertakings, and accumulated net worth of at least $500 000, and have made a business investment of at least $250 000 in Canada in direct business ventures or through private investment syndicates or government-administered venture capital funds (P.C. 1985-3246). These changes in immigration policy greatly facilitate the flow of immigrant capital into Canada. Since 1985, the business immigrant programme has expanded, and Hong Kong has been the main supplier of entrepreneur and investor immigrants to Canada. In 1985, the total number of business immigrants admitted, including dependants, was 6481, or 7.7 per cent of all immigrants to Canada. It increased to 11 069 in 1987, 17 564 in 1989, and 18 445 in 1990, before tapering off at 16 948 in 1991. The business immigrants and their dependants made up over 9 per cent of all immigrants to Canada in 1989. For the period between 1985 and 1991, Canada admitted a total of 16 984 entrepreneurs, 4427 self-employed and 3093 investors, who, together with their dependants, made up about 93 137 immigrants or 8.2 per cent of all immigrants to Canada during this period (Li, 1993). A large proportion of the business immigrants to Canada have come from Hong Kong and, to a lesser degree, Taiwan. In 1983, 19 per cent of the business immigrants, including dependants, came from Hong Kong, and another 4 per cent from Taiwan. Within two years, the number of business immigrants from Hong Kong more than doubled, to 2821, which made up about 44 per cent of all business immigrants admitted in 1985. The volume of business immigration to Canada continued to increase after 1986; in 1989 alone, Canada admitted 17 564 business immigrants and their dependants, about 30 per cent coming from Hong Kong, and another 13 per cent from Taiwan. In short, in 1989, Chinese business immigrants from Hong Kong and Taiwan constituted about 43 per cent of all immigrants admitted under this category and, in 1990, they made up about 50 per cent (Li, 1993). Although the business immigrants admitted to Canada between 1985 and 1991 represented only about 8 per cent of the total volume of immigration, their economic impact in Canada has been sizable. In 1987, the 2484 approved applicants as entrepreneurial immigrants had a net worth of $2.5 billion; their investments were to create about 12 000

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jobs and to retain another 2155 jobs (Li, 1993). In total, between 1987 and 1990, the 11 000 approved applicants of entrepreneurial immigrants brought into Canada an estimated net worth of about $14.3 billion; their investment was estimated to have created 48 000 jobs. The capital invested in Canada by investor immigrants was also impressive. For example, between 1987 and 1990, the 1933 cases of approved applicants of investor immigrants were estimated to have a net worth of about $3.2 billion, of which $751 million were estimated to have directly invested in various Canadian investment funds (Li, 1993). Many entrepreneurial immigrants who obtained Canadian immigrant visas from Hong Kong chose British Columbia as the province in which to invest. Between 1987 and 1990, 1511 entrepreneur immigrants given visas in Hong Kong, or about 14 per cent of the total entrepreneurs given immigrant visas to Canada for this period, were destined for British Columbia; their total net worth was about $1.9 billion, or 13 per cent of the total net worth of all entrepreneur immigrants approved to come to Canada in this period. Hong Kong investor immigrants, too, have a strong inclination to invest in British Columbia. Between 1987 and 1990, 698 investor immigrant visas, or 36 per cent of the total visas issued under this category for the period, were given to Hong Kong investors destined for British Columbia; their total investments were $343 million, or 46 per cent of the total funds invested by all investor immigrants in Canada for this period (Li, 1993). Without doubt, the injection of large amounts of capital into Canada by Chinese business immigrants and offshore Chinese corporations has stimulated the growth of Chinese-owned large-scale and capital-intensive ethnic enterprises in Canada. At times, the distinction between the so-called ‘ethnic business’ and ‘offshore investments’ has become less clear, as many corporate investors maintain their residence in Canada and their country of origin, and as corporate headquarters in Asian countries operate through branch plants in Canada. Furthermore, business immigrant capital sometimes joins forces with offshore capital through investment syndicates that assemble capital for megaprojects. The effects of offshore capital and business immigrant capital are evident in a province such as British Columbia. A study of Chinese business in Richmond, British Columbia confirms that, between 1980 and 1990, small family-operated retail firms were gradually being replaced by Chinese corporate investments, especially in the food-retailing business; at the same time, there was an intensification of capitalization among the Chinese investment in Canada in commercial and residential construction (Li, 1992). Explaining business engagement of Chinese immigrants Thus far, theoretical debates on ethnic entrepreneurship have not paid sufficient attention to the diversity of ethnic businesses. Changes in Chinese business and investment in Canada in recent years suggest that different explanations may be needed to account for different types of Chinese business, since the conditions under which each type emerges vary. Both societal forces and cultural factors are relevant to explain why the Chinese in Canada had historically engaged in marginal businesses in food services and personal services. Between 1885 and 1923, the federal government of Canada and various provincial governments passed numerous laws to limit the civil rights of the Chinese and restrict their opportunities in the labour market (Li, 1998). Consequently, many Chinese retreated to marginal ethnic businesses as a means to create alternative opportunities of

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self-employment. The absence of immediate family members among the Chinese before the Second World War compelled them to form partnerships with other Chinese, often from the same places of origin, in order to pool capital and to economize on labour (Li, 1982). In this sense, blocked mobility in the open market and the transplanted cultural ties which the literature has identified (see Bonacich and Modell, 1980; Light, 1979; Light and Gold, 2000; Waldinger et al., 1990; Ward and Jenkins, 1984) contributed to the success of Chinese entrepreneurship in the laundry and restaurant businesses before the Second World War. The development of Chinese businesses in professional services in the decades after the Second World War was made possible by the emergence of the Chinese middle class, who began to immigrate to Canada as the changes in immigration regulations in 1967 removed racial origin as a consideration in immigration and emphasized professional and technical skills of immigrants (Hawkins, 1988). At the same time, the rapid increase in the Chinese immigrant population in major metropolitan centres such as Vancouver and Toronto and the emergence of the Chinese middle class have substantially expanded the ethnic consumer market and created additional demands for Chinese professional services (Chan and Cheung, 1985; Li, 1992). Several factors explain why, since the 1980s, there has been an intensification of large capital investments by Chinese business immigrants and offshore Chinese corporations in Canada. The changes in the immigration regulations in 1978 and 1985 expanded the admission of entrepreneurs, self-employed and investors under the business immigration programme (Employment and Immigration Canada, 1985). No doubt, in emphasizing major business investments as a condition of immigration, these amendments have facilitated the movement of offshore capital to Canada, and hastened the development of capital-intensive ethnic enterprises. The magnitude and scale of Chinese investments and business developments in Canada since the 1980s suggest that capital formation has been playing a critical role in the expansion of corporate ethnic enterprise. Undoubtedly, the culmination of several decades of intense capital accumulation in Hong Kong, Taiwan and, more recently, the coastal regions of mainland China has generated a surplus of investment capital for many Chinese corporate owners and entrepreneurs who have made their fortunes in the manufacturing industry, commercial enterprise and the real estate market of Asia. Depending on the type of Chinese business, different explanations are required to understand how each type emerges. Besides the traditional type of family-operated and individual-owned Chinese businesses mainly in personal services such as food services and retailing, the post-war decades have witnessed the emergence of Chinese-owned businesses in professional services. More recently, there has been an increase in investments by Chinese corporations based in Asia through subsidiaries in Canada, as well as a growth in corporate ethnic enterprises in Canada that result from capital-intensive investments of recent business immigrants. Historically, racial discrimination and blocked mobility in the open market compelled the Chinese to operate small businesses specializing in food and personal services, but it was the opening of the professional fields to the Chinese after the Second World War and the growth of the Chinese middle class that created both the supply and demand for professional services. Equally important is the expansion of the Chinese immigrant population in the past few decades which has created the consumer market to support Chinese-operated professional businesses.

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With the diversification of Chinese businesses in Canada, there is some indication that the traditional small-scale family-operated Chinese businesses in the service sector are giving way to corporate-style investments with large capitalization. Chinese capital has been coming into Canada in two major ways, as offshore investments in Canada, often operating through subsidiaries in Canada, and as direct investments by business immigrants with substantial assets. The preferred investments appear to be hotels, commercial and office buildings and other real estate properties, although major Chinese financiers have also made investments into banks, oil and gas companies and emergent corporate firms. The expansion of Chinese capital into Canada through offshore investments and business-class immigration is predicated on political and economic factors. The changes in immigration regulations in Canada facilitate the entry of business immigrants with large surplus capital, many from Hong Kong and Taiwan, and more recently from mainland China. At the same time, the uncertain political future of Hong Kong hastened the exodus of capital in the 1990s. The development of capital-intensive Chinese enterprises in Canada can also be understood as an expansion of Asia-based Chinese multinational companies, as their growth in scale and capitalization compels them to follow a corporate rationality to internationalize through portfolio diversification. The recent development of Chinese investment and immigrant business in Canada suggests the importance of capital in the formation of ethnic enterprise, as transplanted capital opens up new opportunities for Chinese financiers and capitalists in the corporate world of Canada. The development of business engagement of Chinese in Canada also indicates the need to separate the type and scale of business engagement from the conditions that explain such engagement. The blocked mobility thesis, that is, the argument that limited employment opportunities in the open market propel immigrants towards business ventures, certainly has merit in the historical context, when Chinese were denied access to many higher-paying jobs in the core labour market and retreated to the immigrant-based service sector. However, the period after the Second War World that brought an increase in employment opportunities for the Chinese in many new lines of work also witnessed an increase in business engagement by Chinese immigrants. But these were more diversified business ventures, in both traditional services and emerging professional services. Thus, in this historical period, the occupational mobility of Chinese, not limited employment, increased the supply of professional service-givers that in turn responded to the growth of the professional service business market. Conventional studies of immigrant businesses tend to consider such activities as mainly influenced by internal ethnic-based resources. Increasingly, the emergence of the global market and transnational business investments have suggested that external forces also play a role in changing the scale, organization and operation of immigrant businesses. These changes further suggest the need to broader the understanding of immigrant business beyond the small-scale family-run operations to include the corporate type of immigrant businesses that are linked to international capital and transnational connections. Note 1. Unless otherwise stated, statistics from the 2001 Census of Canada are compiled from the 2001 Census of Canada, Public Use Microdata File for Individuals, weighted to population size.

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References Anderson, Kay J. (1991), Vancouver’s Chinatown: Racial Discourse in Canada, 1875–1980, Montreal: McGillQueen’s University Press. Bonacich, Edna and John Modell (1980), The Economic Basis of Ethnic Solidarity, Berkeley: University of California Press. Campbell, Persia C. (1969), Chinese Coolie Emigration, New York: Negro University Press. Chan, Janet B.L. and Yuet-wah Cheung (1985), ‘Ethnic resources and business enterprise: a study of Chinese businesses in Toronto’, Human Organization, 44, 142–54. Chui, Tina, Kelly Tran and John Flanders (2005), ‘Chinese Canadians: enriching the cultural mosaic’, Canadian Social Trends (Spring), 24–32. Dominion Bureau of Statistics (1936), Census of Canada, 1931, Occupations and Industries, vol. VII, Ottawa: Department of Trade and Commerce. Employment and Immigration Canada (1985), ‘Business Immigrants’, Document WH5-085. Hawkins, Freda (1988), Canada and Immigration, 2nd edn, Kingston and Montreal: McGill-Queen’s University Press. Ip, David, Constance Lever-Tracy and Noel Tracy (2000), Chinese Business and the Asian Crisis, Vermont: Gower Publishing Limited. Lai, Chuen-Yan David (1988), Chinatowns: Towns within Cities in Canada, Vancouver: University of British Columbia Press. Lee, Tung-hai (1967), Jianada Huaqiao Shi (History of Overseas Chinese in Canada), Vancouver: Zhonghua dadian bianyinhui. Li, Peter S. (1982), ‘Chinese immigrants on the Canadian prairie, 1910–47’, Canadian Review of Sociology and Anthropology, 19, 527–40. Li, Peter S. (1990), ‘The emergence of the new middle class among the Chinese in Canada’, Asian Culture, 14, 187–94. Li, Peter S. (1992), ‘Ethnic enterprise in transition: Chinese business in Richmond, B.C., 1980–1990’, Canadian Ethnic Studies, 24, 120–38. Li, Peter S. (1993), ‘Chinese investment and business in Canada: ethnic entrepreneurship reconsidered’, Pacific Affairs, 66(2), 219–43. Li, Peter S. (1998), The Chinese in Canada, 2nd edn, Toronto: Oxford University Press. Li, Peter S. and Yahong Li (1999), ‘The consumer market of the enclave economy: a study of advertisements in a Chinese daily newspaper in Toronto’, Canadian Ethnic Studies, 31(2), 43–59. Light, Ivan (1979), ‘Disadvantaged minorities in Self-employment’, International Journal of Comparative Sociology, 20, 31–45. Light, Ivan and Steven J. Gold (2000), Ethic Economics, San Diego: Academic Press. Privy Council, Order in Council (1978-486), ‘Regulations respecting admission and removal from Canada of persons who are not Canadian citizens’, Canada Gazette, part II, vol. 112, no. 5, February, 1978. Privy Council, Order in Council (1985-3246), ‘Immigration regulations, 1978, amendment’, Canada Gazette, part II, vol. 119, no. 23, 31 October, 1985. Portes, Alejandro and Min Zhou (1996), ‘Self-employment and the earnings of immigrants’, American Sociological Review, 61, 219–30. Redding, S. Gordon (1993), The Spirit of Chinese Capitalism, New York: Walter de Gruyter. Royal Commission (1902), Report of the Royal Commission on Chinese and Japanese Immigration. Sanders, Jimy M. and Victor Nee (1987), ‘Limits of ethnic solidarity in the enclave economy’, American Sociological Review, 52, 745–73. The Financial Post (1987), ‘Investment wave from Hong Kong breaks on Canada’, 30 November, 1987, p. S8. The Globe and Mail (1989), ‘Share purchase by chairman Ho aids Semi-Tech’s Hong Kong link’, 8 April, p. B6. The Globe and Mail (1991), ‘Reichmanns join forces with Hong Kong billionaire’, 19 October, 1991, p. B1. The Globe and Mail (1991), ‘Li Ka-shing rescues Husky with $600-million bailout’, 24 October, 1991, p. B1. The Globe and Mail (1992), ‘Alberta sells off Novatel to Nortel, Hong Kong firm.’ 22 May, 1992, pp. B1, B4. The Globe and Mail (1992), ‘Asian investment floods Richmond’, 16 November, 1992, pp. B1, B10. The Globe and Mail (1993), ‘Westcoast sells oil and gas unit’, 18 February, 1993, pp. B1, B7. The Province (1991), ‘The Asia Factor, Part Two’, 21 July, 1991, pp. 38, 41, 44. Waldinger Roger, Howard Aldrich, Robin Ward and Associates (1990), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, Newbury Park, California: Sage. Ward, Robin and Richard Jenkins (eds) (1984), Ethnic Communities in Business, Cambridge: Cambridge University Press. Wilson, Kenneth L. and Alejandro Portes (1980), ‘Immigrant enclaves: an analysis of the labor market experiences of Cubans in Miami’, American Journal of Sociology, 86, 295–319.

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Wong, Lloyd L. (1993), ‘Immigration as capital accumulation: the impact of business immigration to Canada’, International Migration, 31, 171–90. Wong, Lloyd L. (1995), ‘Chinese capitalist migration to Canada: a sociological interpretation and its effect on Canada’, Asian and Pacific Migration Journal, 4(4), 465–92. Wong, Lloyd L. (1997), ‘Globalization and transnational migration: a study of recent Chinese capitalist migration from the Asian Pacific to Canada’, International Sociology, 12(3), 329–51. Wong, Siu-lun (1988), Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong, Hong Kong: Oxford University Press.

11 Toward a rethinking of race, culture and the African American entrepreneur Nicholas Maurice Young

Introduction Few ideas saturate academic and popular discourse, and are in more need of continuous social science investigation than the problems African Americans have creating and managing viable firms. Although the literature is saturated with studies that have generated answers to important social science questions about how America’s ‘white ethnics’ become entrepreneurs, surprisingly little detailed attention has been given to making sense of the process of viable venture creation among African Americans. Indeed, scholarly research on the entrepreneurial experiences of African Americans occupies a rather obscure place in the social sciences. While few would question the idea that African Americans, like other entrepreneurial actors, have difficulty creating and managing successful firms, the suggestion that they are not successful entrepreneurial actors has received much attention in scholarly and popular outlets (Frazier, 1957; Glazer and Moynihan, 1963; Foley, 1966; Light, 1972; Sowell, 1978, 1981). Surprisingly, despite these claims, research on their experiences remains problematic, and does not convey the complex, textured difficulties of their entrepreneurial process. Instead, current research echoes the old, but still relevant, themes of inadequate capitalization and discrimination that have survived with remarkably little alteration since at least the 1970s. But while there is some truth to such an analysis, the fuller story is much more complex. The purpose of the present chapter is to challenge this, and other contemporary ways of thinking about this problem. Here the focus will be on illuminating for scholarly consumption the significance of rethinking how the way we examine the African American entrepreneurial experience can help us better understand the challenges they, and perhaps other entrepreneurs, face in creating viable entrepreneurial firms. As I shall argue, the primary problem with current inquiries is that they often present an incomplete picture of the factors shaping the African American entrepreneurial experience. However, while this chapter is ultimately about the importance, or lack thereof, of more comprehensive, sociological research on African American entrepreneurs, here my task is not to argue that current research has not made a positive contribution to this debate. On the contrary, despite its inadequacies, I shall argue that this body of research has provided the necessary nourishment and growth for challenges to many arguments citing the inadequacies of African Americans engaging in entrepreneurship. There are, however, at least three problems with previous research that make this attempt seem worthwhile. First, the most fundamental problem with racial and cultural arguments is that many of them tend to assume a far too rigid causal determinism of entrepreneurial outcomes. Indeed, some race and cultural perspectives about ethnic entrepreneurs tend to be reified and treated as exhaustible and immutable. But, while most scholars will find kernels of truth in each argument, these narrowly focused perspectives 157

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bypass important realities. Although inquiries into the relevance of race and culture for engaging in viable firm creation continue to generate attention for some scholars, for reasons that I will explain below, an analysis limited solely to linking both to entrepreneurial success cannot provide deep understanding. What tends to get lost in the languages of race and culture is the efficacy of human action. First, culture, at least in some treatments, is treated as a thing unto itself, independent of other spheres of social life. Race or racial discrimination is often viewed as a reified obstacle, contributing to paralyzing discussions concerning the ability of some actors to navigate around barriers to their participation in the entrepreneurial arena. My purpose here is to demystify these ideas. Racial and cultural arguments about the emergence of ethnic entrepreneurs tend to appear in social science discourse as concomitant explanatory factors. Both are, however, very different, and any attempt to point up one over the other, or to suggest their relationship without proper examination is radically incomplete. Second, because there is sufficient reason to believe that desegregation did sharply circumscribe the ability of many African Americans to remain competitive in the labor market and the entrepreneurial arena (Massey and Denton, 1993; Massey and Fischer, 2000; Bridges and Villemez, 1986; Braddock and McPartland, 1997; Handy and Swinton, 1984; Ando, 1986; Bates, 1989a, 1989b, 1991; Butler, 1991; Chen and Cole, 1988), there is a belief among some scholars that the proximate nature of this policy is primarily responsible for the demise of what was once a prominent African American business class in some Northern and Southern cities. As we shall see, I argue that this claim is false. Indeed, although many of the problems that African Americans experience creating viable firms are unique, and while we can locate the origin(s) for some of these problems in the historic discrimination generated by white consumer and financial institutions toward the African American working and entrepreneurial class, this idea does need extensive rethinking. Indeed, there is a danger in pointing up desegregation as the most important proximate factor circumscribing the creation and successful management of African American firms. Again, many of these arguments tend to ignore the efficacy of human agency, and the individual and/or collective will of many African Americans. Third, in some circles, current inquiries have been reduced to what I call (for lack of a better phrase) a ‘problematic of capital’ (human and financial) framework: the idea that the problems African Americans experience creating and managing firms can be traced to a paucity of human and financial capital resources. Although, taken together, race and culture perspectives have much currency; ‘problematic of capital’ arguments have achieved hegemonic status in this debate. This idea, however, requires some exegesis. One of the unfortunate consequences of this dominant thinking is that we have edited out any new understandings of the factors facilitating and/or circumscribing viable firm creation amongst this group. This argument is often made despite knowing very little about the methods African Americans, and other entrepreneurial actors, use to create firms. To be sure, while human and financial capital formulations continue to take center stage in this debate, here it will be argued that such explanations can no longer be given such a rationalized foundation. In view of these problems, the general purpose of this rethinking is to seek a deeper understanding of the challenges African Americans have creating viable firms. Consequently, my point of entry into this debate will involve first an attempt to interrogate what I regard as

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the most dominant existing interpretations of race, culture, capital and the African American entrepreneurial experience: Ivan Light’s Ethnic Enterprise in America, and, at a later point in the argument, Timothy Bates’s concept of capital in Race, Self-Employment, and Upward Mobility. Second, I present argument to support a rethinking of the African American entrepreneurial experience. My purpose is to develop a more adequate understanding of the African American entrepreneurial experience by means of critique, reformulation and elaboration. The problem and promise of race and culture in ethnic entrepreneurial research As Table 11.1 shows, African Americans have the lowest self-employment rate of any major ethnic group in the United States. Explanations for this phenomenon vary, and have confounded scholars for several decades. However for some, the percentage of selfemployed Asian Americans has generated perhaps more interest, discussion and theoretical explanation among social scientists studying race, ethnicity and entrepreneurial opportunity. Perhaps the most sustained effort at pointing up the significance and intersection of race, culture and capital for entrepreneurial success was made by sociologist Ivan Light. Indeed, his seminal 1972 treatise on the business activities of African Americans, Chinese and Japanese ignited a quiet revolution in the social sciences. In Ethnic Enterprise in America, Light takes what some considered to be an important step in making sense of the reason(s) why the entrepreneurial performances and self-employment rate of African Americans has consistently lagged behind many other ethnic groups, particularly those of Asian descent. The promise of race In making sense of the self-employment rates of the three groups, Light provides a brief history into the development of Japanese and Chinese business in the United States. The picture that he paints of this process for them is one of struggle and triumph. As he suggests, Chinese immigration to the United States began in 1848; the Japanese began migrating around 1900. Light suggests that both groups began their economic careers in Table 11.1

Percentage self-employed, by ethnic group

Ethnic group

(%)

African English German Irish Hispanic Asian Jewish Italian Indian Polish

5.0 13.0 15.0 11.0 7.0 13.0 25.0 11.0 13.0 10.0

Source: Estimated and adapted from Butler and Herring (1991).

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California as wage earners, gravitating slowly into entrepreneurial careers; the Chinese secured employment as railroad laborers, while Japanese pursued positions as agricultural laborers. Although their initial economic positions generated some source of income, securing these positions did not come without a price: the economic and social positions of both groups were threatened by intermittent discrimination and violence. Much of this violence was the result of fear from white laborers who viewed both groups as competition for their jobs. Further attempts made by both groups to move into higher paying occupations were met by anti-Chinese and anti-Japanese legislation. Such sentiments prevented their full participation in local labor markets, thus sharply circumscribing their ability to generate sufficient wages to support their families. Light suggests that the discrimination, or ‘cruel disadvantages’ (1972: 5), that Asian immigrants faced served as a stimulus of sorts, propelling them into self-employment. Given the harsh discrimination, or ‘extra disadvantages’ (1972: 5), that African Americans faced in the labor market and entrepreneurial arena, the ‘fact’ that they did not respond to such treatment – at least in a more aggressive fashion – appears to confound Light. Recognizing this, he rejects the claim among some scholars and non-academicians that racial discrimination is the primary vehicle retarding the self-employment rate of African American entrepreneurs. Specifically, he was puzzled by the ways in which entrepreneurs of Asian descent monopolized the retail trade market in many urban African American communities. In his words, Light’s position on these points can be summed up in the following: It is hardly surprising that black people would like to own the retail stores located in their own neighborhoods. Retail proprietorship is, after all, a classic avenue of upward social mobility for the disadvantaged, and a ‘symbol of opportunity’ in the Horatio Alger tradition . . . Making a decent living in retail trade is certainly harder nowadays . . . Those with advantageous educational and color credentials can normally do better by working for the A&P than by working against it . . . Hence only the disadvantaged now have an economically rational motive for operating retail stores in competition with the A&P or any other retail giant. Because blacks are so disadvantaged, their want of a proprietary class is more anomalous today than it was a halfcentury ago . . . In view of the importance of the small proprietor in other American minorities, the ‘complete absence of a business class’ among blacks is especially perplexing. (Emphasis added, 1972: 4)

He continues (1972: 5–6): Of course, as many writers have noted, the comparison of blacks and foreign-born whites is often misleading because the latter experienced milder discrimination than did American blacks . . . These cruel disadvantages explain many differences between blacks and foreign-born whites, but they do not explain why the latter have been regularly active in business proprietorships (even in black neighborhoods) whereas the blacks themselves have not. On the contrary, the extra disadvantages of blacks ought, strictly speaking, to have stimulated them to more extensive self-employment than the foreign-born whites. These deductions aside, the social histories of Americans of Chinese and Japanese descent offer empirical illustration of the manner in which poverty, discrimination, and ethnic visibility stimulated business proprietorship among some disadvantaged immigrants . . . the Asian immigrants were poor and visibly non-European and were subject to racial discrimination on that account . . . But since they shared these practical disadvantages with black Americans, the logic of Asian–American business development raises questions about the absence of parallel developments among American blacks – and about a social theory whose expectations are incongruent with observations. (Emphasis added)

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The promise of culture and capital According to Light, the ‘practical disadvantages’ that Asian immigrants shared with African Americans forced many Asian immigrant entrepreneurs to pursue economic prosperity through business ownership. He argues that the absence of rotating credit associations – social structural configurations where actors rotate capital for entrepreneurial ventures – in the African American community was the organizational configuration missing from their ‘cultural repertoire’ (1972: 36) that largely prevented many African Americans from achieving similar success in the entrepreneurial arena. Using this information as the basis for his argument, he argues against the assertion that discrimination in commercial lending was the proximate reason for the circumscribed status of African American entrepreneurs. However, in Race, Self-Employment, and Upward Mobility, Bates argues against what he calls Light’s ‘Horatio Alger’ depiction of Asian self-employment patterns, suggesting that ‘its applicability to contemporary America is nil’ (Bates, 1997: 2). In contrast, Bates questions why other ethnic groups have not taken advantage of small business opportunities to the same extent as Asians. Using Census data for the years 1979–87, he appears to reject Light’s claim that a focus on capital endowments is not a significant predictor of ethnic entrepreneurial success. Citing data that compare the percentage of Asian and African Americans entrepreneurs that are college graduates and their average financial investment at business start-up (57.8 per cent of Asian entrepreneurs were college graduates and used $53 550 at start-up; compared to 30.2 per cent of African Americans entrepreneurs who were college graduates, and had an initial capital investment of $31 939 at start-up), Bates presents an alternative picture of Asian–African American self-employment patterns that emphasizes differences in an entrepreneur’s financial and human capital investments. For Bates, differences in self-employment success are directly attributed to human and financial capital gains (1997: 4–18): This study concludes that successful small businesses tend to be those created with a substantial investment of the owner’s financial capital, along with the strong educational credentials of business owners . . . Gains in higher education typify how reductions in discriminatory barriers are translated into significant progress in the minority business community . . . College enrollment among Asian Americans has grown even faster than it has among blacks . . . The bedrock of small-firm creation is the owner’s human capital, that is, the founder’s education, training, work experience, and skills . . . Those lacking such human capital have low self-employment rates . . . Human and financial capital are properly thought of as prerequisites for success in most lines of self-employment: for persons lacking the requisite skills and capital, self-employment entry rates are low; for those lacking appropriate human and financial capital who nonetheless start a small business, business failure and self-employment exit rates are high. Thus the limited ability to compete that typifies weak small businesses combines with entry barriers to keep many potential entrepreneurs on the sidelines: low human and financial-capital endowments translate into low self-employment rates. (Emphasis added)

Critique: towards a rethinking of Asian immigrant and African American self-employment patterns Interest in making sense of how ethnic groups engaged in the entrepreneurial process increased with the publication of Ethnic Enterprise in America, so much so that in the 30year period between the publication of this seminal treatise and Bates’s Race, SelfEmployment, and Upward Mobility, research in this area has caused a massive rethinking

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in the methods some ethnic groups use to create firms and establish competitive entrepreneurial advantage. But as research into the impact of ethnicity on entrepreneurialism increased, there were still unresolved issues regarding why, given a favorable situation, some individuals become entrepreneurs while others do not (Portes, 1987). To be sure, Ethnic Enterprise in America increased specific interest in the analysis of how some ethnic groups move into business enterprise and adjust to American society (Bonacich and Modell, 1980; Cobas, 1985; Portes and Bach, 1985; Butler and Herring, 1991). However, despite this increased interest, few scholars have applied similar intensity to exploring the historical and structural foundations of race, ethnicity and entrepreneurialism among African Americans. Even fewer have attempted to present argument, data and evidence that would present an alternative impression of the African American entrepreneurial experience. Exactly why remains unclear. While Light’s and Bates’s attempts to tackle this problem should be commended, their arguments about the deficiencies among African Americans suffers from serious gaps and knowledge that have yet to be put to systematic investigation. The study of ethnic enterprise: problematic comparisons To be sure, Light asks very important questions, primary among which is the issue of why African American self-employment rates remain comparatively low. Indeed, this issue confounded scholars for decades long before, and the three decades since, the publication of Ethnic Enterprise in America. However, despite the problematic nature of Light’s treatise, it has had surprising staying power. Light’s narrowly focused interpretations suffer from at least three disadvantages that make his emphasis on ethnicity problematic. First is his focus on retail firms. Light surmises that retail ownership is a classic area of entry in self-employment for many disadvantaged ethnic groups. At first glance, Light has made a very compelling argument. However, closer inspection of his analysis reveals why it is largely problematic. Light takes only one slice of the entrepreneurial picture for both groups, and makes unjustified conclusions based on this biased sample. That Asian Americans had higher self-employment rates in retail firms per capita in 1970 in California than African Americans is indisputable. However, this is largely an apples–oranges comparison precisely because it fails to recognize that, while Asian immigrant firms are largely concentrated in the retail and service sectors of the economy, African American firms are spread more evenly across the entrepreneurial arena. As Tables 11.2 and 11.3 show, in 1970 Asian American and African Americans were engaged in similar areas of similar self-employment. Indeed, given the overall size of both populations (Asian American, 1 538 721 and African American 22 580 289), Asian Americans had higher rates of self-employment in many fields. Table 11.3 also confirms that Asian Americans were operating more retail and service sector firms per capita than African Americans. However, a closer inspection of Table 11.2 reveals that greater numbers of African Americans were operating in lines of business that typically require greater amounts of start-up and operating capital to establish and maintain competitive advantage over competitors. Furthermore, many of the areas that African Americans are in, and Asians are not, take greater amounts of start-up capital to get into and operating capital to succeed and remain competitive than many small, retail oriented stores.

Race, culture and the African American entrepreneur Table 11.2

African American firm ownership, by industries, 1972 Number of firms per thousand in population

Industries

Population

Number of firms

Total Construction Manufacturing Transportation/public utility Wholesale trade Retail trade Finance, insurance and real estate (FIRE) Selected service Other industries Industries not classified

22 580 289

194 986 20 151 4 116 21 738 2 091 56 617 8 001

0.96 0.09 2.51 0.35

68 469 4 283 9 520

3.03 0.19 0.42

Table 11.3

163

8.64 0.89

Asian American firm ownership, by industries, 1972

Industries Total Construction Manufacturing Transportation/public utility Wholesale trade Retail trade Finance, insurance and real estate (FIRE) Selected service Other industries Industries not classified

Population

Number of firms

Number of firms per thousand in population

1 538 721

33 114 1 124 868 506 953 1 825 2 229

21.52 0.73 0.56 0.33 0.62 7.68 1.45

9 261 5 001 1 347

6.02 3.25 0.88

Additionally, although retail ownership is itself a very competitive space in which to operate a firm, history has shown that, because many economically prosperous, potentially-entrepreneurial African Americans have migrated away from segregated urban communities in large numbers, America’s inner cities are areas where immigrant communities are least likely to encounter competition, hence their apparent dominance and perhaps intended focus. Although scholars are unclear why this is so, what appears more controversial is the suggestion that cultural, rather than historical, factors may be the culprit. While a historic possibility is more likely, another may be that some African Americans simply ‘gave up’ control of these geographic spaces in a conscious effort to pursue more profitable areas of self-employment and labor market opportunities. Or it may be that some African Americans made a conscious decision to relinquish control over

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these environments to escape the fatigue and disgust generated by the discrimination and poverty that they experienced in that context. Whatever the reason, any analysis that limits itself to providing a cultural explanation for this phenomenon cannot provide deep understanding. The demystification of ethnicity and the ‘problematic of capital’ Continuing with this stream of thinking, the second problematic area of his analysis is in how Light deals with culture. Indeed, Ethnic Enterprise in America, and other subsequent work since its publication, made it commonplace to think of ethnicity as a phenomenon sui generis; that is, ethnicity or culture, which influences how we think, feel and act in specific social situations is a thing apart, the distinctive, motivating force behind successful venture creation and management among some ethnic Americans. Indeed, that some ethnic groups have unique cultural character can hardly be denied. However, what tends to confuse some in discussions about ethnicity and entrepreneurship is the reification of culture. Within ethnic entrepreneurial research, culture is an unexamined metaphor that tends to reduce actors to programmed automatons. For this reason, cultural interpretations of economic action lend themselves readily to explanations of how social life is shaped into consistent patterns, but not to the way these patterns are affected by historical contingencies. Culture, as least in Light’s treatment, is treated as a thing unto itself, independent of other spheres of life. The problem, however, is that culture is not fixed or unchanging. Indeed, it is part of a larger social matrix of behaviors. In particular, the reification of Asian immigrant attitudes and values about entrepreneurship has made their success appear in this milieu almost magical, as if they possess some special cultural ointment that only a select number of other ethnic groups are capable of conjuring up when the need for such a formula arises. In such instances, ethnic patterns are often taken at face value, devoid of any impact of social relations or the institutional milieu in which they are embedded. Indeed, that some ethnic groups are part of a social matrix that contains entrepreneurial role models which employ methods that encourage the importance of selfemployment can hardly be denied. As Light correctly illuminates, this appears certainly to be the case among some Asian immigrant groups. However, what is being questioned here is Light’s attempt to place so much emphasis on the primacy of culture in shaping these processes. Implicit in this suggestion is the idea that, because all groups experienced some form of discrimination in their quest for social and economic equality, those groups whose values were conducive to individual achievement experienced disproportionate economic success. This brings Light’s fleeting ‘Horatio Alger’ reference (1972, p. 4) into sharper focus. His suggestion appears to point to the idea that there are ethnic reasons for ethnic success, and that the causes are to be found within the groups themselves. In other words, success comes not just to those that believe that it is possible, but also to those that are members of ethnic groups which contain the ‘correct’ set of cultural attributes. ‘For groups with the “right” values, the existence of prejudice is not an insurmountable obstacle, and only adds to the heroic dimensions of ethnic success’ (Steinberg, 1989: 85). According to Steinberg, one way to understand the determinants of ethnic success is to make sense of a complex set of questions, many of which Light attempted to do, albeit with limited success. First, what differences in the background and circumstances of

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ethnic groups allowed some to advance further than others? Second, what was the institutional context in which ethnic mobility occurred, and did it favor certain groups more the others? Finally, if it can be shown that groups differed in their cultural values in ways that might have facilitated or impeded mobility, how are these differences to be explained? In short, making sense of these questions would help scholars understand what external circumstances made these successes possible, and why some ethnic groups may have been better equipped or better positioned than African Americans to take advantage of a given set of opportunities. Reformulation: the problem of race in ethnic entrepreneurial research The third problematic area of analysis is how Light views race. He appears to treat all three groups as if they operate as equals on the same social plane. This idea, however, requires some exegesis. Throughout the book, Light refers to entrepreneurial immigrants as ‘white ethnics’. Upon first impression, this reference is harmless. However, closer inspection of the term reveals a certain level of comfort with and social congruency from whites towards Asian immigrants that was not shared, reproduced or displayed toward African Americans. The phrase projects a level of tolerance, or acceptance in an exclusive club not enjoyed by African Americans that reflects a willingness among some whites to accept Asian and European immigrants as long as they do not ‘cross the line’; in this case, the ‘line’ refers to competing for the same jobs and establishing enterprises in the same lines of business. Yet, viewed more deeply, Light’s interpretation ignores the conflictual character of race, and the political aspect and shifting nature of racial dynamics. Specifically, this thinking neglects race as an autonomous field of social conflict, political organization and cultural/ ideological meaning (Omi and Winant, 1994). In failing to recognize this, Light reduces race to a manifestation of ethnicity, which leads to an inability to grasp the uniqueness of the concept, and measure its historical flexibility and immediacy in everyday experience and social conflict. To measure this impact adequately, one must recognize that conflicts around race must be examined, not in a vacuum, but rather as part of the social matrix in which they are embedded. Racial meanings, then, like culture, are also unfixed, and thus subject to the outcomes of struggle. They are ‘a salient feature in a general process whereby culture mediates the world of agents and the structures which are created by their social praxis’ (Gilroy, 1987: 17). Thus, in a sense, the creation and usage of the term ‘white ethnic’ requires a recognition of the existence of a distinct pattern of social and political subordination, resistance and negotiation between the dominant and minority group; a rationalizing ideology that may have informed whites that, while there were reasons to be concerned about Asian immigrants competing for their jobs and engaging in areas of self-employment that threatened their existence in the economic arena, there was a certain level of comfort that they had with Asians and other ‘white’ immigrants that superseded their attempts to compete. Thus, in failing to recognize this war of maneuver, Light’s analysis falls prey to the inevitable danger of rendering the dynamics of Asian immigrant and African American oppression as more homogeneous than they actually were. The ‘problematic of capital’ However, despite Light’s reluctance to recognize the conflictual nature of race and the African American entrepreneurial condition, the fourth and final problem of his analysis,

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what I call ‘the problematic of capital’, has achieved hegemonic status in this debate. So much so that this perspective has been pointed up with consistent force by economist Timothy Bates. Certainly, Light’s attempt to demonstrate how some Asian immigrants mobilize to acquire capital brought great value to the study of ethnic enterprise. It changed thinking about how some ethnic groups respond to discrimination, and forced a rethinking of the factors shaping why other groups remain mired in low self-employment rates. Indeed, while Light’s ideas about the importance of rotating credit associations in generating viable firm creation are important, the unfortunate result of this myopic focus is that it helped create an atmosphere that discouraged social science inquiries into other aspects of the African American entrepreneurial experience. To be sure, evidence highlighting small business owners’ historical reliance on personal savings and family members to fund their ventures is not enough evidence to conclude that all African American entrepreneurs rely on similar capital sources. In contrast, Bates’s Race, Self-Employment and Upward Mobility provides researchers with a possible blueprint for future inquiry on this subject. The picture he paints of successful self-employment is one where better educated, better trained and more skilled entrepreneurial actors have access to significant amounts of financial capital, the latter of which, he argues, is the strongest and most accurate predictor of entry into self-employment. To be sure, these elements, when taken together with other important resources, translate into successful entrepreneurial action. The main problem, however, with Bates’s analysis is the way he reduces the problem to a ‘problematic of capital’ argument: If you do not have the right human and/or financial capital, your chances of entrepreneurial success are very limited. To be sure, most scholars would agree that more educated actors with loads of entrepreneurial experience may have a better chance at succeeding at self-employment than individuals with less formal training. But education and capital are important to entrepreneurs for several, and sometimes different, reasons. Bates makes the case that African American firms have been shaped by ‘broad discontinuous social forces’ (1997: 163). He argues that an easing of discriminatory barriers has generated a growth of new African American firms and an expansion of greater entrepreneurial opportunities. Again, Bates attributes this occurrence to human capital gains: ‘Black-business progress in the 1980s and 1990s has been strongly rooted in the human capital gains of the entrepreneur: the depth of expertise and experience of black entrepreneurs has expanded substantially’ (ibid.). The primary problem with problematic of capital arguments is that they assume that the problems African Americans have securing financial capital and other entrepreneurial resources, and acquiring sufficient education, are unique. While there is sufficient reason to believe this, problematic of capital arguments often lead to paralyzing debates about other viable determinants of success. As Light correctly points out earlier in this volume, these arguments have been made for several decades without making sense of other factors that may shed light on this problem. Given this reality, I regard such scholarly arguments as largely problematic because they fail to recognize that, while entrepreneurial African Americans attempting to secure financial capital experience greater discrimination by banks and other financial institutions, this problem (acquiring capital and securing resources) is something that sharply

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circumscribes the ability of most entrepreneurs, regardless of ethnicity, to create and expand viable firms. To be sure, if the economic, social and political history of African Americans has shown anything, the type of discrimination they face has forced many of them to pursue alternative routes to economic prosperity that are radically different from the routes taken by any other American ethnic group. Elaboration: towards an explanation of African American self-employment patterns – a reconsideration of race, culture and segregation But exactly how do African Americans differ in these respects? What, then, explains their comparatively low self-employment rates? Evidently, these questions cannot be answered simply. I argue that a rethinking is necessary in our efforts to make better sense of the sociohistorical factors shaping the African American entrepreneurial experience with respect to race, culture and segregation. Thus, using the above information as a guide, I proceed with this rethinking by arguing that there are a few differences in the self-employment experiences of African Americans that differentiate them from other ethnic groups: differences that may have contributed to their comparatively lower self-employment rates. First is the problem of race. African Americans, entrepreneurship and the politics of race As the above discussion illuminates, many ethnic groups have used entrepreneurship as a means toward achieving upward mobility through wealth creation. Over the years, Light, Bates and their colleagues have argued long and hard in support of this thorny reality. The evidence is on their side: ‘Small business creation and operation have played a prominent role in the efforts of immigrant groups to achieve upward mobility’ (Bates, 1997: 1). Given such a significant empirical reality, what factors explain why many African Americans, at least in the post-Civil Rights era, have not gravitated to self-employment with the same intensity? What relevance, if any, does race have in explaining this problem? In attempting an integrated analysis of the past with regard to race, what appears to be different about the African American experience is that, in the periods in which they attempted to establish competitive advantage through viable firm creation, they were engaged in a battle with whites and other ethnics where the very idea of race was politically contested. Because of ‘race’, African American social, economic and political opportunities were sharply circumscribed by whites in ways that made viable firm construction difficult. These problems can be traced, to some extent, to an initially low social and economic position in society, one that Blauner (1972) suggests was very different from the initial position of European ethnics. Indeed, ‘the entrance of the European order involved a degree of choice and self-direction that was for the most part denied people of color. Voluntary immigration made it more likely that individual Europeans and entire groups would identify with America and see the host culture as a positive opportunity rather an alien and dominating value system . . . this element of choice . . . must have been crucial in influencing the different careers and perspectives of immigrants and colonized in America, because choice is a necessary condition for commitment to any group’ (1972: 63). In sharp contrast, African Americans and other people of color migrated to this country involuntarily. Without the benefit of first mover advantage, they were concentrated in the least advanced sectors of the economy, where the opportunity to acquire semi-skilled and skilled positions was sharply circumscribed. Indeed, almost all racial

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ethnic groups, in their search for a better life in America, started out at the back of the economic queue. In many cases, the labor market is the perfect laboratory for igniting ethnic tensions. According to Waldinger (1996: 3–6), the ethnic division of labor stands as the central division of labor in the cities of twentieth-century America. He provides an excellent description of this process: ‘The story of ethnics in America’s cities is a collective search for mobility, in which the succession of one migrant wave after another alternatively stabilizes and disrupts the labor queue . . . The instability of America’s capitalist economy subjects the labor queue’s ordering to change. Growth pulls the topmost group up the totem pole: lower-ranking groups then seize the chance to move up the pecking order; in their wake, they leave behind vacancies at the bottom . . . The structure of the labor queue goes unchallenged as long as these newest arrivals are content to work in the bottom-level jobs for which they were initially recruited. But the economic orientations of the newcomers inevitably change, and, when they do, complementarity is likely to be replaced by competition – which fans continuing ethnic strife over access to good jobs.’ Europeans worked primarily within the industrialized, modern sectors and ‘had a foot in the most dynamic centers of the economy’ (Blauner, 1972: 62). The end result of this segmentation was an early advantage in social and economic opportunity: ‘The initial position of European ethnics, while low, was therefore strategic for movement up the economic and social pyramid. The placement of nonwhite groups, however, imposed barrier upon barrier on such mobility, freezing them for long periods of time in the least favored segments of the economy’ (ibid.). Lieberson (1980: 30–31) provides support for the idea that the discrimination European immigrants faced, although similar in structure, was ‘superficial, overlooking certain key differences in the conditions faced by these groups’. Evidence for this fact, he argues, can be found in the ways in which these groups were placed on a desirability continuum: The visibility of blacks due to their skin color and other physical features, compared with the role of cultural characteristics in distinguishing European immigrant groups, is perhaps the most widely recognized factor influencing black-immigrant differences . . . Attitudinal surveys administered in the 1920s confirm the notion that the groups were implicitly ranked on a continuum of inferiority rather than simply placed into a dichotomy of ‘good’ and ‘bad.’ In a variety of surveys, the American population ranked Northeast European highest, then the South-CentralEastern Europeans, in turn the Japanese and Chinese, and finally blacks.

It is within this social context that the idea of race for African Americans was contested. The visibility of African Americans due to skin color notwithstanding, having to compete for social, economic and political resources under the badge of inferiority is crippling for anyone, not just African Americans as markers or ‘indicators of ethnic origin for the new groups are neither as sharp nor as unavoidable as those for blacks’ (ibid.: 32). Indeed, given the fact that African Americans were not that far removed from a life of servitude and exploitation in America, their legitimacy as economic actors and existence as equal humans was still being questioned at this point. Furthermore, these attitudes were, in part, created by at least another factor: differences in numerical threshold between 1880 and 1924 for each group. While 13.5 million new European immigrants were admitted during this period, the decline in the labor needs of the railroads and the gold boom led to the suspension of Chinese immigration, which kept the Chinese population in the United

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States to 100 000 two years before this repression. Similarly, the ‘Gentlemen’s Agreement’ of 1907 with the Japanese government restricted Japanese migration to the United States, and thus resulted in the Japanese population being kept to less than 150 000 in 1924. According to Lieberson (1980: 31): ‘As for blacks, there was virtually no voluntary migration from either Africa or some of the area of black settlement in the New World. The 84 000 foreign-born Negroes in the United States in 1900, primarily from the West Indies, amounted to less than half of 1 percent of the total Negro population. In short, these differences in the numerical threshold suggest that immigrants from SCE Europe were relatively more acceptable to the dominant native white population of the United States than were the various nonwhite peoples.’ The labor market, residential segregation and the circumscribing of African American entrepreneurial opportunity: 1840–1970 Even a cursory review of this history should do much to dislodge from the bosom of social science thinking the idea that the ‘bottom’ was the same for all ethnic groups. The fact that it does not speaks volumes about the differences in how race is applied to different groups and in different contexts. But, in making sense of the comparatively poor entrepreneurial performances of African Americans, two very important questions must be asked. First, given the initial differences in institutional context between the ethnic groups, how did these differences affect the ability of African Americans to engage in viable firm creation then (and now)? Second, given the fact that other ethnic groups managed to create viable firms in the midst of discrimination, why did African Americans not follow this same path? Answers to these questions may be found in a comparison of the patterns of settlement and the ways in which immigrants and African Americans faced competition in finding jobs and starting firms. As discussed above, almost all ethnic groups, in their search for a better life in America, at some point started out at the bottom of the economic queue. Waldinger (1996: 4) suggests that the mechanism for this sorting was ethnicity: employers used this marker to sort ‘groups of categorically different workers into an identifiably distinct set of jobs’. For this reason, the resulting competition, while taking place over the ethnic and economic niche, made the labor queue and ethnic division of labor unstable. This instability created the conditions for igniting ethnic tensions. Two examples document the problematic nature of this instability, and the problems that it created for African Americans. First, as Bonacich and Modell (1980: 65–70) indicate, Japanese immigrants faced harsh discrimination from whites in the labor market. Indeed, ‘Labor competition was the dominant theme in the agitation for exclusion of Japanese immigrants until about 1907–1908 . . . West Coast workers felt that Japanese labor could be used to undermine the wage gains they had painfully attained over the years . . . As the Issei moved into small business, aided by families who joined them in the years following the Gentlemen’s Agreement, the locus of antagonism shifted, and its intensity grew considerably. Not only did the immigrants compete with laboring groups, but increasing numbers of Issei now competed with established business interests. In addition, the increasing economic power of the Japanese aroused concern over the fact that they were aliens and were not integrated into the American community.’ To be sure, a similar experience happened for some other ethnic groups. Foley (1966) and Steinberg (1989) illuminate that, while Jews in particular were not immune from such

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treatment, like Asian immigrants, many had an extensive background as traders and entrepreneurs in their places of origin that prepared them for careers in entrepreneurship and the labor market. Hence, it was no mistake that they tended to focus their concentration on finding jobs and starting businesses in trade and commerce. However, I argue that, at some point in their economic journeys, Asian and Jewish immigrants may have come to recognize the potentially long-term impact this conflict could have in circumscribing their already fragile economic positions. Thus, in establishing what I call a ‘strategy of avoidance’ in the labor market and entrepreneurial arena, they may have made a conscious attempt to restrict their job searches to and entrepreneurial aspirations for positions and firms, respectively, that did not place them in direct competition with whites. In the early part of the twentieth century, both groups navigated their way around this conflict in what I believe was a purposeful attempt to reduce the veneer of their poverty and ethnic status. This somewhat conscious act consisted of pursuing labor market and entrepreneurial opportunities in fields that many whites found menial. In doing so, both groups raised their cloaks of invisibility (to the extent that this would help) and thus increased the odds of their success and autonomy in the labor market and entrepreneurial arena. In a sense, becoming a middleman was the next best thing, or closest approximation to using their economic experiences for achieving their objective of wealth creation through entrepreneurialism. Second is the problem that this instability created for African Americans. During the 1820s, the white presence in various fields declined, resulting in a ladder effect that created empty spaces for newcomers up, but mainly down, the totem pole of economic opportunity. Having secured the most attractive positions in the queue, whites relinquished control over many of these menial positions. Like the Japanese, and other ethnic groups, African Americans secured many of these positions. Three areas of concentration were catering, domestic service, and garment and hotel work. When given the opportunity, African Americans performed relatively well in these fields. Given the fact that the ethnic tensions existed because of strains in the labor queue, some may be quick to argue that this tension was only economic in nature, with no racial antecedents. This is a dangerous assumption. Indeed, the racial climate in this part of the century makes this suggestion a moot point. According to Foley (1965: 563), this decade ‘witnessed the first great confrontation of free Negroes and immigrants, a confrontation which continued with rising intensity and without abatement for the next hundred years’. This series of riots, he argues, were directed chiefly against African Americans until about 1840, and did not cease until after the Civil War. According to DuBois (1899: 26–31), ‘The new industries attracted the Irish, Germans, and other immigrants; Americans too, were fleeing to the city and soon to natural race antipathies was added a determined effort to displace Negro labor – an effort which had aroused the prejudice of many of the better classes, and the poor quality of the new black immigrants to give it aid and comfort . . . To all of this was soon added a problem of crime and poverty . . . The tide had set against the Negro strongly, and the whole period from 1820–1840 became a time of retrogression for the mass of the race, and of discountenance and repression from the whites . . . These foreigners outbid them at work, beat them on the streets, and were enabled to do this by the prejudice which Negro crime and the anti-slavery sentiment had aroused in the city.’ Despite these conflicts in the aftermath of the Civil War, limited capital to create and develop new firms, and postwar southern whites’ attempts to suppress the development

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of independent Black economic activities (Walker, 1998: 151), antebellum African Americans managed to find ways to establish independent, albeit small, enterprises. However, in this immediate post-Civil War period, Black Codes, Southern laws formulated to circumscribe African American mobility and entrepreneurial participation, and Northern conflicts with ‘white ethnics’, altered African American social and economic trajectories in ways that made establishing and sustaining economic competitive advantage difficult. Given this reality, why did African Americans not employ the strategy of avoidance discussed earlier to improve their odds for economic success? Butler (1991) suggests that African Americans did not have this luxury. His skepticism is based on the idea of ‘the economic detour’, a theory developed by M.S. Stuart (1940), which argues that, in the period following the Civil War, segregation-enforced laws were created to restrict the ability of African Americans to operate firms in the entrepreneurial milieu on equal footing with whites and other ethnic groups. In this case, equal footing came in the form of restrictions permitting the development of outside markets. These laws, Stuart argues, were grounded in the politics of southern segregation, and applied only to African Americans. In contrast to middleman minorities, whose success was partly motivated by their ability to attract an outside clientèle, Stuart suggests that African Americans were forced to develop separate enterprises and sell their products in a restricted market. According to Butler (1991: 74) this policy had the effect of decreasing the total amount of business activity among African Americans, and forced them to operate their firms in a segregated economy. For Butler, ‘This model can be applied fully to the Afro-American business person from after the Civil War to the 1960s. Although in altered form, it is still applicable today.’ The culture of segregation and the problem of African American self-employment patterns Regardless of whether or not the theory of the economic detour has great explanatory power, race did have a significant effect in circumscribing the labor market and entrepreneurial aspirations of African Americans in the late nineteenth century and early twentieth century. As I suggest above, the reason(s) for this phenomenon, although partly economic in nature, were grounded in the politics of race. This politics of race was conditioned by segregation, which concentrated hostile attitudes toward African Americans and forced them into defensive and reactive positions. As to why African Americans did not also employ a strategy of avoidance in their economic pursuits, I argue that many of them did not view this as an option. As Stuart suggests, many African Americans may have been more interested in demonstrating to whites that they could carry their own weight in the newly-created industrial economy. Or, as Kelley (1994: 4–9) suggests, working class African Americans were too preoccupied with removing their ‘masks’ of grins and lies of happiness, which enhanced their ‘invisibility and enabled them to wage a kind of underground “guerrilla” battle with their employers, the police, and other representatives of the status quo’. Instead, African Americans perhaps employed strategies of resistance and survival to preserve their agency and reject their image ‘as merely passive products of economic exploitation and dislocation’. However, in making sense of culture, the second area of rethinking, I argue that the discrimination and hostility that African Americans experienced in the labor market after the Civil War (1870) and during the Great Migration years (1920–60) sharply circumscribed

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their ability to further develop an entrepreneurial culture and establish entrepreneurial competitive advantage. These conflicts created social disruptions that may have dampened the entrepreneurial spirit among many African Americans and, for some, may have made the labor market a more attractive area of economic concentration. However that culture has relevancy in this milieu, what aspect of it helps explain low African American selfemployment patterns? Answers to this question can be found in the ways in which African Americans were segregated in northern American cities between 1920 and 1970, the third and final area of rethinking. Chicago is, perhaps, the best example of this. To make better sense of culture and the impact of residential segregation, I consult Spear’s (1967) and Massey and Denton’s (1993) socio-historical analyses of the factors shaping the construction of the African American ghetto in Chicago. Despite the fact that African Americans lived among whites, albeit in an interspersed fashion, their status as equal social actors remained largely uncertain; and, as Spear suggests, their experience was, in significant ways, different from that of any other ethnic group in Chicago’s history: ‘No other ethnic group had been legally circumscribed; no white minority had been forced to fight for legal recognition of citizenship rights’, Spear (1967: 7–8). Specifically, as African Americans began to migrate to the city in large numbers after World War I, they experienced hostility from whites. By 1915, this hostility led to increased segregation, which was followed by the creation of an ‘almost all-Negro enclave on the South Side of the city, with a similar offshoot on the West Side’ (Spear, 1967: 11). Therefore the creation of the initial African American ghetto was a product of white hostility circumscribing their attempts at having a productive life. As more African Americans migrated from the South to escape menial positions, the grip of Jim Crow laws, and the hope of a better life and job in the north, white hostility toward them increased, and the walls of what Spear called ‘the physical ghetto’ expanded. As new African American migrants attempted to compete for jobs in their new surroundings, this hostility grew even more. This phenomenon, along with tightening of the Chicago color bar through a series of riots, and the rise of a new ‘Negro elite’, which promoted the philosophy of self-help and questioned the benefits of an integrationalist philosophy, led African American leaders between 1900 and 1920 to build what Spear called ‘the institutional ghetto’ – an attempt at self-segregation, where ‘Chicago’s Negro leaders built a complex of community organizations, institutions, and enterprises that made the South Side not simply an area of Negro concentration but a city within a city . . . [and] a new economic and political leadership with its primary loyalty to a segregated Negro community’ (Spear, 1967: 91) or ‘Black Metropolis’ as it later came to be called. ‘Black Metropolis’ and the importance of segregation, reconsidered It is interesting to note that, between 1930 and 1970, more than three million African Americans migrated from the south to northern cities. If southern African American entrepreneurs had a protected market to rely on, the migration sharply disrupted this plan. As the reader may recall, Lieberson (1980) suggests that an increase in population size helped other ethnic groups gain an advantage in the labor market. However, an increase in population size for African Americans had the opposite effect: the more migrants that came, the greater the discrimination was toward them and the more forced

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segregation they experienced. As the above information suggests, the institutional context that many African Americans found themselves in was one that employed the politics of race and exclusion in their day-to-day interactions. What impact did being segregated have on the African Americans and, in turn, the African American business community? Although selling to a residentially segregated consumer class did have economic benefits for many African American entrepreneurs, I argue that the demise of the African American business class in some cities was one of the inevitable consequences of residential segregation. Extreme poverty generated by enforced residential segregation, rather than desegregation policy, may have significantly circumscribed the African American entrepreneurial class in ways that made starting, operating and maintaining viable and competitive businesses almost impossible. It may be likely that the discrimination faced by many African Americans in the wake of desegregation may have spurred many of them to develop alternative methods and pursue different channels in an attempt to reduce the impact of discriminatory practices and adjust to American society. Segregation sharply circumscribed the ability of African American entrepreneurs to create and operate viable businesses because of a few factors. First, in some northern cities, the African American ghetto came to be viewed as an independent entity that supported a parallel, protected economy and a vibrant cultural environment. In essence, the segregated ‘Black Metropolis’ ‘concentrated black demand, thereby supporting black businesses, just as it clustered black voters to enable the election of black politicians’ (Massey and Denton, 1993: 116). However, in Chicago, the African American ghetto, like other parts of the country, was profoundly affected by the Great Depression of the 1930s. Although the Depression stimulated an increase in the number of smaller business, and revived the dream of organizing the purchasing power of African Americans, it ‘liquidated the two colored banks and wiped out many of the larger enterprises’ (Drake and Cayton, 1962: 436). But while these problems did hurt African American entrepreneurs, there are other factors that contributed to their demise. For starters, African American poverty was critical in hurting many African American businesses. African American poverty was highly concentrated during the Depression years, a period when they experienced considerably less freedom of movement. This applied to all economic classes. Within the walls of the ‘Black Metropolis’, geographic poverty became a common feature. The poor were forced to live alongside middle and upper income African Americans. ‘In a racially segregated city, any increase in black poverty created by an economic downturn is necessarily confined to a small number of geographically isolated and racially homogeneous neighborhoods’ (Massey and Denton, 1993: 118). Given such a disproportionate impact, the poverty of many of the residents in the African American ghetto gave African American entrepreneurs a largely poor customer class to rely on. This had important consequences. According to Myrdal (1944: 307), the relatively low level of African American purchasing power, and the small size of the average African American store, created a competitive disadvantage for African American entrepreneurs. Although residential segregation concentrated African American consumer demand, African American entrepreneurs in this milieu did not have more than 5 or 10 per cent of the total African American customer base. Additionally, ‘Although Negro enterprises constituted almost half of the businesses in Negro neighborhoods, they received less

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than a tenth of the money spent by Negroes within these areas’ (Drake and Cayton, 1962: 438). In response to such barriers, many African American entrepreneurs were forced to extend credit to their customers to attract them to the stores. This is the idea of what was called the ‘Double-Duty Dollar’ doctrine, which was ‘preached from many Bronzeville pulpits as part of the weekly ritual’ (Drake and Cayton, 1962: 430). This had two consequences. First, the poverty of the residents, competition with white merchants, and extending credit made it difficult to generate a positive, consistent cash flow. Indeed, lack of available operating capital can cripple any business. This forced many African Americans to raise the price for their products to those that could afford to pay for them. White merchants who could afford to reduce their prices to accommodate the African American market could therefore undercut the African American entrepreneur. Second, what was believed to be a protected market was in reality a quasi-protected market because of the ability of many African Americans to purchase outside of the African American ghetto. Although African Americans were segregated, this policy largely applied to housing. Many African Americans were still able to purchase goods outside of their neighborhoods. Drake and Cayton (1962: 435) suggest that some used the higher prices as a push factor or motivation to purchase goods from the larger, whiteowned businesses. The lack of a consistent capital base made it difficult for African American entrepreneurs to compete with larger, white-owned businesses that also catered to the African American market. Furthermore, the lack of available capital, and the paucity of sustainable African American capital markets within these areas made it difficult for African American entrepreneurs to stay competitive with white-owned businesses. As Massey and Denton argue, as segregation rises, the neighborhood environment of whites steadily improves while that experienced by African Americans progressively deteriorates. Thus segregation may have acted like a vice-grip, concentrating demand, tremendous poverty and a large number of people in a very small space. Therefore, if one can view these environments as an island, then everything on the island develops at a much slower pace than environments outside of the physical space. In short, although segregation led to the development of an African American entrepreneurial class, because of the factors discussed above, its demise was inevitable. Despite these problems, African Americans did find ways to create viable firms. Perspectives that suggest that they did not, tend to ignore the efficacy of human agency, and the individual and/or collective will of many African Americans to navigate around barriers circumscribing their participation in the entrepreneurial arena. Conclusion: towards a more comprehensive understanding of African American entrepreneurial opportunity To argue, as I have in this chapter, that contemporary research on African American entrepreneurs is problematic is to go against much of social science and popular thinking. Indeed, much of what I have had to say in this chapter will, no doubt, be viewed as an attempt to ignore the value created by these perspectives. On the contrary, my purpose in conducting this research has been to illuminate the strengths and inadequacies of race, cultural, ‘problematic of capital’ perspectives and segregation arguments for explaining the paucity of successful African American entrepreneurs. Replacing these perspectives was never my objective. To be sure, we have learned much from these studies. However,

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our preoccupation with culture and inadequate capitalization/access to resources arguments as the most proximate factors circumscribing the creation and performance of African American firms, without properly considering the significance of other sociological factors influencing this result, is a grievous misunderstanding. In other words, if we continue to frame the current problem this way, without investigating the factors inhibiting or facilitating access to entrepreneurial resources, such misunderstandings will persist. Standing alone, race, culture, ‘problematic of capital’ and segregation arguments are not ultimate explanations, but rather proximate factors that stagger under impossible difficulties. Indeed, there are kernels of truth in each perspective. However, taken together, and used along with other explanations, they have great explanatory power. Although the findings produced by this confederacy of researchers enrich our knowledge of the firm creation process among African Americans, there is a common tendency to confuse an explanation of causes with a justification or acceptance of results. Again, this misstep results in part from a failure of scholars to investigate other factors that may expand our understanding of and thinking about these issues. There are few examples of fresh research pointing up new ways of measuring such problems. With such an obvious void, current inquiries continue to focus on what we already know, and reflect much of what has yet to be analyzed. It would be helpful to know how African Americans go about the process of creating viable, competitive firms. Try as they might, however, researchers have neglected to point up new ways to view and analyze this problem, and thus dislodge culture and problematic of capital arguments from their privileged positions. That there is some truth to the above statements, I argue that the creation of what I call ‘capital information networks’ may be an important addition to the African American entrepreneurial repertoire to establish competitive opportunity structures and assist in mobilizing the intellectual, social and financial capital to create, manage and sustain viable African American firms. Because successful entrepreneurship occurs under great uncertainty, ‘Mobilizing resources to pursue opportunities requires entrepreneurial contacts, knowledge, and confidence [and] . . . asking others to raise money, labor, and effort for a venture with an uncertain future’ (Dubini and Aldrich, 1991: 305–6). Thus Dubini and Aldrich appear on the right track: since entrepreneurship is inherently a networking activity, and therefore central to the entrepreneurial process, adding it to the entrepreneurial equation ‘compels theorists to include process in their framework, as entrepreneurs and firms pursue opportunities opened to them, or withheld, because of their network positions’ (ibid.: 306). In short, a focus on how entrepreneurial opportunity is affected by positions in networks may be an important area of research to change the way we think about African Americans and their entrepreneurial pursuits. I, for one, look forward to conducting this research. Acknowledgement I offer many thanks to Douglas Massey, Robert Baron, Christopher S. Parker, David Deeds, Jerome Katz, Ben Oviatt, Durene I. Wheeler and Jefferey Wilhelm for helpful comments on an earlier draft. All remaining errors and omissions are entirely my own. References Ando, Faith (1986), ‘An analysis of the formation and failure rates of minority-owned firms’, The Review of Black Political Economy, 14, 51–71.

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Bates, Timothy (1989a), ‘The changing nature of minority business: a comparative analysis of Asian, nonminority and black-owned businesses’, The Review of Black Political Economy, 15, 25–42. Bates, Timothy (1989b), ‘Small business viability in the urban ghetto’, Journal of Regional Science, 29(4), 625–43. Bates, Timothy (1991), ‘Commercial bank financing of white and black-owned small business startups’, Quarterly Review of Economics and Business, 31(1), 64–80. Blauner, Robert (1972), Racial Oppression in America, New York: Harper and Row. Bonacich, Edna and John Modell (1980), The Economic Basis of Ethnic Solidarity, Berkeley: University of California Press. Braddock, J. and James McPartland (1997), ‘How minorities continue to be excluded from equal employment opportunities: research in labor market and institutional barriers’, Journal of Social Issues, 43, 5–39. Bridges, William P. and Wayne J. Villemez (1986), ‘Informal hiring and income in the labor market’, American Sociological Review, 51, 574–82. Butler, John S. (1991), Entrepreneurship and Self-Help Among Black Americans, New York: SUNY Press. Butler, John S. and Cedric Herring (1991), ‘Ethnicity and entrepreneurship in America: toward an explanation of racial and ethnic group variations in self-employment’, Sociological Perspectives, 34(1), 79–94. Chen, Gavin and John Cole (1988), ‘The myths, facts, and theories of ethnic, small-scale enterprise financing’, The Review of Black Political Economy, 16(4), 111–23. Cobas, Jose (1985), ‘On the study of ethnic enterprise: unresolved issues’, Sociological Perspectives, 30, 467–72. Drake, St. Clair and Horace Cayton (1962 [1945]), Black Metropolis: A Study of Negro Life in a Northern City, New York: Harper. Dubini, Paola and Howard Aldrich (1991), ‘Personal and extended networks are central to the entrepreneurial process’, Journal of Business Venturing, 6, 305–13. DuBois W.E.B. (1899), The Philadelphia Negro: A Social Study, New York: Lippincott. Foley, Eugene (1966), ‘The negro businessman: in search of a tradition’, in Talcott Parsons and Kenneth B. Clark (eds), The Negro American, Boston: Beacon Press. Frazier, E. Franklin (1957), Black Bourgeoisie: The Rise of a New Middle Class, New York: Macmillan. Gilroy, Paul (1987), There Ain’t No Black in the Union Jack, New Haven: Yale University Press. Glazer, Nathan and Daniel Patrick Moynihan (1963), Beyond the Melting Pot: The Negroes, Puerto Ricans, Jews, Italians and Irish of New York City, Cambridge: MIT Press. Handy, John and David Swinton (1984), ‘The determinants of the rate of growth of black-owned businesses: a preliminary analysis’, The Review of Black Political Economy, 5(3), Spring, 85–110. Kelley, Robin D.G. (1994), Race Rebels: Culture, Politics, and the Black Working Class, New York: Free Press. Lieberson, Stanley (1980), A Piece of the Pie, Cambridge: Harvard University Press. Light, Ivan (1972), Ethnic Enterprise in America, Berkeley: University of California Press. Massey, Douglas and Nancy Denton (1993), American Apartheid: Segregation and the Making of the Underclass, Cambridge, MA: Harvard University Press. Massey, Douglas S. and Mary J. Fischer (2000), ‘Residential segregation and ethnic enterprise in U.S. metropolitan areas’, Social Problems, 47(3), 408–24. Myrdal, Gunnar (1944), An American Dilemma, New York: Harper and Row. Omi, Michael and Howard Winant (1994), Racial Formation in the United States, New York: Routledge. Portes, Alejandro (1987), ‘The social origins of the Cuban enclave of Miami’, Sociological Perspectives, 30(4), October, 340–72. Portes, Alejandro and Robert L. Bach (1985), Latin Journey, Berkeley: University of California Press. Sowell, Thomas (1978), American Ethnic Groups, Washington, DC: The Urban Institute. Sowell, Thomas (1981), Ethnic America, New York: Basic Books. Spear, Allan H. (1967), Black Chicago: The Making of a Negro Ghetto, Chicago: University of Chicago Press. Steinberg, Stephen (1989 [1981]), The Ethnic Myth, Boston: Beacon Press. Stuart, M.S. (1940), An Economic Detour: A History of Insurance in the Lives of American Negroes, New York: Wendell Malliett and Company. Waldinger, Roger (1996), Still the Promised City?, Cambridge: Harvard University Press. Walker, Juliet E.K. (1998), The History of Black Business in America: Capitalism, Race, and Entrepreneurship, New York: Macmillan.

12 Hispanic entrepreneurship in the United States Frank Hoy

I Introduction The United States had its genesis in business and immigration. Whether it is the precursors of Native Americans coming across the Bering ice bridge from Asia or Europeans in search of more profitable nautical trade routes, people have come to the New World in search of opportunities. Consequently, the United States is, and always has been, a nation of immigrants and business. The history of immigration and business in the US has evolved from wide-spread discrimination to concern for, and now, pro-active programs directed at assisting the creation and growth of minority-owned businesses. This is due in large part to the fact that the United States is today a large and varied country with many ethnic and racial groups. Hispanic Americans are the largest such group according to a Census Bureau report (United States Census Bureau, 2002). However, this begs the question, ‘Who are Hispanic Americans?’ According to the Encarta encyclopedia, Hispanic Americans, also known as Latinos, are ‘residents of the United States who trace their ancestry to countries in the western hemisphere where the Spanish language is spoken’ (Stavans, 2004). However, there are multiple definitions. This lack of consensus is due to the wide range of backgrounds found among Hispanics. Hispanic Americans are not part of a single subgroup. Rather, Hispanics are part of a community which ‘is a mix of subgroups with roots in various countries of Latin America such as Mexico, Cuba, Puerto Rico, the Dominican Republic, El Salvador, Nicaragua, Colombia, Ecuador, Peru, and Panama’ (Stavans, 2004). II

Brief history of Hispanics in the US1

A Early colonization The history of Americans with Latin heritage predates the founding of the United States. Spanish conquistadores explored the Southern and Southwestern parts of the United States and established colonies long before the first English settlements at Jamestown and Plymouth. As a result, Hispanics have lived in what is now the United States since the seventeenth century. In the years after Christopher Columbus’s voyages of discovery, Europeans conquered and colonized vast areas of the New World. The region encompassing all of South America as well as North America, south of the present-day United States, that was colonized primarily by Spain, Portugal and, to a lesser extent, France, has come to be known as Latin America. As a result, the nations of Latin America developed from the New World colonies of Spain, Portugal and France. These colonial powers used languages derived from Latin and hence the area in the Americas came to be known as Latin America. The Spanish claimed Mexico, Central America and large parts of South America, while the Portuguese settled the area now known as Brazil. Along with their languages, the 177

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Europeans brought with them Roman concepts of law, administration and justice. They also imposed their language, culture and institutions on the indigenous peoples. One institution, the Roman Catholic Church, became the great unifying factor. The Catholic clergy became the principal educators in the colonies. In addition to building hospitals and other institutions, the Church was an important economic force as well as being the second largest landholder after the royal governments. The early European conquerors created centralized mercantile systems designed to exclude foreigners. Specifically, Spaniards founded settlements and missions in what are now California, Arizona, New Mexico and Texas. In Florida, for example, Spain established the first permanent European settlement in what is now the United States at San Agustin (Saint Augustine) in 1565. Initially, these early settlements were based on agriculture and mining. Later, more products and metals were sold abroad. These first Spanish Americans exported animal hides, sugar, tobacco, cocoa beans, cotton and indigo, a blue–purple dye. Further west from Florida, in lands that are now Texas and New Mexico, Spain had established a large colony known as Nuevo Mexico. The capital of Nuevo Mexico, Santa Fe, was linked to Mexico City by a route known as the Camino Real, or Royal Road. Despite the fact that the Camino Real crossed treacherous sand dunes and lava fields, it became the sole artery to the small, far-flung settlements of Nuevo Mexico. Household and religious goods, colonists and traders, and news could only reach Nuevo Mexico via the Camino Real. Similarly, California had developed its own Royal Road. California’s Camino Real stretched from what is now San Diego in the south to Sonoma in the north. Serving the same purpose as its counterpart in Texas and New Mexico, the ‘King’s Highway’, a third moniker, linked the people and trade of the early Spanish settlements in California. However, the lure of New World land, gold and silver, all of which were found in abundance in the Americas, soon brought explorers and settlers from Britain, France and the Netherlands. These nations established commercial bases around the existing colonies and, in so doing, influenced the evolution of the Spanish and Portuguese colonies. For example, ‘inevitable conflicts with the English colonies finally led to wars in which the Spanish lost the Carolinas and Georgia’ (Hispanic Business, 2004). Spain also had conflicts with the French after France established communities from Canada to Louisiana. However, conflicts were not limited to Spanish involvement. France and Britain fought the French and Indian War (also known as the Seven Years’ War) from 1756 to 1763. After their defeat, the French gave their former Louisiana territory to the Spanish rather than to their hated British enemy. B US acquisition of Hispanic territory Spain thus controlled all the land from New Orleans to St. Louis, as well as Alabama, Mississippi and Florida. This is in addition to all the land from Mexico to the southern tip of South America, with the exception of Portuguese controlled Brazil. Spanish and Portuguese control over their North and South American colonies lasted until the nineteenth century. This coincided with the beginning of the long history of Anglo encroachment on these lands. In what would later become the Southeast United States, Anglo traders and merchants, first from England’s colonies and later from the new United States, came into contact with Spain’s colonies (Gonzalez, 2000). After the traders and merchants

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came Anglo settlers. The desire for trade opportunities and land were the primary attractions for Anglos. Spain encouraged the trade and settlement as a way of fostering the development of, and control over, their huge empire. Most US residents supported the taking of Latin American land. Land was the primary resource for economic development, influencing agriculture and trade, and providing natural resources such as mineral wealth. ‘The main proponents and beneficiaries of empire building were speculators, plantation owners, bankers and merchants’ (Gonzalez, 2000, p. 28). Furthermore, according to Gonzalez, presidents from Thomas Jefferson to Andrew Jackson and Theodore Roosevelt all regarded the United States’ domination of the region as ordained by heaven. To justify it, the leaders popularized notions such as ‘America for the Americans’ and ‘Manifest Destiny’, beliefs that territorial expansion by the United States was both inevitable and divinely ordained. In time, conflicts between Spain and the new United States of America led to the Spanish loss of Alabama, Mississippi and Florida. Similarly, the Napoleonic wars cost Spain its Louisiana territory, which was later purchased by the United States from France. Despite these losses, Spain continued to hold on to the territory south and west of the Louisiana Purchase. When Mexico successfully revolted against Spain and won its independence in 1821, all of the area that would later become the Southwestern United States became part of Mexico. Mexican control over this land was short-lived. Texas successfully gained its independence from Mexico in 1836, setting the stage for future conflict between the United States and its southern neighbor. Continuing border disputes with Mexico caused the young Republic of Texas to request American assistance and protection. The United States was eager to comply. This eagerness was due, in part, to the popular belief in Manifest Destiny. In the United States, westward expansion was encouraged by the belief that expansion of the nation was inevitable. This view was due to the belief that the culture of the United States was superior to other cultures and republican forms of government and democracy should be expanded to other peoples. In 1845, the United States annexed Texas by a joint resolution of Congress. Mexico considered this an act of aggression and broke off relations with its northern neighbor. Both nations sent armies to the disputed region between the Rio Grande and Nueces rivers. The Mexican–American War broke out in 1846 along the disputed area. In 1848, the war was ended by the signing of the Treaty of Guadalupe Hidalgo. Mexico ceded the northern half of its territory including California, New Mexico and Arizona to the United States and set the southern border of Texas at the Rio Grande. Not counting Texas, the victory increased the territory of the United States at that time by 66 per cent. A further consequence and benefit of the war was that large numbers of Hispanics, as they were later to be known, became citizens of the United States. Although the Mexican population of the ceded territories was only 116 000, not including Native Americans, in 1848, that number grew steadily after the war as hundreds of thousands more came and went between the US and Mexico as migrant laborers. As a result, Mexican influence on the region was far greater than the early population figures might suggest (Gonzalez, 2000). The Mexican–American war was not to be the last time the United States gained territory and Hispanic citizens as a result of conflict. While Spain had lost most of its New World possessions by the late nineteenth century, the Spanish flag continued to fly over

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the islands of Cuba and Puerto Rico. Spanish brutality in crushing Cuban demands for autonomy and liberty aroused sympathy and anger in the US. The hostile feelings were further fueled by newspaper sensationalism about Spanish atrocities against the Cuban people. In addition, the belief in Manifest Destiny had continued and contributed to growing imperialism by the United States. In January of 1898, the US consul general in Havana, Cuba, requested that a US warship be sent to the harbor to protect US citizens and property during a serious civic disorder. In response, the battleship Maine was sent to Havana harbor. While at anchor in the harbor, the ship was destroyed by an underwater explosion in which 266 officers and men were killed. While the cause of the explosion has never been conclusively identified, the belief that Spain was responsible became widespread. A national cry of ‘Remember the Maine!’ swept the United States into war with Spain. The Spanish–American war only lasted a few months. The peace treaty signed in Paris in December 1898 required Spain to withdraw from Cuba and ceded Puerto Rico, Guam and the Philippines to the United States. US control of Puerto Rico set the stage for Puerto Ricans to later become citizens of the United States. Today Cubans and Puerto Ricans form two of the largest groups of Hispanics in the US. C Countries of origin for Hispanic migration Hispanic Americans trace their origins to all the nations of the huge and diverse region known as Latin America. As a result of this diversity, according to the website Hispano Mundo (1998), ‘The fastest-growing U.S. ethnic group isn’t an ethnic group at all. It’s a mishmash of many different groups.’ According to the Census Bureau (United States Census Bureau, 2002), in terms of origin, the largest proportion, comprising 66.9 per cent, is Mexican. Mexicans are followed by Central and South Americans (14.3 per cent), Puerto Ricans (8.6 per cent), Cubans (3.7 per cent) and other Hispanics make up the remaining 6.5 per cent (United States Census Bureau, 2002). (See Figure 12.1.) Hispanics can also be divided into subcultures. For example, Hispano Mundo identifies 17 major Latino subcultures. These subcultures reflect not only where in the United States each of the subcultures lives, but also where they trace their roots. The first large Hispanic group to consider is the ‘Tejanos’. Texas Mexicans’ dispute with their California

Mexico Central & South American Puerto Rico Cuba Other Hispanic

Source: US Census Bureau (2002).

Figure 12.1

Hispanics by type of origin (2002)

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counterparts over whose culture is more authentically Mexican–American. For example, in contrast to the majority of ‘Californios’ who are recent arrivals, many Tejanos have been in Texas for generations, dating back to when the land was part of Mexico. As a result, a sort of ‘cowboy culture’ with equal parts Texas and Mexico has developed. ‘Tex–Mex’ conservatism on issues from abortion to immigration is shocking to many California Mexicans, according to Hispano Mundo. Tejanos can themselves be broken into three distinct groups. South Texans live in the Rio Grande Valley, the most ‘Mexican’ part of the United States. For example, in cities like Brownsville and Laredo, Mexican–Americans constitute 80 to 95 per cent of the population. Many Hispanics in this area can trace their roots to the 1700s. The next group, Houston Mexicans, have grown from 18 to 28 per cent of the population since 1980. While still a minority, their population growth is increasing their political and economic power. The final group of Tejanos is Texas Central Americans, concentrated mainly in the large cities of Texas. A second major group of Hispanics can be found in California. Hispanics represent 30 per cent of California’s population and many are recent arrivals. For example, more than 80 per cent of Southern California’s Hispanics arrived after 1970. California Hispanics can be classified into four subcultures. Immigrant Mexicans are newcomers who settle in traditional enclaves like East Los Angeles but are also increasingly moving into areas not traditionally Hispanic, such as South Central and Compton. Middle-class Mexicans have moved up the socioeconomic ladder, often in a single generation. For example, half of Southern California’s native Hispanic families are middle-class, along with one-third of immigrant families. These Hispanics are increasingly moving to suburbs such as San Gabriel and Montebello. The next subculture comprises the inner-city Mexicans. While many Mexicans move up and out of the ghettos, large numbers of second- and thirdgeneration Hispanics are essentially trapped in the ‘barrios’ as the ghetto neighborhoods are known. The fourth subculture of California Hispanics is the Central Americans, most of whom live in Southern California. To illustrate, half of all Salvadorans and Guatemalans in the United States live in the Greater Los Angeles area. The next large group of subcultures can be found in the Chicago, Illinois, area. In the US, only Los Angeles, New York and Miami have larger Hispanic populations than Chicago. The two major subcultures are Chicago Mexicans and Chicago Puerto Ricans. Puerto Ricans are also one of the subcultures found among the New York Hispanics. The other subcultures found in the New York area are Dominicans and Colombians. The last major concentration of Hispanics can be found in Miami, Florida. ‘Miami is the one major city in the United States where Hispanics dominate numerically, politically, and economically’ (Hispano Mundo, 1998). The three subcultures of Hispanics in Florida are Cubans, Nicaraguans and South Americans. Finally, there are two other subcultures in the United States. The first is New Mexico’s Hispanos. They have very deep roots, being descended from the original Spanish conquistadors. And the remaining subculture is the migrant farm workers. Discussing the various subcultures illustrates the wide variety of countries of origin, as well as the overall diversity, of Hispanics in the United States. Obviously, as the number of Hispanics in the United States continues to grow, the diversity and importance of Hispanics will grow as well. And, by every indication, the number of Hispanics in the United States is growing at a rapid pace. As their numbers grow, Hispanics of all

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backgrounds are embarking on entrepreneurship and starting businesses at an astounding pace. For example, in her book on Hispanic entrepreneurs, Mabel Tinjacá (2001) reported that Hispanics are creating businesses at three times the rate of the rest of the population and, for Latinas specifically, the figure is four times the rate of the United States population in general. In Southern California, for example, Mexican–American businesses are transforming formerly Anglo and African-American areas such as Huntington Park, South Central and Compton. In these areas, and many others, Hispanic-owned car dealerships, shoe stores, bridal shops, and supermarkets stretch for blocks. Furthermore, these entrepreneurial trends hold in even the poorest and grimmest of neighborhoods. As an example, in the Pico-Union section of L.A., incomes commonly range from $5000 to $10 000 annually. Despite the conditions, Central Americans, the fastest growing segment of L.A.’s population, manage to keep two-thirds of their families above the poverty line by running little markets and shops throughout the area. In Chicago, only one-third of Hispanics have high school diplomas, yet only 25 per cent are poor compared to the national average of 31 per cent. The commercial heart of Mexican Chicago, 26th Street, generates more tax revenue than any other retail strip except upscale Michigan Avenue. ‘It is lined with hundreds of stores like La Villita Dry Cleaner, a pinata shop, Nuevo Leon restaurant, but just one Walgreen’s’ (Hispano Mundo, 1998, p. 7). D Demographic trends According to the United States Census Bureau in 2002, the Hispanic population in the United States numbered 42.6 million people, including 3.9 million in Puerto Rico. This represented almost 14 per cent of the total US population. According to the Hispanic Association on Corporate Responsibility (2002), ‘The Hispanic population grew at a staggering average annual growth rate of 4.65% between 1990 and 2000.’ The US Census Bureau estimated this number to be an increase of 1.7 million each year. In fact, Hispanics accounted for 40 per cent of the country’s total population growth from 1990 to 2000. This trend is projected to continue into the foreseeable future. According to the University of Georgia’s Selig Center for Economic Growth, ‘Between 1990 and 2008, the Hispanic population will increase by 137 percent compared to 13.7 percent (a ten-fold difference) for the non-Hispanic population and the 24.8 percent gain for the total population’ (Humphreys, 2003, p. 6). Because of this growth, Hispanics became the largest minority group in the United States as of 2003. In addition, they have been one of the fastest growing consumer segments. As a comparison, the Hispanic population in the US is larger than the entire population of countries such as Canada, Spain or Argentina. Furthermore, according to the Census Bureau, by 2050, Hispanics are forecast to account for one out of four residents in the US. By 2100, they could represent one-third of the total US population. Moreover, the Hispanic population is extremely concentrated. Just five states were home to more than 70 per cent of the population according to the 2000 census (see Table 12.1). California, for example, had more than 11 million Hispanics. The top five states from Table 12.1 are also the five largest US states in population. This concentration in the largest states could potentially give Hispanics a disproportionate amount of economic, political and cultural influence, not only in these states, but in the nation as a whole thanks to the influence of these large states.

Hispanic entrepreneurship in the United States Table 12.1

183

Top ten states by Hispanic population (2000)

State

(1000s)

% of total population

California Texas New York Florida Illinois Arizona New Jersey New Mexico Colorado Washington

10 967 6 670 2 868 2 683 1 530 1 296 1 117 765 736 442

32.4 32.0 15.1 16.8 12.3 25.3 13.3 42.1 17.1 7.5

Source: US Census Bureau (2000).

Table 12.2

Top ten states represented by the HB 500 (2004)

State

Number of companies

Revenue, in millions ($)

California Florida Texas New Mexico New York Virginia New Jersey Illinois Arizona Georgia

121 120 65 25 19 19 18 17 11 10

3 936.83 8 872.25 2 612.77 522.40 1 363.81 800.19 659.49 447.43 112.07 1 072.88

Total

425

20 400.12

Source:

Hispanic Business (2004).

This concentration in few states can also be seen by looking at the location of the businesses from the Hispanic Business 500, a list of the 500 largest Hispanic businesses in the United States as reported by Hispanic Business magazine in 2004. (See Table 12.2.) While the Hispanic population was highly concentrated, many other states experienced tremendous growth as well. For example, there were 21 states in which the Hispanic population more than doubled between 1990 and 2000. The top ten states in terms of percentage of Hispanic population growth are listed in Table 12.3. In addition, Hispanic growth will continue at a higher rate than the growth rate for the US population as a whole. One factor in this continued rapid growth is the age distribution of the Hispanic community. In 2000, the median age for Hispanics was 25.8 years. This was ten years younger than the median age for the United States as a whole. Although 27.6 per cent of the non-Hispanic white population was nine years old and

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Table 12.3

Top ten states by Hispanic population, percentage increase (1990–2000)

State North Carolina Arkansas Georgia Tennessee Nevada South Carolina Alabama Kentucky Minnesota Nebraska

1990 pop

2000 pop

% growth

76 713 19 878 108 807 32 761 124 281 30 571 24 620 21 956 53 903 37 029

378 963 86 866 435 227 123 838 393 970 95 076 75 830 59 939 143 382 94 425

394 337 300 278 217 211 208 173 166 155

Source: Hispanic Association on Corporate Responsibility (2002).

younger, 44.7 per cent of the Hispanic population was less than ten years old. Conversely, 10.8 per cent of Hispanics were 65 or older. III Economic evolution of Hispanic populations The history of Hispanics in the United States is intertwined with entrepreneurship and enterprise. In establishing the mercantile system in their colonies, the Spanish conquerors of the New World established vast cattle ranches as a result of huge royal land grants. According to Tinjacá (2001, p. 8), ‘from the beginning Hispanic entrepreneurs have helped shape the economic, cultural and social milieu of the United States’. Trade with the mother country was a primary reason for the establishment and existence of Spain’s American colonies. When the Treaty of Guadalupe Hidalgo brought the residents of the former colonies into the United States as new citizens, they had established entrepreneurial communities based on ranching (Tinjacá, 2001). With time, more and more Hispanic immigrants joined those already in the United States. Some came to escape war or persecution, but most came in search of greater opportunity. As a result of immigration and indigenous population growth, Hispanics in the United States have become a powerful economic force. Several factors affect economic influence and one such factor is income. A Income, poverty and buying power Income, poverty and buying power, in addition to being highly correlated, are important factors in Hispanic entrepreneurship for several reasons. Income and poverty levels affect the availability of capital necessary for business creation and sustainability in the early stages. Buying power, which is directly influenced by income, strongly influences the size and types of markets which Hispanic entrepreneurs are most likely to target and rely upon. Several trends involving Hispanic income in the US could be identified. For example, according to the US Census Bureau, the median Hispanic household income in 1999 was $30 735. This figure represented the highest income for Hispanic households ever recorded. In addition, from 1991 to 2001, Hispanic household income kept pace with the

Hispanic entrepreneurship in the United States Table 12.4

185

Average household income

Year

Hispanics

African American

White

All Races

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

$28 872 $28 822 $30 291 $31 582 $31 201 $34 005 $35 883 $38 280 $40 390 $43 978 $44 383

$25 043 $25 450 $27 229 $29 259 $30 400 $32 460 $32 963 $34 139 $38 462 $39 178 $39 248

$39 523 $40 594 $43 285 $45 034 $46 729 $48 994 $51 902 $54 207 $56 726 $59 254 $60 512

$37 922 $38 840 $41 428 $43 133 $44 938 $47 123 $49 692 $51 855 $54 737 $57 135 $58 208

35%

36%

35%

35%

% Change

Source: US Census Bureau (2002).

Table 12.5

Hispanic income as percentage of other groups’ income

Year

African American (%)

White (%)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

94 96 96 87 91 91 93 90 85 83 87

55 56 56 53 55 56 56 54 55 54 54

Source: US Census Bureau (2002).

average household income for other groups. (See Table 12.4.) However, as a percentage of other groups’ income, Hispanic household income was still lagging as of 2001. For example, from 1991 to 2001, the gap between African American and Hispanic household income fluctuated, but increased again toward the end of the decade. In contrast, Hispanic household income as a percentage of white income remained consistent. (See Table 12.5.) In contrast, the poverty rate among Hispanics in 1999, 22.8 per cent, equaled the all time low recorded in 1979. Furthermore, despite the growing Hispanic population, the number of Hispanics in poverty declined by 600 000 between 1998 and 1999, to 7.4 million people. This number represents 1.5 million Hispanic families making up 20.2 per cent of

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Per cent 60 55 Black 50 45 40 35 30 25 20 15 White 10 5 0 1959 1964

Recession

Hispanic

22.0 per cent 21.2 per cent

Asian and Pacific Islander

10.7 per cent 9.4 per cent 7.5 per cent

White non-Hispanic 1969

1974

1979

1984

1989

1994

2000

Note: The data points represent the midpoints of the respective years. The latest recession began in July 1990 and ended in March 1991. Data for Blacks are not available from 1960 to 1965. Data for the other race and Hispanic origin groups are shown from the first year available. Hispanics may be of any race. Source: US Census Bureau, Current Population Survey, March, 1960–2001; based on November 2001 weighting correction.

Figure 12.2

Poverty rates by race and Hispanic origin (1959–2000)

all Hispanic families. This was the lowest percentage of Hispanic families living in poverty in 20 years. Figure 12.2 illustrates the poverty level trend for Hispanics in the US from 1959 to 1999. Despite these positive trends, some negative patterns remained. For example, on average, Hispanic household income was considerably lower than the average for all US households. Specifically, in 2000, the average annual income for a Hispanic household was $34 891, compared to $44 649 for all households. While the Hispanic household income is higher than the $32 657 for black households, it is significantly lower than the $46 260 income for white households. On a per capita basis, although Hispanic income did increase from 1991 to 2001, the increase was lower than the increase for Whites or African Americans. (See Table 12.6.) The most significant aspect of this income analysis is its direct influence on buying power. Population growth coupled with increased education leads to growing buying power. According to the Selig Center for Economic Growth at the University of Georgia, Hispanics possessed $653 billion in purchasing power in 2003 (Humphreys, 2003). Thus, the buying power of US Hispanics ranked it among the ten largest economies of the world. Hispanic purchasing power was greater than the Gross National Income (GNI) of Brazil, Mexico or Spain and was roughly equivalent to that of Canada. (See Table 12.7.) This is an increase of 357 per cent over the 1990 level. Compared to the non-Hispanic buying power increase of 136 per cent, Hispanic purchasing power increased at a much greater rate from 1990 to 2000. In fact, from 1990 to 2008, Hispanic buying power was projected to increase at a significantly greater rate (357 per cent) than the rate of increase in non-Hispanic buying power (136 per cent). In addition, the Selig

Hispanic entrepreneurship in the United States Table 12.6

187

Per capita income

Year

Hispanics

African American

White

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

$8 591 $8 830 $9 435 $9 300 $10 048 $10 772 $11 434 $11 621 $12 307 $12 651 $13 003

$9 170 $9 239 $9 863 $10 650 $10 982 $11 899 $12 351 $12 957 $14 397 $15 198 $14 953

$15 510 $15 785 $16 800 $17 611 $18 304 $19 181 $20 425 $21 394 $22 375 $23 415 $24 127

34%

39%

36%

% Change

Source: US Census Bureau (2002).

Table 12.7

Gross GNI and US Hispanic purchasing power (2000)

Ranking 1 2 3 4 5 6 7 8 9 10 11

Economy United States Japan Germany United Kingdom France Italy China Canada US Hispanics Brazil Spain Mexico

(millions US dollars) $9 601 505 $4 519 067 $2 063 734 $1 459 500 $1 438 293 $1 163 211 $1 062 919 $649 829 $630 000 $610 058 $595 255 $497 025

Source: World Bank (2000).

Center estimated that, ‘Over the eighteen-year period, 1990–2008, the nation’s Hispanic buying power will grow at a compound annual rate of 8.8 percent’ (Humphreys, 2003, p. 6). In contrast, the comparable rate of growth for non-Hispanics will be 4.9 per cent. Thus, by the end of this eighteen-year period, 9.6 per cent of cumulative buying power in the United States will be Hispanic. B Education Employment, income, purchasing power and the cumulative economic power of these factors are also inextricably linked to education. Historically, Hispanics have trailed other

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Table 12.8

Preparation for 4-year college of high school graduates (%)

Hispanic Black non-Hispanic White non-Hispanic

Not college qualified

Minimally qualified

Somewhat qualified

Highly qualified

Very highly qualified

47 53 32

21 17 16

14 14 17

11 10 20

8 6 15

Source: US Department of Education.

groups and national averages in every aspect of education. For example, the US Census Bureau reported that, as of 2000, 88.75 per cent of whites had completed high school compared with only 57 per cent of Hispanics over the age of 24. Furthermore, according to the Pew Hispanic Center, ‘Among students who graduate from high school on time, Hispanics are much less qualified for college’ (Pew, 2004). The Pew Center’s report found that only 53 per cent of Hispanic high school graduates are at least ‘minimally qualified’ for admission to a four-year college. This figure pales in comparison with the nearly 70 per cent of white high school graduates meeting the same standard. (See Table 12.8.) Furthermore, only one-quarter of Hispanics had more than a ninth grade education and 10.6 per cent possessed a bachelor’s degree. In contrast, 28 per cent of non-Hispanic whites had completed four years of college or more. According to the Pew Center, the US Department of Education identifies seven undergraduate attributes negatively associated with postsecondary degree attainment. The risk characteristics are delayed college entry, part-time attendance, financially independent status, single parent status, having dependants, not having a regular high school diploma, and working full-time. The average number of risk attributes for Hispanic undergraduates is 2.4, in comparison to 2.0 for white undergraduates and 2.7 for African American undergraduates. In addition, rising costs of tuition, increased competition for federal financial aid together with reduced availability of government grants are examples of increasing obstacles for Hispanics interested in earning college degrees. According to a study commissioned by the Student Loan Marketing Association and conducted by the Thomas Rivera Policy Institute, more than half of Hispanic parents and 43 per cent of Hispanic young adults could not identify a single source of college financial aid (Russell, 2004). These obstacles tended to affect Hispanics to a greater degree than other groups owing to their lower levels of income. From an employment standpoint, such barriers to education were extremely significant because of the importance placed upon a college education by American society. Employability, then, has a direct impact on income, disposable income and purchasing power and, as has been pointed out, these affect potential markets for Hispanic entrepreneurs seeking to cater to these markets. While improvements were being made, the rate of improvement was relatively slow. For example, in the 17 years from 1980 to 1997, college enrollment for Hispanics aged 18 to 24 increased only slightly, from 16 to 22 per cent. Again, this is far behind white nonHispanic college enrollment, which increased from 25 to 41 per cent over the same period.

Hispanic entrepreneurship in the United States

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As a result, while college enrollment for Hispanics increased during this period, the gap with white non-Hispanics actually increased from nine to 19 per cent. Moreover, there are distinctions in educational attainment between native-born Hispanic Americans and Hispanic immigrants from Latin America. According to the Pew Hispanic Center, even though the percentage of Hispanic immigrants who had completed high school in 2000 had more than doubled since 1970, to 41 per cent, this still trailed the 53 per cent of native-born Hispanic Americans who had a high school diploma. Similarly, the percentage of foreign-born Hispanics that went on to college nearly doubled to 18 per cent, but again well below the 35 per cent of native-born Hispanics that had gone to college. Additionally, the educational achievement of immigrant Hispanics, particularly Mexicans, trails the achievement of other groups of foreign-born immigrants. Specifically, Mexicans have the lowest levels of high school education or higher among the five largest groups of immigrants. (See Table 12.9.) Furthermore, in addition to its role in employment and income, education is an important factor in entrepreneurship and venture creation. For example, Tienda and Raijman (2004, p. 2) asserted that ‘Hispanics’ growing share of small businesses coupled with their shrinking income share raises questions about the circumstances that drive these trends.’ Specifically, ‘formal schooling and prior business ownership represent general and specific human capital that enables individuals to organize and establish a business. That ethnic groups differ appreciably in these crucial resources is important for understanding race and ethnic differences in rates of business ownership (Tienda and Raijman, 2004, p. 8). In this study, the researchers found that Hispanic immigrant business owners averaged nine years of formal schooling, while foreign-born owners from Korea, the Middle-East and South-Asia averaged at least two years of college. In addition, the education levels for the foreign-born non-Hispanic business owners exceeded the US-born Hispanic business owners, who averaged 12 years of formal school. These statistics concerning education levels among Hispanics are significant considering that Reynolds, Carter, Gartner, Greene and Cox (2002), found that education is the deciding factor; the more education a person had, the more likely he or she was to start a business. In addition, as previously noted, education has a significant impact on income. Income, in turn, affects disposable income, purchasing power and, therefore, business opportunities within the Hispanic market. For example, Dadzie and Cho (1989) noted that the clientèle of most majority businesses is primarily minorities. Furthermore, Fairlie (2004) reported that previous research has found that asset levels play an important role in determining who enters or exits from self-employment. According to the Pew Center, the failure to earn degrees has life-long impact since the wage gap between those with a degree and those with some college but no degree, has greatly widened. Therefore the lower educational attainment of Hispanics will have a lasting generational effect on Hispanic entrepreneurship. Furthermore, the increasing levels of business ownership were not due to improving markets and conditions for minority businesses. Low levels of income and resulting low levels of discretionary income had caused market conditions to remain unchanged. Fairlie (2004) found that the increases in minority business ownership from 1979 to 1998 were due primarily to expansions in the labor force for minority groups which resulted from the growing populations of these groups.

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C Business ownership While the education gap between Hispanics and non-Hispanics has been increasing, this is not the case in business ownership. Hispanics are creating businesses at a much faster rate than any other group in the United States. In fact, in her seminal work on Hispanic entrepreneurship, Vision!, Tinjacá (2001) asserted, ‘no other area of economic life in the United States compares to the 305% growth in Hispanic businesses’. In contrast, the growth rate of all other businesses is 26 per cent. Furthermore, the 1997 US Economic Census showed that Hispanics owned 1.2 million businesses, accounting for almost 6 per cent of all US firms. These businesses had gross receipts of more than $186 billion and employed over 1.3 million people. (See Tables 12.9, 12.10 and 12.11.) Furthermore, according to Hispanic Business and the Census Bureau, the number of Hispanic businesses exceeded 2 million in 2004 and generated $273.81 billion of revenue. Following the pattern seen in population distribution, Hispanic businesses are extremely concentrated in a few states. (See Figure 12.3.) Specifically, in 2004, the United States Hispanic Chamber of Commerce reported that just four states, California (336 400), Texas (240 400), Florida (193 900) and New York (104 200), accounted for 73 per cent of Hispanic firms (Statistics, 2004). This concentration of Hispanic businesses in the most populous states of the United States (California, Texas and Florida rank first, second and fourth, respectively) has given Hispanic entrepreneurs access to large markets in addition to a disproportionate amount of political influence over policy making. Table 12.9

Hispanic-owned businesses (1987–97)

No. of businesses Gross receipts ($1000) Number of employees

1987

1992

1997

Change (%) 1987–97

422 373 $24 731 600 264 846

771 708 $72 824 270 691 056

1 199 896 $186 275 000 1 388 746

184.1 653.2 424.4

Source: US Census Bureau (2002).

Table 12.10

Comparison of business ownership by minority group (1997)

All firms Minority group All minority firms Black Hispanic American Indian and Alaska native Asian and Pacific Islander

Percent of minorityowned firms

Firms (number)

Sales & receipts ($ million)

Firms (number)

Sales & receipts ($ million)

3 039 033 823 499 1 199 896 197 300

591 259 71 215 186 275 34 344

N/A 27.1% 39.5% 6.5%

N/A 12.0% 31.5% 5.8%

912 960

306 933

30.0%

51.9%

Source: US Census Bureau, Economic Census (1997).

191

Source:

306 932 982

912 690

US Census Bureau, Economic Census (1997).

18 553 243 047 591 259 123 71 214 662 186 274 582 26 492 208 73 706 753 7 461 069 16 922 913 40 997 923 20 693 715 34 343 907

Sales and Receipts ($1000s)

20 821 935 3 039 033 823 499 1 199 896 125 273 472 033 69 658 57 160 287 314 188 458 197 300

Firms (Number)

All Firms

Minority firm ownership

Universe (all firms) Total minorities Black Hispanic Cuban Mexican American Puerto Rican Spaniard Latin American Other American Indian and Alaska Natives Asian and Pacific Islander

Group

Table 12.11

289 999

5 295 152 615 222 93 235 211 884 30 203 90 755 10 976 12 590 42 916 24 445 33 277

Firms (Number)

278 294 345

17 907 940 321 516 979 920 56 377 860 157 674 537 23 873 193 62 270 808 5 814 069 15 263 807 34 798 421 16 654 239 29 226 260

Sales and Receipts ($1000s)

2 203 079

103 359 815 4 514 699 718 341 1 388 746 176 428 695 372 61 509 76 338 238 612 140 487 298 661

Employees

Firms with Employees

46 179 519

2 936 492 940 95 528 782 14 322 312 29 830 028 4 162 640 13 014 996 1 496 894 2 045 675 5 862 668 3 247 154 6 624 235

Payroll

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AK

WA

Percent of total 10.0 to 25.0 5.0 to 9.9 1.0 to 4.9 0.0 to 0.9

ND

MT

MN WI

SD

OR

ID

MI

WY IL UT

CO

KS

IN

MO

AZ

OK NM TX

HI

AR

WV

KY

CA

PA

OH

VA

TN MS AL

NC

ME MA

NY

IA

NE NV

NH VT

NJ DE MD DC

RI CT

SC GA

LA FL

Source: US Census Bureau, Economic Census (1997).

Figure 12.3

Hispanic-owned firms as percentage of total firms in state (1997)

IV Summary The United States began with immigration and business and various segments of the population have been able to carve out niches. Two such groups are entrepreneurs and Hispanics. This is true despite the argument that there is no single definition for who exactly is a Hispanic American or who exactly is an entrepreneur. Differences on definitions aside, the history of Americans with Latin heritage predates the founding of the United States, with conflicts such as the Mexican–American war paving the way for the United States to gain territory as well as citizens that would later contribute to the term ‘Hispanics’. Hispanic Americans trace their origins to Latin America and their origins are diverse. Added to this point is that this segment of the US is not only the fastest growing US ethnic group, but, some would argue, it is not one ethnic group at all, but a wide mixture of different groups, from various regions of Mexico and all parts of Latin America. According to the US Census Bureau in 2002, the Hispanic population in the United States numbered 42.6 million people, representing almost 14 per cent of the total US population, and is growing at an average annual growth rate of 4.65 per cent for the decade between 1990 and 2000. Because of this growth, Hispanics became the largest minority group in the United States as of 2003. Interestingly, the Hispanic population has been extremely concentrated, with just five states containing 70 per cent of the 2000 population. Hispanic growth should continue to grow at a higher rate than the overall US growth rate as well and the poverty rate among Hispanics of 22 per cent in 1999 equaled the all-time low. Income, poverty and buying

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power are obviously highly correlated and are important factors in the consideration of the Hispanic entrepreneurship landscape in the future. V Conclusion What conclusions could be drawn about Hispanic background and trends in the United States and possible impact on entrepreneurship? The clearest trend to foresee is the increasing size, and therefore importance, of the Hispanic population in the US. Not only were Hispanics the largest minority as of 2003, their growth rates were projected to outpace the growth rates of all other groups. As a result, Hispanics were estimated to comprise an increasing share of the US population for the foreseeable future. With increased size comes increased influence on the business community, along with increased business opportunities. For example, ever larger numbers of Hispanics in the US will translate into ever larger markets in terms of Hispanic discretionary income and purchasing power. More and more Hispanics will enter the labor force and obtain the skills, experience and network connections to enable them to become entrepreneurs. Questions remain, such as how many Hispanics will recognize their natural advantages in serving the growing Hispanic markets and will be drawn to new venture creation and growth. Along with increasing opportunities there were obstacles for Hispanic entrepreneurs in the United States to overcome. Most important among these was the continuing education gap among Hispanics, especially immigrant Hispanics, and other groups. Since education has a direct impact on employability, income, discretionary income and purchasing power, lower levels of education among Hispanics present obstacles for Hispanic entrepreneurs. First, lower than average levels of discretionary income and purchasing power limits the potential of the markets which Hispanic entrepreneurs are most likely to seek to serve. Furthermore, lower levels of discretionary income translate into lower levels of private equity investment capital being available to finance Hispanic start-ups. This lack of equity capital, coupled with Hispanic entrepreneurs’ well-documented reluctance to seek financing from traditional sources such as banks and venture capital firms, contribute to the overall problem of access to capital. Access to capital is important for both new venture creation and existing business growth. Immigrant Hispanics present a dichotomy for Hispanic entrepreneurship in the United States by representing both advantages and challenges. While immigrant Hispanics have been found to have higher levels of entrepreneurship than native born populations, their new ventures are typically more precarious than ventures started by other groups. This is due to the fact that many immigrants undertake business formation after experiencing ‘negative pushes’ as opposed to opportunity seeking. As a result, immigrant Hispanic entrepreneurs are typically less educated, capitalized and networked than other entrepreneurs. While this shortcoming should be addressed, the growing size of the influence of Hispanics on the business climate in the US has prompted non-Hispanics in various industries as well as various government agencies to become involved in fostering Hispanic, both immigrant and native US born, venture creation and growth. The growing size and influence of the Hispanic community in the United States has also led to a dichotomy for US society. Socially, minorities are being accepted as never before, as evidenced by the growing popularity of all things Hispanic. There are, however, some signs of a backlash, in particular against the large number of Hispanic immigrants entering the

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United States every year. Signs include growing calls for greater restrictions on immigration, opposition to bilingual (English and Spanish) public education and sentiment to withhold public assistance to immigrants, particularly those which entered the US in an undocumented status. As has always been the case in the New World and with business, Hispanic entrepreneurship in the United States offers tremendous opportunities tempered by significant challenges. By definition, these are the conditions in which entrepreneurs have always thrived. Note 1. ‘Latin America’, Microsoft Encarta Online Encyclopedia (2004) http://encarta.msn.com, 1997–2004 Microsoft Corporation.

References Dadzie, K.Q. and Y. Cho (1989), ‘Determinants of minority business formation and survival: an empirical assessment’, Journal of Small Business Management, July, 56–61. Fairlie, R.W. (2004), ‘Recent trends in ethnic and racial business ownership’, Small Business Economics, 23, 203–18. Gonzalez, J. (2000), Harvest of Empire, New York: Penguin Putnam, Inc. Hispanic Association on Corporate Responsibility (2002), ‘Hispanics today’ (available online from http://www. hacr.org). Hispanic Business (2004), ‘Number of Hispanic-owned firms to reach 2 million in 2004’ (available online from http://www.hispanicbusiness.com/news). Hispano Mundo (1998), ‘Hispanics don’t exist’ (available online from http://www.hispanomundo.com). Hispano Mundo (2004), ‘Hispanic heritage’ (available online from http://www.hispanomundo.com). Humphreys, J.M. (2003), ‘The multicultural economy: America’s minority buying power’, Georgia Business and Economic Conditions, 62(2). Pew Hispanic Center (2004), ‘Hispanic school achievement: catching up requires running faster than white youth’, Pew Hispanic Center Fact Sheet (available online from http://www.pewhispanic.org). Reynolds, P.D., N.M. Carter, W.B. Gartner, P.G. Greene and L.W. Cox (2002), ‘The entrepreneur next door’, Kansas City, MO: Ewing Marion Kauffman Foundation. Russell, J. (2004), ‘Past, present, future’, Hispanic Business (available online at http://www.hispanicbusiness.com/ news/news_print.asp?id=16372). Stavans, I. (2004), ‘Hispanic Americans’, Microsoft Encarta Online Encyclopedia (available online at http:// encarta.msn.comC1997-2004) Microsoft Corporation. Tienda, M. and R. Raijman (2004), ‘Promoting Hispanic entrepreneurship in Chicago’, Journal of Developmental Entrepreneurship, 9(1), 1–21. Tinjacá, M. (2001), Vision! Hispanic Entrepreneurs in the United States, Pleasant Hill, MO: Heritage Publishing Company. United States Census Bureau (1997), ‘Economic census’. United States Census Bureau (2002), ‘The Hispanic population in the United States’ (available online from http://www.census.gov). United States Hispanic Chamber of Commerce (2004), ‘Statistics’ (available online at http://www.ushcc.com/ res-statistics.html). World Bank (2000), ‘World Development Indicators: 2000’ (available online from http://www.worldbank.org).

13 Challenges and opportunities for Hispanic entrepreneurs in the United States Juan Holguin, Ernesto Gamboa and Frank Hoy

I Introduction Vast research has focused on what ‘makes an entrepreneur an entrepreneur’ and what, if anything, differentiates an entrepreneurial individual from other workers and laborers. According to Thomas and Mueller (2000, p. 291), ‘an entrepreneur’ implies a configuration of psychological traits, attributes, attitudes, and values of an individual motivated to initiate a business venture’. In differentiating entrepreneurs from small business owners, Carland et al. (1984, p. 358) stated that ‘the entrepreneur is characterized principally by innovative behavior’. These characterizations, however, refer to all entrepreneurs. For example, McGrath and MacMillan (1992) showed that entrepreneurs from various countries and cultures tended to be individualists and were likely to be more like each other in various traits and characteristics than they were to non-entrepreneurs in their own countries. The question then is how Hispanic entrepreneurs differ, if at all, from other entrepreneurs. A Education While there is a relative paucity of academic research on Hispanic entrepreneurs, studies have been conducted in various areas. Unfortunately, mixed results are commonplace. In 1992, the last widespread study regarding the characteristics of business owners conducted by the United States Census Bureau reported that 41.9 per cent of Hispanic American business owners had at least some college education. This included 11.9 per cent with a Bachelor’s degree, 3.9 per cent with a Master’s degree, and another 5.4 per cent having earned a professional degree or doctorate (US Census Bureau, 1992). For example, Shim and Eastlick (1998) found that, among Hispanic American business owners, 51 per cent had a bachelor’s or higher. This figure is significantly higher than the 10.6 per cent of all Hispanics with at least a bachelor’s degree. An additional 34 per cent of Hispanic entrepreneurs had completed at least some college (Shim and Eastlick, 1998) but this research found no gender differences among Hispanic entrepreneurs for education levels. While this was a large study drawn from members of the United States Hispanic Chamber of Commerce, another larger study by the Ewing Marion Kauffman Foundation, the largest foundation for the promotion of Entrepreneurship, found much lower levels of education for Hispanic entrepreneurs (see Figure 13.1). According to one of the authors, education was the deciding factor in entrepreneurship, meaning that the more education a person had, the more likely he or she was to start a business (Reynolds et al., 2002). In addition to being a predictor of entrepreneurship, education also influences new venture performance. For example, Sapienza and Grimm (1997) found that the general education level of the entrepreneur was positively correlated with goal attainment and performance in new 195

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Number per 100 Persons

30 25 20 15 10 5 0 No HS HS Degree Degree

Post HS

College Grad Degree School

No HS Hs Degree Degree

Male: Education

Post HS

College Grad Degree School

Female: Education White

Black

Hispanic

Source: Ewing Marion Kauffman Foundation.

Figure 13.1 Nascent entrepreneur prevalence rates, by education, gender and ethnic identity (18–54 years old) businesses. In an aberration, however, the study found that education seems to have little influence among Hispanic women. B Age and experience According to the Global Entrepreneurship Monitor in an assessment of the state of entrepreneurship in 2002, men aged 18 to 24 had a 15 per cent entrepreneurship rate, men aged 25 to 34 had a 14 per cent rate, while women aged 18 to 24 had a 5 per cent rate and women aged 25–34 had a 10 per cent rate. Furthermore, according to the Ewing Marion Kauffman Foundation, a Gallup study reported that 27 per cent of high school students had taken an entrepreneurial course and another 35 per cent had taken an economics course. The study reported that seven out of ten Hispanic students would like to start a business. Other differences exist between Latino and Latina business owners. For example, Hispanic female business owners tended to be younger than their male counterparts, with 65 per cent of female business owners under the age of 44 as compared with 39 per cent of males (Shim and Eastlick, 1998). Similarly, these researchers found that, while 45 per cent of Hispanic male entrepreneurs had ten years or less of business experience, the figure for females was 71 per cent. In addition, Hispanic female business owners were less likely to be married (65 per cent) than males (83 per cent). Shim and Eastlick (1998) did find several common characteristics among Hispanic entrepreneurs. For example, the majority of all Hispanic business owners, 68 per cent, were in the 35 to 54 age category. C Path to ownership and industry entered In researching differences in paths to business ownership for minorities and non-minorities, Feldman et al. (1991) found that 30 per cent of minority business owners were motivated to become entrepreneurs thanks to ‘negative pushes’ or ‘displacements’ (job discontinuation,

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being fired and so on). In terms of business development, 83 per cent of Hispanic business owners had started their business, while 10 per cent had purchased their business from a non-family source, and only 7 per cent had inherited their business. The inheritance of a business is one area of disparity among male and female Hispanic entrepreneurs, with only 1 per cent of Latinas following this path to business ownership as compared to 9 per cent of male Hispanics, although, overall, 32 per cent of Hispanic entrepreneurs reported that their parents had been business owners. In terms of industry and business sectors, more Hispanics have chosen to enter service industries than any other type of business (45 per cent), and the corporation was the preferred choice of the legal form of organization (Shim and Eastlick, 1998) with over 59 per cent of all Hispanic businesses having operated in this fashion. An important difference between Hispanic entrepreneurs and white or black entrepreneurs was that the number of Hispanics who entered the retail trade industry showed a large increase while the other groups had declining figures (Fairlie, 2004). D Outlook and attitude In the area of outlook and attitude, Hispanic entrepreneurs shared some characteristics with non-Hispanic entrepreneurs while differing in other respects. For example, some similarity in the decision to become an entrepreneur has been found. ‘The hypothesis is confirmed that aspiring Black and Hispanic entrepreneurs have the same motivations and personal goals for initiating a business venture as non-minority business owners did when they began their ventures’ (Lee et al., 1998, p. 11). Interestingly however, differences in outlook have been found as well. As an example of motivational differences, contributing to society was a strong influence for both Blacks and Hispanics, and very weak among the non-minority respondents (Lee et al., 1998). Furthermore, these authors found that Hispanic entrepreneurs saw themselves as role models in their communities as well as providers of goods and services within their communities that were otherwise not offered or offered in insufficient quantities. Similarly, Dadzie and Cho (1989) found the presence of successful minority entrepreneurs to be a very important consideration for potential new owners in minority business formation. Finally, these business owners saw their anticipated success as a way to keep economic gains within their communities. Overall, it was evident that, as of 2004, the knowledge of the characteristics of Hispanic entrepreneurs in the United States was limited. While anecdotal information abounded, there was a relative lack of generalizable empirical research in this area. II Barriers to Hispanic entrepreneurship In addition to the myriad of barriers that face entrepreneurs in general, there are several significant barriers that specifically face Hispanic entrepreneurs in the United States. Issues such as access to financial capital, access to mentors and networks, access to labor pools, and barriers to the marketplace are important and can discourage entrepreneurial development as well as lead to the ultimate demise of some business formations. Barriers have the effect of severely limiting firms’ abilities to borrow, enter new markets, promote their products and services, and develop relationships with potential customers and suppliers. Additionally, even though these limitations may not prove to be fatal in and of themselves, these confines will contribute to the firms’ inability to achieve optimal efficiency which is a requisite in a competitive marketplace. As previously discussed,

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Hispanics are disproportionately entrepreneurial, so barriers such as these hamper the abilities of new firms to compete effectively in the marketplace. In a worst case scenario, entrepreneurs who view these obstacles as being too imposing will forgo the business opportunity and enter the workforce (Boyd, 1991). A Limited financial capital Barriers such as limited access to financial capital, the lack of sufficient income, wealth or assets, and limited access to financial markets or loans certainly restrict new business development in the Hispanic community. As previously noted, while Shim and Eastlick found that 10 per cent of Hispanic entrepreneurs had purchased their businesses from a non-family source, Tienda and Raijman (2004) found the related percentages to be 26 per cent for native-born Hispanics and 21 per cent for foreign-born Hispanics. Examining their finding that over half of businesses owned and operated by non-Hispanic whites were purchased outright, this figure could imply a stronger capital position for whites. In addition, their study found that over one-in-four Hispanic businesses began informally, which is to say that they were begun outside of the normal state-regulated and recorded business activity, with lack of capital being the primary reason for the informal business start-up. In addition, Feldman et al. (1991), in summarizing prior research on minority entrepreneurs, noted that the most important problem facing new businesses was an inability to obtain a line of credit necessary for start-up. In short, lack of capital was a major obstacle for Hispanics seeking business ownership. While most businesses are started with little capital or through the use of personal savings on behalf of the owner, historically the vast majority of minority-owned firms were started without the benefit of any borrowed capital (see Table 13.1). This is an important consideration given that, as we have seen, Hispanic American levels of income and Table 13.1 Financial and social capital characteristics of 1987 business owners, by minority status African Non-minority American (%) Latino (%) Asian (%) Female (%) Female (%) Source of borrowed capital None (no capital or did not borrow) Family or friends Commercial bank loan Other Family networks Those who had close relative who owned a business Those who worked for close relatives who owned a business

77.2

7.6

6.3

78.7

70.6

7.5 10.5 9.9

11.3 9.4 8.8

24.4 13.0 14.4

7.9 11.2 7.2

10.4 16.9 8.7

29.7

32.5

37.6

49.3

50.1

10.8

12.9

14.2

18.1

25.1

Source: US Census Bureau, Economic Census (1987).

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wealth have been well below those of their non-minority counterparts, with almost onethird of Hispanics living below the poverty level. In discussing the accumulation of wealth, Hispanics are less likely than whites to own their homes or cars, or to receive investment income. Because of this lack of generational wealth, Hispanic parents are less likely to leave extensive cash, investments or other assets to their children. While it can be argued that wealth may not serve as an absolute indicator of the success of new business formations, given that many firms start with little or no capital (Meyer, 1990), having limited wealth does serve as a barrier. This is evident in that the ability of a firm to sustain itself during a lull in sales over an extended period of time or its ability to survive an unexpected expense will be severely limited. Additionally, in terms of start-up capital, another historical source of funds for many entrepreneurs has been loans or investments from friends and family. Therefore, having lower levels of overall family wealth can serve as a crucial obstacle to the formation of many new businesses. B Limited social and human capital Social capital can be defined as the network of business associates, family members, customers and employees that can be extremely important in the formation and development of new businesses (Fratoe, 1988). A difficulty for minorities in this regard is that these networks and affiliations have often been more poorly organized than in non-minority cultures, and the partnerships and organizations are often limited or fragmented. A further problem, according to Anderson and Miller (2003, p. 17), is that ‘little research has been conducted on the specific area of entrepreneurial social capital, in spite of insights gained from social capital in other disciplines’. They found that an entrepreneur’s human and social capital assets had a major influence on the choice of industry and type of new business as well as its future potential for profitability. Specifically, an entrepreneur’s ability to recognize and pursue opportunities was affected by these forms of capital. Furthermore, the most important indicators of the extent of an entrepreneur’s social and human capital assets were related to the socio-economic position into which the entrepreneur was born. The implications for Hispanic new venture creation are clear. Owing to the lower relative socio-economic status of many Hispanics, a lack of human and social capital is a significant obstacle. Business networks, such as a membership in formal trade or business organizations (Rotary Clubs, chambers of commerce, restaurant owners’ associations and so on) can provide an entrepreneur with a linkage to new clients or suppliers, information on upcoming events, news on projects and opportunities, as well as information on new business developments. Networks can be important for minority business owners that are in need of cash or capital to develop their businesses or to enable future growth in the marketplace (Fratoe, 1988). Because these networks and affiliations are important, the inability of an entrepreneur to access or utilize these associations can be a barrier, although possibly less so than access to capital or markets. Being isolated from this environment, Hispanic businessmen can be restricted from acquiring one of the most important and vital items needed to run successful and growing enterprises: information. A lack of information about the marketplace, suppliers, interest rates, contracts, events or opportunities can significantly limit a firm’s growth or even its ability to survive in the marketplace. As discussed in the previous chapter, past research has indicated that education plays a large role in the entrepreneurship process in the US. In terms of human capital,

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Hispanics in the United States have historically had less education than their white counterparts, and have also been less likely to have past experience as business owners or experience in the workplace in general. Furthermore, Hispanics have had fewer opportunities to participate in an apprenticeship or other types of training programs (Wilson et al., 2004). While education is not a requisite for business origination, it is extremely important in that individuals may have specific training or specific knowledge that is easily convertible into a start-up business. Good examples could be attorneys, physicians and professionals in the financial arena because their work is already conducive to the formation of a new business venture. Furthermore, while education alone will not ensure that a business survives in the marketplace, individuals with better training and education are likely better equipped to overcome the many obstacles that face new business owners in the competitive environment. Additionally, while an individual may have very specific knowledge about a field, or expertise with a given product or service, it is also probable that an individual with more education will be more well-rounded in terms of being able to negotiate with suppliers, vendors and professionals, as well as with customers and other business owners. This is an important aspect owing to the fact that Hispanic business owners, while entrepreneurial, have the lowest educational level among entrepreneurs (see Table 13.2). In fact, almost one-third of Hispanic entrepreneurs have not yet attained a high school Table 13.2

Human capital characteristics of 1987 business owners, by minority status African Nonminority American (%) Latino (%) Asian1 (%) Female2 (%) Male (%)

Educational attainment Elementary/some high school High school degree/some college College degree or more Total Self-employment experience Percent previously owned a business Work experience Less than 2 years 2 to 9 years 10 to 19 years 20 years or more Total

23.1

32.2

12.5

9.0

13.2

48.1

45.0

35.1

54.6

49.3

28.8 100.0

22.6 100.0

52.3 100.0

36.4 100.0

37.4 100.0

9.8

11.0

15.6

13.9

21.7

21.5 27.2 26.6 24.8 100.0

27.4 31.7 23.0 18.0 100.0

31.2 35.7 21.1 12.0 100.0

20.7 31.4 27.1 20.7 100.0

16.7 28.1 26.5 28.7 100.0

Notes: Percents are based on the number of owners reporting. 1 Other minorities (Native Americans, Pacific Islanders, Eskimos and Aleuts) are also included in this category, although the vast majority of business owners in this category are Asian. 2 Includes both minority and white female business owners. Source: US Bureau of the Census Economic Censuses (1987), characteristics of business owners.

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diploma, and less than 30 per cent have earned a college degree. A final issue in regard to human capital is that English is a second language for many Hispanics and the inability to speak English fluently in the United States poses many threats and challenges in the business world. C Access to financial markets Despite Hispanics’ lower income and wealth levels that would seemingly necessitate the need for commercial or private market loans, Hispanic Americans are less likely to borrow from banks when starting or expanding businesses than whites (see Table 13.1). These business owners borrow from a bank only about 9 per cent of the time as opposed to 11 per cent for African-Americans and 13 per cent for Asian-Americans. One factor that affected these figures was the fact that many Hispanics had no credit history and were unable to demonstrate creditworthiness. Furthermore, low income rates, low home ownership rates and poorly capitalized businesses make it difficult for Hispanic entrepreneurs to obtain bank loans or lines of credit. In a report published in 2004, the Minority Business Development Agency of the US Department of Commerce highlighted a lack of access to financing as a pervasive obstacle throughout all minority business sectors. Specifically, the report states: ‘Minority entrepreneurs continue to have difficulty obtaining the capital needed, whether debt or equity, to start and grow their businesses’ (US Department of Commerce, 2004, p. 2). Furthermore, the report asserted that minority businesses continue to face systemic barriers to accessing capital markets, barriers that impede the efficient and productive flow of capital to such firms. Also reflected in the paper was that some of these barriers seemed to be attitudinal and may have been indicative of discrimination. As an example, research published in 2004 seemed to indicate that banks in the US denied financing to African-American and Hispanic borrowers more often than to other entrepreneurs, even when differences between firms were controlled for in the study. ‘With respect to loans, banks make smaller loans to start-ups in minority areas than in non-minority communities and to minority-owned firms than non-minority owned firms, even when controlling for equity capitalization, owner education, race, age, and experience’ (US Department of Commerce, 2004, p. 11). Similarly, in a study of credit markets for small business operators, Cavalluzzo and Cavalluzzo (1998, p. 789) found ‘large differentials in loan denial rates for black and Hispanic minority groups’. The authors further asserted that their results provided clear inferential evidence of prejudicial discriminations toward Hispanics, with weaker evidence of discrimination toward Asians. D Experience and limited market access As discussed, prior business experience is valuable to the potential entrepreneur. Experience, training, and specific knowledge may assist the individual in deciding to enter the market as an entrepreneur as well as serve to increase the probability that a given venture will succeed. Additionally, having access to other business owners and entrepreneurs, in and of itself, may also increase the likelihood that an individual will enter the marketplace. This is an important concept because minority business owners are less likely to have previously owned a business than white business owners (see Table 13.1). In regard to work experience, the relationship between experience and

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entrepreneurial spirit may go even further since Hispanic business owners typically are less seasoned than other business owners. In the cases of recent immigration, almost a third of all persons seeking work have less than two years of actual work experience (Enchautegui et al., 1997). Similar to the situation in the professional fields of law, medicine and finance, an individual with experience in any type of managerial capacity may also have the necessary background to become self-employed (Ando, 1988). However, this relationship is interesting because minorities have generally encountered obstacles in trying to obtain these higher levels of managerial positions. Furthermore, if managerial-type positions within the government sector do not provide workers with the type of experience that is commensurate with managers in the private sector, then these positions may be less effective in preparing individuals for promotions or for developing workers into the type of people who will become entrepreneurial. Table 13.3 and Figure 13.2 illustrate the industry distribution of minority and Hispanic owned businesses. As can be seen, the preponderance of minority-owned firms in the US are in the services and retail trade industries. As a percentage of all US firms, minorities own a disproportionate share of firms in the transportation, communications and utilities industry in addition to the high levels in services and retail trade. E Culture and preferences Culture and preferences represent an interesting dichotomy for Hispanic American entrepreneurs, as they represent both potential barriers and potential opportunities and advantages. For example, while culture should provide interesting insights into the mindsets of entrepreneurs, it is very difficult to come to any valid conclusions for a couple of reasons. First, it is difficult to collect data that accurately reflect the true entrepreneurial landscape because many of the firms are quite small and are not required to provide many of the statistics, reports, figures and sales data that larger firms must. In many cases, even though raw statistics may help to determine the number of small firms currently operating, there are a number of micro enterprises that may not have even filed the required paperwork with the local governing authority. A study completed by Tienda and Raijman (1996) documented the prevalence of this type of self-employment activity among Mexican Americans in Chicago. Furthermore, according to Scott (1983, p. 43), one cultural difference is that ‘business in the minority community often reflects the customs and value systems which are unique to it’. As a result, many ethnic firms have operated under these special cultural patterns by providing ethnic goods and services within ethnic neighborhoods. In addition, minority-owned firms exhibited different operating and financial patterns. One such example, also addressed in the section on limited access to financial capital, is a greater reluctance to seek traditional sources of financing, such as bank loans and lines of credit. In contrast, one cultural difference that could represent an advantage is the Hispanic culture’s collectivistic tendencies. Much research on entrepreneurship has focused on individual entrepreneurial efforts, but collectivism may play an important role as well. Chrisman et al. (2002) asserted that it may be an ethnic group’s propensity to embrace family-based organizational structures which affects firm performance and entrepreneurial success. Specifically, their research suggested that the impact of collaborative activity, which occurs in many Hispanic families, should be researched further.

203

Ownership by industry

Source:

176 609 944 155 4 021 515 1 183 669 4 270 041 2 649 085 2 567 560 2 614 965 61 611

797 856 2 889 041 2 237 675 8 891 023 1 480 003

18 553 243 64 033

126 809 2 333 424 688 782 919 570

20 821 934 496 164

Sales and receipts (million dollars)

All US firms Firms (number)

US Census Bureau, Economic Census (1997).

All Industries Agricultural services, forestry and fishing Mining Construction Manufacturing Transportation, communications and utilities Wholesale trade Retail trade Finance, insurance and real estate Services Industries not classified

Industry division

Table 13.3

92 727 439 450 164 043 1 339 486 419 522

3 578 255 251 63 640 190 564

3 039 033 71 921

Firms (number)

153 874 116 261 22 105 135 876 31 906

916 41 884 63 048 21 274

591 259 4 116

Sales and receipts (million dollars)

Minority-owned firms

11.6 15.2 7.3 15.1 28.3

2.8 10.9 9.2 20.7

14.6 14.5

Firms

3.6 4.4 0.9 5.2 51.8

0.5 4.4 1.6 1.8

3.2 6.4

Sales and receipts

Minority-owned as a percent of all US firms

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Table 13.4

Top barriers to growth

Barrier

(%)

Market conditions Competition Lack of capital Labor shortage Other Did not respond

37.2 19.2 10.2 07.4 10.4 15.6

Source:

Hispanic Business, Hispanic Business 500 (2003).

100% Industries not classified Services Finance, insurance and real estate Retail trade Wholesale trade Transportation, communications and utilities Manufacturing Construction Mining Agricultural services, forestry and fishing

80%

60%

40%

20%

0% Black

Hispanic

American Indian Asian and and Alaska Native Pacific Islander

Source: US Census Bureau, Economic Census (1997).

Figure 13.2 Percentage of total firms by industry division, by race and Hispanic origin (1997) F Hispanic entrepreneurs’ perceptions of barriers Despite the research into the various barriers faced by Hispanic entrepreneurs, Hispanic business owners held their own views of the barriers they faced. A 2003 poll of CEOs from Hispanic Magazine’s ‘Hispanic Business 500’, an annual listing of the 500 largest Hispanic firms in the United States, revealed that 37.2 per cent still viewed market conditions as the biggest obstacle facing their businesses (see Table 13.4). While this percentage was down from 45 per cent in the previous year, challenges such as increased competition, lack of capital and labor shortages gained importance in the eyes of upper management. III

Opportunities for Hispanic entrepreneurs

A Increasing international trade due to reduced trade barriers While many barriers remain, opportunities for Hispanic entrepreneurs are increasing, thanks to various trends. The explosive growth of the Hispanic population in the

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United States, the accompanying policy implications, as well as the falling trade barriers with Latin America, are rapidly expanding potential markets for Hispanic businesses. As Tinjacá (2001) found, international trade is a growth area for many Hispanic entrepreneurs. One of the primary drivers of new opportunities for Hispanic entrepreneurs in the United States has been the North American Free Trade Agreement (NAFTA) signed with Canada and Mexico in 1993, that took effect on 1 January 1994. ‘Ten years after Canada, Mexico and the United States pledged to eliminate trade barriers, most financial gurus and business experts are singing the same song: U.S. Hispanic small business owners are in a prime position for profitability south of the border’ (LeClaire, 2003, p. 1). This is due to factors such as ethnic, language, cultural, social and religious affinities that breed a basis for trust between US Hispanic business owners and their Mexican counterparts. As a result, large US corporations have been looking to the growing ranks of Hispanic firms to fill the void of suppliers and distributors for their Mexican operations. As noted by Tinjacá (2001, p. 52), ‘language and awareness of culture appear to be natural and unique competitive advantages for Hispanic entrepreneurs’. The opportunity presented to Hispanic entrepreneurs in the area of international trade stems from several factors. Tinjacá (2001) identified several key factors encouraging increased international trade between the United States and Latin America: ‘These include increasing economic strength in Latin America, and a growing market; availability of quality products in the U.S.; an increase in privatization of state owned companies; an increase in trade agreements with Latin American governments, and with European and Asian companies’ (Tinjacá, 2001, p. 53). The US Hispanic community is the natural starting point for international trade and investment (LeClaire, 2003). For example, while the first decade of NAFTA had little impact on small businesses as a result of owners’ lower levels of risk tolerance and capital, the impact upon small business owners had been largely concentrated in the border regions of the United States (LeClaire, 2003). Furthermore, NAFTA resulted in large trade increases between the US and Mexico. From 1993 to 2002, the value of two-way US trade with Mexico almost tripled, reaching $232 billion, and is projected to continue to grow twice as fast as US trade with the rest of the world. As trade increases, so do the opportunities for entrepreneurs. Hispanic small business owners are uniquely positioned to fill the growing needs of increased trade with Latin America thanks to a common language and similar culture. For example, Mexican– American entrepreneurs can position themselves as suppliers and distributors to larger corporations with operations in Mexico. In addition, there are also enormous opportunities for US Hispanic entrepreneurs to market products that are well known in Latin America to the growing number of Hispanics in the United States (LeClaire, 2003). According to Hispanic Business magazine, many Latinos in the United States long for food, music and consumer goods that remind them of home (Mendosa, 1993). In addition, prominent Hispanic business leaders viewed NAFTA as a great opportunity for US Hispanics because of their willingness to deal with people who have similar cultural identities (ibid.). The increase in opportunities can be clearly seen through 2004 reports from the US Census in which there were approximately 1.5 million US companies that were run by Hispanics or catered to Hispanics.

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B Expanding markets As the size of the Hispanic community in the US increases, it will exert a greater influence on the way business is conducted. Markets will expand and diversify. According to HispanicBusiness.com, ‘this market’s growth has been dramatic – fueled by demographic expansion, as well as by rising demand and opportunity in the U.S. labor and entrepreneurial markets’ (Russell, 2004, p. 1). For example, the World Bank projects growth opportunities for media, financial services and higher education in the US Hispanic market (Russell, 2004). Furthermore, population growth means Hispanics will also exert more impact on future labor markets. According to Russell, occupational structure will shift toward managerial, professional and service jobs. In addition, according to Fariborz Ghandar, director of the Center for Global Business Studies at Pennsylvania State University, the Hispanic community exerts a significant influence on the way business is conducted, in addition to being large in size (ibid.). These changes will contribute to greater opportunities for Hispanic entrepreneurs. Two such advantages for Hispanic entrepreneurs are language and culture. For example, ethnic groups’ tendency to concentrate residentially provides one advantage. According to Tienda and Raijman (2004, p. 2), ‘for economically disadvantaged groups such as Blacks and Mexicans, the availability of a dense ethnic market encourages the proliferation of firms that cater to ethnic concerns’. High residential concentration provides a favorable environment for entrepreneurial activity owing to the increased demand for ethnic goods. Furthermore, Light and Gold (2000) found that the expansion of ethnic neighborhoods often stimulates growth of ethnic economies. This is due to residential concentration permitting scale effects in both consumption and production (Rosenfeld and Tienda, 1997). Therefore, there is reason to believe that ethnic business ownership can grow even among immigrants with low stocks of human capital (Tienda and Raijman, 2004). Hispanic Business reported in 2004 that language-use trends would have significant implications for the future of Hispanic media. Davila (2001) asserted that there are basic differences between Latinos and other consumers that need to be addressed through culture and language-specific marketing. In addition, the continuous influx of Spanishspeaking populations to the United States would likely not be reached by advertising were it not for various forms of Spanish language marketing (ibid.). C Family networks Family is another important element of social capital that can promote business formation and firm growth. From the family, a fledgling entrepreneur can find a source of labor and a source of support, with spouses and children sometimes taking on the roles of both paid and unpaid help with the family business (Sanders and Nee, 1996; Fratoe, 1988). Citing Census Bureau data, Tinjacá (2001) pointed out that Hispanic families tend to be larger than the average American family. This is significant in light of the fact that family has a significant impact on new venture formation and performance. Specifically, Chrisman et al. (2002, p. 125) found that ‘at the time of new venture start-up, family represents a critical and oftenused resource in a substantial number of cases’. These researchers also found family involvement to be a good predictor of entrepreneurial perceptions and firm performance. This suggests that there are greater family resources available for pooling efforts. Additionally, a strong family tie can help facilitate the transfer of wealth between generations and will contribute to the creation of business traditions and heritage. For example,

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many Hispanic American entrepreneurs are reluctant to seek help from government minority business programs. A survey by the United States Small Business Administration in 1989 indicated that, although many new business programs were created to help minority entrepreneurs, most of these programs were not used by the Hispanic population at large. This reluctance to seek out governmental assistance by the Hispanic community has been attributed mostly to cultural attitudes, including a desire for independence and reliance upon the family for business support (Torres, 1997). Family also has other influences on entrepreneurship. Dyer and Handler (1994, p. 72) write that new figures have ‘indicated that entrepreneurs often come from homes where the father or mother was self-employed’. Specifically, there is a correlation between one family member who is a business owner and the occurrence of another member being entrepreneurial. Other researchers such as Roberts and Wainer (1968) and Ronstadt (1984) also found this relationship. Therefore, the large numbers of Hispanics starting businesses should lead to future high levels of entrepreneurial activity within Hispanic communities in succeeding generations. D Government policies While there are various measures that can affect policy pertaining to entrepreneurship, government procurement in the United States plays a large and important role in the promotion of minority business opportunities. In 2002, only 2.4 per cent of contracts were awarded to small and medium-size enterprises owned by minorities, including Hispanics. This translated into $1.5 billion in lost opportunities (Utt, 2003). Rectifying this historical underutilization would thus represent a great opportunity for Hispanic and other minority entrepreneurs, and government assistance programs seek to do just that. Various US government programs give preferential treatment to firms that have historically been discriminated against or disadvantaged in the United States. In general, the various programs can be placed into two broad categories. In the first group, the race, gender or ethnicity of a firm’s owner can be used as a factor in the awarding of contracts. The aim for these programs is to directly increase the number of US federal, state and local government contracts awarded to minority firms such as Hispanic-owned businesses. The second category of United States government assistance policies aims to assist Hispanic and other minority-owned firms to overcome limitations in their financial, social or human capital, thereby making the firms more attractive and efficient in the market and making them more proficient in obtaining government contracts. Examples of assistance include lending and bonding help and technical assistance, as well as requiring prompt payments by government agencies which do business with minority-owned entrepreneurial firms. In September 2004, the US Small Business Administration joined the US Hispanic Chamber of Commerce in a strategic alliance aimed at Hispanic entrepreneurs. The agreement is an effort to make more resources, education and training available for the long-term success of Hispanic small businesses across the country (United States Small Business Administration, 2004). E Current trends in the Hispanic marketplace In analyzing growth rates among Hispanic business owners, Fairlie (2004) found that the number of Hispanic business owners had increased by over 435 000 from 1979 to 1998: ‘This growth rate far surpasses the growth rates in the number of white and black

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business owners’ (ibid.: p. 205). The growing number and size of Hispanic businesses in the United States has led to the business community in the US looking upon Hispanics with greater importance. For example, in the financial industry, Samuel A. Ramirez & Co. launched a stock index to track the status of Hispanic companies in the United States and Puerto Rico. This was the first such index for Hispanic businesses, and tracked the ten largest and most influential Hispanic firms. Ramirez & Co. further planned to launch investment products to track the index. Similarly, in March 2003, HispanTelligence, the research unit of Hispanic Business Inc., developed the Hispanic Business Stock Index (HBSI). Thirteen firms comprised this index at its establishment and the total market capitalization for the firms was over $15 billion as of December 2002, with total annual revenues of over $8 billion for the same year. Together, the creation of indexes to track the status of firms that are either majority Hispanic-owned or whose main focus is the Hispanic market, was a clear sign that these firms are becoming more influential in the world economy. Additionally, the performance of the HBSI index in 2002 illustrated the strength and robustness of the Hispanic market. In 1999, the US Small Business Administration announced that it was starting a venture capital company with an initial investment pool of $20 million. The purpose of the SBA venture capital firm was to help small, unproven companies that are in the early stages of formation and growth. These firms often need assistance with credit establishment with various lenders and suppliers as well as product establishment in the marketplace and the community. In the 40-year history of the Small Business Investment Company (SBIC) program, this was the first SBIC to base its investment strategy specifically on Hispanicowned small companies. SBICs are privately owned and managed investment firms that use their own capital as well as commitments from the SBA to make investments in small firms. According to the SBA, the SBIC program has 325 licensees totaling almost $10 billion in possible investments and has invested over $20 billion in more than 116 000 small businesses since the program’s inception in 1958. Companies that have benefited from early SBIC investing include Intel, Federal Express, Apple and Compaq. These trends of growth and importance can be seen in other places as well. Hispanic Business magazine, which maintains an annual list of the 100 fastest growing Hispanic businesses, reported that revenue for this group in 2003 surpassed $7 billion and maintained an average growth rate of more than 500 per cent from 1999 to 2003. This represents a compounded growth rate of over 67 per cent. This growth is dramatic given the fact that the US economy grew at a 2.8 per cent annual rate for that period. Businesses in this category have continued to grow over the last few years in a period when the economy and financial markets slumped. IV Conclusion On average, Hispanic household income is considerably lower than the average for other US households. Employment, income, purchasing power and the cumulative economic power of these factors are inextricably linked to education. Improvements have been made but have been slow and the education gap between Hispanics and non-Hispanics has been increasing. This is not the case in business ownership, however. Hispanics are creating businesses at a much faster rate than other groups. Mixed results are common in answering the question of how Hispanic entrepreneurs differ from other entrepreneurs. Results currently conflict in various aspects, including

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education, success rates and economic impact, although the impacts cannot be disputed. Interestingly, differences can also be found within the Hispanic group and can be seen between Latino and Latina business owners in which female business owners tend to be younger than their male counterparts. Experience also varies by gender, with women typically having far less experience than males, and Hispanic women are also less likely to be married. Of course, there are several common characteristics among Hispanic entrepreneurs. These business people are typically young and are found in the service industries, with the corporation being the preferred choice of legal structure. Many Hispanic entrepreneurs report that their parents were business owners. Concerning attitudes, Hispanic entrepreneurs are both similar to and different from non-Hispanic entrepreneurs. AfricanAmerican and Hispanic entrepreneurs typically have the same motivations and personal goals for initiating a business and are also similar in nature to non-minority business owners in this regard, although one difference is that a desire to contribute to society was a more prevalent factor among the minority groups. Hispanic entrepreneurs typically see themselves as role models in their communities, providers of goods and services within their communities, and through anticipated success, as keepers of the development of economies within their communities. From a negative aspect, however, in addition to the numerous barriers that face entrepreneurs in general, there are several significant barriers that face Hispanic entrepreneurs in the US. Access to financial capital, mentors and networks, labor pools, and barriers to the marketplace are significant and can discourage entrepreneurial development and ultimately lead to the demise of business formations. Because of many of the obstacles faced by minority entrepreneurs however, US government officials have made various attempts to correct the business climate. Various federal, state and local governments have designed and implemented a wide range of action programs. The aims for these programs are to directly increase the number of US federal, state and local government contracts awarded to minority firms such as Hispanic-owned businesses, and to help Hispanic and other minority-owned firms to overcome limitations in their financial, social or human capital. Culture and preferences represent an interesting dichotomy for Hispanic American entrepreneurs, representing both potential barriers and potential opportunities. While many barriers remain, opportunities are increasing, thanks to various trends. The tremendous growth of the Hispanic population in the US and the collapse or removal of trade barriers with Latin America have expanded the markets for Hispanic businesses. The opportunities presented in international trade stem from several factors, and include the increasing economic strength in Latin America, growing markets, the availability of quality products in the US, and an increase in trade agreements with Latin American governments as well as with European and Asian companies. As the Hispanic community increases, the marketplace will be more influenced to meet changing demands, including the development of new financial products that help the Hispanic business community. Other trends of growth and importance are exemplified by the 100 fastest growing Hispanic businesses which, as a group, maintained an incredible growth rate. Hispanic businesses outstripped the 2.8 per cent growth rate of the American economy at the turn of the century. With a growing population, rising income levels and an increase in business formations, the market has never been better for Hispanic entrepreneurs. However, while the future

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may appear limitless, there are important issues that help make the entrepreneurship environment even more challenging. References Anderson, A.R. and C.J. Miller (2003), ‘Class matters: human and social capital in the entrepreneurial process’, Journal of Socio-Economics, 32, 17–36. Ando, F. (1988), ‘Capital issues and the minority-owned business’, The Review of Black Political Economy, 16. Boyd, R.L. (1991), ‘A contextual analysis of Black self-employment in large metropolitan areas, 1970–1980’, Social Forces, 70(2), 409–29. Carland, J.W., F. Hoy, W.R. Boulton and J.C. Carland (1984), ‘Differentiating entrepreneurs from business owners: a conceptualization’, Academy of Management Review, 9(2), 354–9. Cavalluzzo, K. and L. Cavalluzzo (1998), ‘Market structure and discrimination: the case of small business’, Journal of Money, Credit and Banking, 30(4), 771–93. Chrisman, J.J., J.H. Chua and L.P. Steir (2002), ‘The influence of national culture and family involvement on entrepreneurial perceptions and performance at the state level’, Entrepreneurship Theory & Practice, Summer, 113–30. Dadzie, K.Q. and Y. Cho (1989), ‘Determinants of minority business formation and survival: an empirical assessment’, Journal of Small Business Management, July, 56–61. Davila, A. (2001), Latinos, Inc.: The Marketing and Making of a People, Los Angeles, CA: University of California Press. Dyer, Jr., W.G. and W. Handler (1994), ‘Entrepreneurship and family business: exploring the connections’, Entrepreneurship: Theory & Practice, 19(1), 71–83. Enchautegui, M.E., M. Fix, P. Loprest, S.C. von der Lippe and D. Wissoker (1997), Do Minority-owned Businesses get a Fair Share of Government Contracts?, Washington DC: Urban Institute Press. Fairlie, R.W. (2004), ‘Recent trends in ethnic and racial business ownership’, Small Business Economics, 23, 203–18. Feldman, H.D., C.S. Koberg and T.J. Dean (1991), ‘Minority small business owners and their paths to ownership’, Journal of Small Business Management, October, 12–27. Fratoe, F. (1988), ‘Social capital of black owners’, Review of Black Political Economy, 16 (Spring), 33–50. Hispanic Business (2003), ‘Taking root in rocky soil’ (available online from http://www.hispanicbusiness.com/ news). Hispanic Business (2004), ‘Number of Hispanic-owned firms to reach 2 million in 2004’ (available online from http://www.hispanicbusiness.com/news). LeClaire, J. (2003), ‘NAFTA: 10 years later; Hispanic entrepreneurs are poised to leverage the benefits of NAFTA south of the border’, HispanicOnline.com. (available online at http://www.hispaniconline.com/ trends/2003/summer/politics/index.html). Lee, M.S., E.G. Rogoff and A.N. Puryear (1998), ‘Differences between aspiring minority and established, nonminority business owners: is there a goal gap?’, USASBE Proceedings (available online from http://www. usasbe.org/knowledge/proceedings/1998/01-lee.pdf). Light, I. and S. Gold (2000), Ethnic Economies, San Diego: Academic Press. McGrath, R.G. and I.C. MacMillan (1992), ‘More like each other than anyone else? A cross-cultural study of entrepreneurial perceptions’, Journal of Business Venturing, 7(5), 419–29. Mendosa, R. (1993), ‘Natural bridges of opportunity: small businesses aren’t wasting time in seizing the NAFTA initiative’, Hispanic Business, 13(3), 18–22. Meyer, B. (1990), ‘Why are there so few Black entrepreneurs?’, National Bureau of Economic Research, Working Paper No. 3537. Reynolds, P.D., N.M. Carter, W.B. Gartner, P.G. Greene and L.W. Cox (2002), ‘The entrepreneur next door’, Kansas City, MO: Ewing Marion Kauffman Foundation. Roberts, E.B. and H. Wainer (1968), ‘New enterprises on Route 128’, Science Journal (December). Ronstadt, R.C. (1984), Entrepreneurship: Text, Cases and Notes, Dover, MA: Lord Publishing. Rosenfeld, M. and M. Tienda (1997), ‘Labor market implications of Mexican migration: economies of scale, innovation, and entrepreneurship’, in F. Bean, R. de la Garza, B. Roberts and S. Wientraub (eds), At the Crossroads: Mexico and U.S. Immigration Policy, New York: Rowmann & Littlefield, pp. 177–99. Russell, J. (2004), ‘Past, present, future’, Hispanic Business (available online at http://www.hispanicbusiness. com/news/news_print.asp?id=16372). Sanders, J. and V. Nee (1996), ‘Social capital, human capital, and immigrant self-employment’, American Journal of Sociology, 61 (April), 231–49. Sapienza, H.J. and C.M. Grimm (1997), ‘Founder characteristics, start-up process and strategy/structure variables as predictors of shortline railroad performance’, Entrepreneurship Theory & Practice, 22(1), 5–25.

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Scott, W.L. (1983), ‘Financial performance of minority versus non-minority owned businesses’, Journal of Small Business Management, 21(January), 42–8. Shim, S. and M.A. Eastlick (1998), ‘Characteristics of Hispanic female business owners: an exploratory study’, Journal of Small Business Management, 36(3), 18–35. Thomas, A.S. and S.L. Mueller (2000), ‘A case for comparative entrepreneurship: assessing the relevance of culture’, Journal of International Business Studies, 31(2), 287–301. Tienda, M. and R. Raijman (2004), ‘Promoting Hispanic entrepreneurship in Chicago’, Journal of Developmental Entrepreneurship, 9(1), 1–21. Tinjacá, M. (2001), Vision! Hispanic Entrepreneurs in the United States, Pleasant Hill, MO: Heritage Publishing Company. Torres, J. (1997), ‘The rise of Hispanic business from 1980 to 1994’, CELCEE Kauffmann Center Digest 97(3) (available online at http://www.celcee.edu). United States Census Bureau (1987), ‘Summary characteristics of business owners: 1987’ (available online at http://www.census.gov). United States Census Bureau, (1992), ‘Summary characteristics of business owners and their businesses: 1992’, (available online at http://www.census.gov). United States Department of Commerce (2004), ‘Expanding financing opportunities for minority businesses’ (available online at http://www.mbda.gov). United States Hispanic Chamber of Commerce (2004), ‘Statistics’ (available online at http://www.ushcc.com/ res-statistics.html). United States Small Business Administration (2004), ‘SBA and U.S. Hispanic chamber of commerce join forces to help hispanic small businesses’, Press Release (available online from http://www.sba.gov/news). Utt, R. (2003), ‘A contracting conundrum’, HispanicBusiness.com (available online at http://hispanicbusiness. com/news). Wilson, F., D. Marlino and J. Kickul (2004), ‘Our entrepreneurial future: examining the diverse attitudes and motivations of teens across gender and ethnic identity’, Journal of Developmental Entrepreneurship, 9(3), 177–97.

14 Korean immigrants in the United States Pyong Gap Min

Although the Korean community in the United States has a history of over 100 years, its population remained insignificant until the early 1960s. But, with a full enforcement of the Immigration Act of 1965 in 1968, a large number of Koreans have immigrated annually to the United States. Between 1965 and 2002, more than 850 000 Koreans immigrated to the United States. As a result, the Korean population increased to close to 1.2 million in 2000. Post-1965, Korean immigrants are of interest to the mainstream media and social scientists partly because of their unique mode of economic adjustment. It is a widely known fact that Korean immigrants are highly concentrated in small businesses. However, Korean merchants have received a great deal of media and scholarly attention mainly because they have encountered severe conflicts with black customers. Several books and a dozen articles that focus on Korean–black conflicts have been published since the mid-1990s (Abelmann and Lie, 1995; Asante and Min, 2000; Joyce, 2003; C. Kim, 2000; K. Kim, 1999; Light and Bonacich, 1988; Min, 1996; Yoon, 1997; Yu, 1994). Even more interesting is how Korean merchants’ business-related inter-group conflicts have enhanced Korean ethnic solidarity. In a number of studies, I have tried to examine the effects of Korean immigrants’ business-related inter-group conflicts on Korean ethnic solidarity (Min, 1991, 1995, 1996; Min and Bozorgmehr, 2000). This chapter briefly examines Korean immigrants’ concentration in small businesses, their business-related intergroup conflicts, and the effects of inter-group conflicts on ethnic solidarity by reviewing previous studies by this author and other researchers. As clarified elsewhere (Min, 1996: 5; Min and Bozorgmehr, 2000), in examining the effects of ethnic business on ethnicity it is important to make a distinction between ‘ethnic attachment’ as the cultural, social, and psychological integration of members of a group into the ethnic community and ‘ethnic solidarity’ as their use of ethnic collective action. Although ethnic businesses usually increase ethnic attachment, only ethnic businesses involving inter-group conflicts enhance ethnic solidarity. As will be shown shortly, Korean merchants have encountered multifaceted conflicts with different groups (black customers, white suppliers, Latino employees, and white landlords) and government agencies. As conflict theorists indicated (Coser, 1964; Simmel, 1955), inter-group conflicts strengthen ethnic solidarity as well as other forms of group solidarity. In this chapter, I intend to show how Korean immigrants’ business-related inter-group conflicts have concentrated not only Korean merchants but also the Korean community as a whole. Korea immigrants’ concentration in small businesses A high self-employment rate The visibility of Korean-owned stores in Los Angeles, New York, and other cities, along with the mainstream media’s coverage of Korean immigrants’ commercial activities, creates the impression that Korean immigrants are a business-oriented trading minority. Census 212

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Table 14.1 Self-employment rates of top nine most entrepreneurial immigrant groups in 1980, 1990, 2000 (%)

Ancestry Greece Iran Israel Hungary Italy Korea Netherlands Pakistan Taiwan

1980

1990

2000

Number of workers in 2000

15 18 22 16 14 17 14 10 10

26 20 22 18 16 25 17 15 14

26 21 23 18 17 22 16 15 14

99 901 185 508 74 645 41 627 252 203 516 023 57 614 128 386 216 646

Sources: US Bureau of the Census, 1980, 1990, 2000 Census of Population, 5 per cent Public Use Microfiche Sample Data.

and survey data support the validity of this general perception. Table 14.1 shows the top nine most entrepreneurial immigrant groups based on 1980, 1990 and 2000 census data. In 1980, 17 per cent of Korean immigrants in the labor force were self-employed. Korean immigrants had the third highest self-employment rate among all immigrant groups, next to Israelis and Iranians in that year. The self-employment rate of Korean immigrants increased in 1990 to 25 per cent. Greek and Korean immigrants recorded the highest selfemployment rates in 1990 with 26 per cent and 25 per cent. In 2000, the self-employment rate of Korean immigrants slightly fell to 22 per cent. This may be due to the increase in the proportion of Korean professional immigrants since 1990. The Immigration Act of 1990 increased both annual immigrant visas by 40 per cent and occupational visas to 145 000, about threefold. Korean immigrants comprise the largest group among the top nine most entrepreneurial immigrant groups included in Table 14.1. In fact, the Korean immigrant population is much larger than any of the other immigrant populations. This shows the significance of Korean immigrants as a trading minority in the United States. This means that Korean-owned businesses are more visible to the American public than, for example, Greek- or Pakistani-owned businesses (both groups in New York City are heavily concentrated). Chinese, Filipino, and Indian populations (the other three major Asian groups) are much larger than the Korean population, but these three groups have much lower self-employment rates (10 per cent for Chinese, 5 per cent for Filipinos, and 11 per cent for Indians in 2000) than Korean immigrants. The self-employment rate of Korean immigrants is highly correlated with the size of the Korean community partly because Korean immigrants in a large Korean community can establish many businesses catering to Korean customers and partly because Korean immigrants in a very small Korean community include a higher proportion of professionals who work in the mainstream economy.1 Thus 35 per cent of Korean immigrants in Los Angeles, the largest Korean community in the United States, were self-employed in 1990, achieving the highest self-employment rate among all immigrant groups in the city.

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Table 14.2 Self-employment and employment patterns of Korean immigrants in Los Angeles and Orange Counties who participate in the labor force, by sex (1986) Job type Self-employed Employed in Korean firms Employed in non-Korean firms Total

Men

Women

Total

179(53%) 88(26%)

57(36%) 49(31%)

236(47%) 137(28%)

71(21%)

53(33%)

124(25%)

338(100%)

159(100%)

497(100%)

Source: The 1986 Survey of Korean Immigrants in Los Angeles and Orange Counties.

Census surveys, based on the respondents’ self-reports, underestimate the selfemployment rate of the population for a number of reasons (Light and Rosenstein, 1995: 33–55). A survey conducted in Los Angeles and Orange Counties in 1986 by this author reveals a much higher self-employment rate of Korean immigrants than the 1990 census data shows (35 per cent). As shown in Table 14.2, the majority of Korean male respondents and more than one-third of female respondents in the two Southern California counties were self-employed. Forty-five per cent of Korean workers in Southern California (the respondents, their spouses and other working family members) were self-employed. The 1986 survey revealed that 53 per cent of the represented households owned at least one business. Few Korean immigrants who entered the United States in the late 1960s and the early 1970s intended to open their own businesses here. They expected to obtain white-collar and professional positions in fields they were originally trained for. However, because of the language barrier and other disadvantages for employment, most of these immigrants had to switch to low-level, blue-collar occupations, such as gas pumping, maintenance, and garment manufacturing (Min, 1988). They reluctantly turned to small businesses as an alternative to these undesirable jobs. They were unprepared to establish their own businesses and, accordingly, it took a long period of time for them to accumulate start-up capital and to train themselves in how to start a business. Recent Korean immigrants are better prepared to start their own businesses than those who came in the 1970s, since they are informed in Korea that self-employment is the only option for most of them. Thus, they usually expect to run businesses in the United States. For example, in one pre-departure survey study conducted in Seoul in 1986, 71 of the male respondents reported that they would go into business when they came to the United States (Park et al., 1990: 86). In the early 1970s, many Korean immigrants attended language and vocational schools in Korea to improve their qualifications for employment in the American labor market. By contrast, most prospective Korean immigrants these days try to bring enough money with them to establish their own businesses as quickly as possible. Once they arrive here, Korean immigrants easily acquire business information and training through their employment in Korean-owned businesses. As a result, they can start their own businesses much more quickly than the Korean immigrants of the 1970s.

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The 1986 Los Angeles survey showed that it took earlier immigrants (those who immigrated prior to 1979) longer than recent immigrants (those who immigrated after 1979) to establish their first businesses. Forty-seven percent of recently arrived immigrants started their first business during their first year in the US, whereas only 31 per cent of their predecessors were able to do so. Types of major Korean businesses When minority/immigrant groups are over-represented in small businesses, they tend to be concentrated in a few or several types of businesses. Korean immigrants are heavily concentrated in several labor-intensive small businesses, such as the grocery/green grocery retail, fish retail, retail of manufactured goods imported from South Korea and other Asian countries, dry cleaning, and garment manufacturing. The retail grocery/liquor is the most popular Korean business common to all major Korean communities in the United States. Yang Il Kim, the president of the Korean American Grocers Association (the national organization established in 1989), estimated that there were approximately 25 000 Korean-owned grocery stores in the United States and Canada as of December 1991. He told me there were some 2800 Korean-owned grocery/liquor stores in Southern California in 1991, which accounted for about 25 per cent of independent grocery/liquor stores in that area. Korean immigrants in Atlanta, Philadelphia, Washington, and Seattle are also heavily concentrated in the retail grocery business. In the New York–New Jersey area, produce retail is probably the best-known Korean business, numbering about 1800 in 1994. Another type of Korean-owned businesses common to major Korean communities is the retail of manufactured goods imported from South Korea and other Asian countries. These items include wigs, handbags, clothing, costume jewelry, hats, and shoes. This type of business has been made possible mainly because of the radical increase in Korean exports to the United States since the late 1960s. Taking advantage of their native language and connections with South Korea, many Korean immigrants established import and wholesale businesses dealing with Korean-imported fashion items in the 1960s and 1970s. There were approximately 600 Korean-owned import businesses in the Los Angeles–Long Beach area and 500 in the New York–New Jersey metropolitan area in the early 1990s. Korean importers in Los Angeles and New York supply Korean and Asianmade goods to other Korean wholesalers, who in turn distribute mainly to Korean retailers all over the country. Thus, this is the only Korean retailer business in which Korean merchants have advantages in terms of prices, selection of hot items, and purchases on credit by virtue of their linkages with Korean wholesalers. Another popular Korean business line in the United States is the dry cleaning service. The dry cleaning business is attractive to Korean immigrants partly because it is very suitable for a family business involving husband–wife coordination and partly because it involves shorter hours of work (usually 7 to 7) and a lower level of physical strength than other types of retail businesses. There are approximately 1500 Korean-owned nail care shops and 700 fish retail stores in New York, but these two businesses, along with produce retail, are not popular Korean businesses in other major Korean communities. In addition, there were approximately 600 Korean-owned garment-manufacturing businesses in Los Angeles and 350 in New York in the early 1990s. More than 95 per cent of Korean garment manufacturers subcontract work from white, mainly Jewish, manufacturers.

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Large numbers of Chinese and Latino immigrants in Los Angeles and New York also engage in garment subcontracting (Bonacich et al., 1994; Waldinger, 1986). Concentration in minority neighborhoods and other business-related inter-group contacts A ‘middleman minority’ bridges two groups in a stratified – often a racially stratified – society by distributing the products made by the ruling group to minority customers (Blalock, 1967: 79–84; Bonacich, 1973; Rinder, 1958–59). Chinese in Asian countries, Asian Indians in African countries, and Jews in Medieval Europe were considered typical middleman minorities. Korean merchants in the United States draw customers from three groups: white, black/Latino, and Korean, yet they depend upon low-income minority customers, especially blacks, to a greater extent than would be expected by chance. Since there are some structural factors that encourage Korean immigrants to enter small businesses in minority neighborhoods, Korean immigrant merchants can be considered to play a middleman minority role in the United States. The concentration of Korean businesses in black neighborhoods is clear when we observe the three cities where this author conducted research. Although blacks constituted 24 per cent of the population in the four Atlanta counties where most Korean businesses were located, black customers comprised 44 per cent of the total customers for Korean-owned businesses in Atlanta in the early 1980s (Min, 1988: 69). Only 9 per cent of Koreans lived in Brooklyn in 1990, yet more than 25 per cent of the New York City’s Korean businesses were located in this borough, which was heavily populated by blacks (Min, 1996: 66). More important, at least one-third of small businesses in many black neighborhoods in Brooklyn were owned by Korean business owners in the early 1990s. For example, in April 1990, when the Brooklyn Church Avenue boycott was in progress, 23 of 67 businesses within five blocks of Church Avenue were owned by Koreans (Lee, 1993: 64). Korean immigrants also owned the majority of businesses in South Central Los Angeles (heavily black and Latino neighborhoods) in the early 1990s. For example, at the end of 1991, when the death of two blacks in Korean stores heightened Korean–African American tensions in Los Angeles, Korea Times Los Angeles reported that in addition to about 1000 Korean-owned swap meet stores there were approximately 600 Korean grocery and liquor stores, gas stations, and other Korean-owned stores in South Central Los Angeles, which accounted for about 80 per cent of all businesses there (Korea Times Los Angeles, 1992). There are two types of Korean businesses in minority neighborhoods, and some structural factors encourage Korean immigrants to operate both types of businesses in black neighborhoods. One type of businesses heavily concentrated in black neighborhoods is the grocery/liquor business. Predominantly white neighborhoods have major grocery chains and therefore do not need Korean-owned small grocery stores. There are, however, few grocery chains in low-income black neighborhoods. Because of the low spending capacity of the residents, high crime rates, and vandalism, big grocery chains are unwilling to invest in these areas (Light and Bonacich, 1988; Min, 1988: 73). Moreover, many people in black neighborhoods do not have their own cars, and thus they depend upon small grocery stores in their neighborhood for major grocery shopping. Accordingly, independent Korean grocers in low-income black neighborhoods do not encounter as much competition as those in predominant white areas.2 This suggests that racial segregation in urban residential patterns has created small business niches in

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low-income minority neighborhoods, which have been filled by Korean and other immigrant merchants. The other major Korean business in minority areas is the fashion business. Koreanowned fashion stores deal largely in Korean- and other Asian-imported merchandise, such as wigs, handbags, hats, clothing and shoes. Korean storeowners have the advantage of easy access to Korean suppliers and importers. Whereas American buyers distribute these Asian-imported manufactured goods to department stores in white neighborhoods, Korean importers provide them directly to Korean retailers (Chin et al., 1996). A large number of Korean merchants, particularly Korean swap meet owners in Southern California and Korean flea market owners in New York, sell fashion items directly to African American and Hispanic customers. Korean owners of fashion stores in minority neighborhoods, like Korean small grocers, have a competitive advantage because there is no department store in low-income black neighborhoods. Korean grocery and liquor storeowners in black neighborhoods play a typical middleman minority role because they distribute products made by large white-owned corporations to minority customers. Korean produce owners in black neighborhoods in New York also play a middleman minority role because they get fruit and vegetables from white, predominantly Jewish, suppliers. As will be shown later, Korean grocery/liquor storeowners and produce storeowners have had a lot of conflicts with both black customers and white suppliers. Moreover, Korean business owners, regardless of their business type, depend largely on Mexicans and other Latinos for operation of their businesses. For example, in the 1986 survey, Mexican workers were found to comprise 48 per cent of employees in Korean-owned businesses in Los Angeles and Orange Counties, outnumbering Korean employees (40 per cent) (Min, 1996: 114). In a survey of Korean businesses in black neighborhoods in New York City conducted in 1992, Latino employees were found to be the largest category of employees with 42 per cent, followed by blacks (31 per cent) and Koreans (23 per cent) (ibid.). In addition, Korean merchants heavily depend upon white landlords, especially Jewish landlords. For example, the Korean Small Business Service Center estimated that less than 10 per cent of Korean merchants in New York City own the buildings where their businesses operate; the others usually depend upon white landlords, who are mostly Jewish (Min, 1996: 177). As a result, Korean merchants have had conflicts with Latino employees and white landlords, as well as with black customers. The following section focuses on Korean immigrants’ business-related conflicts with these outside groups. Korean immigrants’ business-related inter-group conflicts Conflicts with and rejection by black customers Like middleman merchants in other societies, Korean merchants in black neighborhoods have been subjected to all forms of hostility, rejection, and violent reactions. Korean ghetto merchants in Los Angeles, New York, Philadelphia, Chicago, and other cities have experienced blacks’ rejection and hostility in different forms: verbal and physical assaults, press attacks, murder, arson, boycotts, and looting. Black hostility towards Korean merchants has been most severe in New York. Five long-term (lasting at least five weeks) black boycotts of Korean stores have occurred since 1981. The boycott of two Korean produce stores in Brooklyn, New York City, in January 1990 drew national media headlines. It

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started after a scuffle between a Haitian immigrant woman, who paid only two dollars for a three-dollar item, and the Korean manager of the store, who allegedly beat the customer (Min, 1996; C. Kim, 2000). When there was a rumor that the Haitian woman had died from the beating, local residents began to picket in front of the store. The next day, another Korean produce store across the street also became the target of the boycott. The Haitian Economic Development Association, a local black community organization, originally organized the boycott. Later, Sony Carson, president of the December 12th Movement, a Black Nationalist organization, made it a long-term boycott by guaranteeing that a dozen demonstrators were on duty almost every day. The boycott ended in May 1991, after the owner of the originally boycotted store sold his business to another Korean. In the 1980s and the early 1990s, several Korean merchants in black neighborhoods in New York City were also subjected to physical violence. In addition, arsonists have destroyed several Korean stores in black neighborhoods in New York City (Min, 1996: 79). In the 1980s, Korean immigrants in Los Angeles had maintained better relations with blacks than those in New York. However, black–Korean tensions were heightened there in the spring of 1991 when a 14-year-old black girl was shot to death in a Korean-owned grocery store while struggling over an unpaid bottle of orange juice with the female owner. Blacks were angrier about the court decision than about the incident when Du Soon Ja, who shot the girl, was given a five-year probation in November 1991. Unfortunately, five months later, the jury verdict of innocence in the case of four white police officers accused of beating a black motorist, Rodney King, sparked the riots in Los Angeles. Approximately 2300 Korean stores in South Central Los Angeles and Koreatown became targets of destruction and looting in the 1992 Los Angeles riots. Korean merchants suffered property damages of more than 350 million dollars, about 45 per cent of total damages incurred by the Los Angeles riots. Many Korean stores were targets of arson and looting in the Los Angeles riots mainly because a disproportionately large number of Korean stores were located in South Central Los Angeles’s black and Hispanic neighborhoods. Yet there is evidence that black rioters selectively targeted Korean-owned stores. A post-riot investigation by the FBI indicated that black gangs, who were responsible for planning the Los Angeles riots, consciously targeted Korean-owned stores for arson and looting (Min, 1996: 90–91). Korean–black conflicts commonly start with an altercation between Korean merchants/employees and black customers in Korean-owned stores. Korean merchants’ language barrier, their cultural differences from black customers, and mutual prejudice have all contributed to the interracial tensions felt in business transactions between Korean merchants and black customers. However, these socio-psychological variables cannot explain blacks’ long-term boycotts of Korean stores and their targeting of Korean stores for arson and looting. Black Nationalists, such as Sonny Carson, usually organized boycotts of Korean stores because they consider outsiders’ commercial activities in black neighborhoods as economic exploitation (H. Lee, 1993; Min, 1996: 109–17). Thus, the Black Nationalist ideology emphasizing the economic autonomy of the black community and the perception of Korean merchants as economically exploiting blacks are also important contributing factors to blacks’ hostility toward Korean merchants. In addition, the exaggerated, unbalanced, and even biased media coverage of Korean–black conflict has deteriorated the already strained relations between the two communities. Finally, economic problems in inner-city black neighborhoods and Korean immigrants’ disadvantages for

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economic adjustment have provided structural conditions for blacks’ hostility toward Korean merchants. Although the larger system is responsible for black economic problems, Korean immigrants trapped in small businesses in low-income black neighborhoods bear the brunt of blacks’ economic frustrations because they are easy targets. Korean merchants’ conflicts with other groups As previously noted, only Korean retailers selling fashion items such as wigs, clothing, shoes and costume jewelry depend upon Korean suppliers. The other Korean merchants (produce, grocery, liquor, and fish retailers) depend mainly upon white suppliers. Korean merchants’ relationships with white suppliers also involve inherent tensions as both groups intend to maximize their economic interests. Korean merchants have encountered discrimination by white suppliers in terms of prices, quality of merchandise, item selection, speed of delivery, parking allocations, and overall service. For example, Korean produce retailers and produce delivery truck drivers in New York buy fruit and vegetables at Hunts Point Market, probably the largest produce wholesaler market in the United States. Korean produce retailers visiting Hunts Point Market have had altercations with employees of wholesalers; some Korean merchants have been severely beaten (Kim, 1981; Min, 1996). Also, white wholesalers have discriminated against Korean merchants in different ways (Kim, 1981: 118–19; Min, 1990; 1996: 170–71). Many times Korean produce retailers have not been allowed to exchange merchandise. They have often been forced to buy items they did not want. They have had to wait longer than white retailers to get their purchases loaded in their cars. These disputes and discrimination in business transactions have been caused partly by white owners and employees’ prejudice against and stereotyping of Koreans, although Korean merchants’ language problems and cultural differences have played a role. Korean grocery and liquor storeowners have encountered similar forms of discrimination by white manufacturers and wholesalers. As noted above, more than 90 per cent of Korean garment factory owners subcontract work from white manufacturers. Their dependence upon white manufacturers involves a higher level of exploitation than Korean grocers’ dependence upon white suppliers because Korean and other immigrant garment subcontractors are involved in cutthroat competition to get subcontracting from white manufacturers, whereas Korean grocers choose white suppliers who are in less fierce competition. A number of studies have analyzed the exploitation of immigrant garment owners, including Korean immigrants, by white manufacturers (Bonacich et al., 1994; Light and Bonacich, 1988: 382–91). We previously noted that Korean merchants depend heavily upon Mexican and other Latino employees. Their dependence upon Latino employees also leads to another form of inter-group conflicts. New Latino immigrants and illegal residents find the employment they need in Korean-owned stores because they are severely disadvantaged for employment in the general labor market in terms of language, educational level, and legal status. Korean merchants prefer Latino employees to black employees mainly because they are ‘hardworking, cheap, and docile’ (Min, 1996: 114).3 In this sense, Korean immigrant merchants and Latino immigrant workers help each other. However, approached from another angle, the relationship between Korean merchants and Latino employees is problematic. Korean merchants prefer Latino workers mainly because the latter are cheap and docile, but for the very same reasons Koreans can be charged with exploiting Latino employees.

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The strained relations between Korean merchants and Latino employees in Los Angeles4 are most conspicuous in garment subcontracting, an industry that is notorious for exploiting its workers (Bonacich et al., 1994). In the late 1980s and the early 1990s, 700 Korean garment factories depended largely on Mexican employees. As Light and Bonacich (1988: 305–8) indicated, Korean garment subcontractors frequently violated labor regulations. My 1986 survey of Korean immigrants in Los Angeles and Orange Counties suggested that Korean garment subcontractors exploited Mexican employees.5 But, as noted above, the ultimate exploiters of Latino workers are white manufacturers who give Korean and other immigrant garment factory owners subcontracts with low margins. Mexican workers employed in Korean produce stores in New York City have picketed in front of Korean stores several times. The most recent picketing occurred in 2002, in which several Korean produce stores were targeted and one of them was forced to close. We previously noted that Korean merchants depend largely upon white landlords for their commercial buildings. The conflict between landlords and renters is inevitable because their goals are in sharp conflict. When landlords and renters are racially divided, their conflict of interest easily leads to racial conflict. Korean merchants can generally change suppliers if they do not like their prices and/or services, although it is not always possible. But they cannot change landlords as easily as they change suppliers. Thus, the dependence upon white landlords has the potential to involve a higher level of exploitation. Many Korean immigrants buy a failing business or open a new one and then turn it into a thriving business within a few years (Min, 1988). As Korean-owned businesses become more successful, some landlords raise rents by a significant margin over a short period of time.6 This escalating rent problem is most serious in New York. A large number of Korean immigrants operate general merchandise shops, deli stores, produce retail shops, restaurants, and wholesale stores along Broadway in Manhattan. In the 1980s, Korean merchants there experienced rent hikes two or even three times over a period of three to five years. Korean merchants in Manhattan felt that ‘the money earned by our hard work goes more to white landlords than to ourselves’ (Min, 1990: 443). To operate their businesses, Korean merchants have to deal not only with the abovementioned outside interest groups, but also with various government agencies that regulate small business activities. For example, city, state and federal governments have many laws and administrative orders pertaining to business licensing, commercial parking, disposal of commercial wastes, sidewalk obstruction, sanitary conditions of stores, and other aspects of operating businesses. These regulations have not been made specifically to hurt Korean merchants; they have negative effects on all small business owners. However, since the majority of Korean immigrants engage in small businesses, they have a common concern about ‘too tough governmental regulations’. Thus, as will be shown later, Korean merchants have also responded collectively to moderate governmental regulations. Korean merchants’ reactive solidarity I have thus far examined how Korean merchants have encountered conflicts with different external groups and government agencies over their economic interests. In this section, I will show how Korean merchants’ business-related conflicts with outside groups and governmental agencies have contributed not only to Korean merchants’ solidarity but also to community-wide ethnic solidarity. I will examine the effects of conflicts with (1) black

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customers, (2) white suppliers, and (3) government agencies separately. Korean merchants have made collective responses to Latino employees and white landlords as well, but, owing to space limitation, I will not cover the effects of these two forms of inter-group conflicts on Korean ethnic solidarity in this chapter. The effects of black hostility on ethnic solidarity Of all forms of business-related inter-group conflicts, black hostility in the form of armed robbery, physical violence, murder, arson, boycotts, and riots has undoubtedly been the most serious type of threat Korean merchants have encountered. Therefore, Korean–black conflicts have had the most pronounced effects on Korean internal solidarity. A series of conflicts with blacks made Korean merchants more aware of the potential collective threat in this country from blacks and have thus contributed to the fostering of solidarity among Korean merchants. By establishing local business associations, Korean merchants in black neighborhoods have tried to solve the problems with black customers and residents collectively. While a number of minor and major incidents of business-related conflict with blacks have enhanced Koreans’ solidarity, two events, the 1990 boycott of two Korean stores in New York City and the destruction of many Korean stores in the 1992 Los Angeles race riots, have most significantly affected the Korean community in terms of their ethnic solidarity and political consciousness. I analyze here only the effects of the 1990 Brooklyn boycott on Korean ethnic solidarity.7 The 1990 Brooklyn boycott of two Korean stores occurred about one year after another black boycott, led by the same black nationalists, had successfully forced a Korean store in Brooklyn to close. Korean community and business leaders agreed that, if the two boycotted stores were coerced into closing, another Korean store would soon be targeted. Therefore, they made all efforts to support the two produce stores financially until the boycott retreated. In the early stage of the boycott, the Korean Produce Association of New York and the local business association in Brooklyn raised funds, mostly from their members, to help their fellow storeowners. The Korean Association of New York and other Korean business associations quickly followed them in raising funds from the Korean community. A fund of approximately $150 000 was raised during the first year of the boycott, providing each boycotted storeowner with about $7000 per month. Although the sales volume of each store was reduced to almost nothing during that year, each was able to stay open, mainly because of the community contributions. The two storeowners received not only financial, but also strong moral support from Koreans all over the country throughout the boycott period. They received many letters from Koreans, including second-generation elementary school children, encouraging them not to close their stores. They were interviewed by the ethnic media numerous times and invited to give talks at many important ethnic meetings. Even the Korean Lions Club in Los Angeles invited one of the storeowners for an interview. In an interview with the Korean ethnic media in Los Angeles, Jang Bong Jae promised that he would never close his store. Suddenly, the two storeowners became heroes in the Korean community. A number of Korean churches in New York showed their support by taking their church members to shop at the stores on Sundays. Several Korean produce storeowners took turns working at the stores at night to encourage the dejected storeowners. One Korean lawyer volunteered to provide free legal services for them for a six million-dollar lawsuit against the picketer who beat the wife of one of the boycotted storeowners.

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Koreans also used political means to terminate the boycott. Korean community and business leaders in New York visited the Brooklyn Borough president, the New York City mayor, the New York State Legislature, and even the US president. They pressured them to take effective measures to break the boycott. In particular, Korean community leaders asked Mayor David Dinkins to enforce the court order that picketers stay 50 feet away from the boycotted stores. When the black mayor did not actively intervene to terminate the boycott, the Korean Association of New York planned to hold a mass demonstration in front of the City Hall to show Koreans’ dissatisfaction with the black mayor’s lukewarm effort to terminate the boycott. The demonstration was held in front of City Hall on 18 September 1990. About 7000 Koreans, approximately 15 per cent of the adult Koreans in New York City, participated. In order to bring as many Koreans to the rally as possible, most Korean taxicab companies in the city provided free transportation, using more than 100 taxicabs. The Korean American Senior Citizens Center mobilized its members, many of whom came in traditional Korean dress. The Council of Korean Churches of Greater New York encouraged all Korean churches to mobilize as many members as possible, and many churches came to the rally in church vans. Koreans achieved their objectives through the rally. They told the media, politicians, and the public that they would not keep quiet if they were treated unfairly. All major US media and many foreign media covered the demonstration. Moreover, the rally prompted the mayor to act. The next day, he enforced the court order to keep picketing 50 feet from the stores. As a result, the police arrested many picketers, thereby weakening the boycott. On 21 September, three days after the rally, Mayor Dinkins also made a symbolic gesture by visiting the boycotted stores and purchasing merchandise, thus encouraging black residents to shop at the targeted stores. Korean merchants’ collective responses to white suppliers Whereas Korean merchants’ conflicts with black customers and residents have contributed to solidarity among all Koreans, their conflicts with white suppliers enhanced solidarity and political skills among themselves. By establishing business associations, Korean merchants acted together to protect their economic interests against white suppliers. They have used demonstrations, boycotts, group purchase, and other collective actions. I previously pointed out that Korean produce retailers in New York have encountered unfair treatment by white suppliers. The Korean Produce Association of New York, established in 1974, has used more ethnic collective actions in the forms of demonstrations and boycott against white suppliers than any other Korean business association in New York. Its office is located at Hunts Point Market, where Korean produce retailers purchase fruits and vegetables every day. Whenever a Korean produce retailer is treated unfairly by a supplier, he or she is supposed to report the incident to the KPANY, which immediately sends a ‘troubleshooter’ to the scene to resolve the conflict. The organization also has funds ready for legal actions against suppliers. Since Korean produce retailers comprise the majority of customers for the wholesalers, the KPANY has used boycotts as the most effective strategy to defend Korean merchants against suppliers. Between 1977 and 1991, the KPANY organized five demonstrations, four against suppliers and one against the New York Daily News, as well as five boycotts of suppliers (Min, 1996: 195–7).

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Let me introduce one such demonstration and a boycott organized by the KPANY (ibid.: 172). In May 1985, 250 Korean merchants participated in a demonstration, organized by the KPANY against a white supplier. The wholesaler’s employee falsely accused two Korean merchants of stealing merchandise when the Koreans could not find their receipts; the merchants’ trucks were searched and they were detained for two hours until they found their receipts. Furious about the abuse and humiliation that the Korean employees had suffered, Korean produce retailers decided to retaliate against the wholesale store with a demonstration and a boycott. They started with a rally and then began a boycott of the wholesaler that lasted one week. Severely damaged by the loss of business, the wholesaler arranged a meeting with the KPANY’s leaders to negotiate a settlement. At the meeting, the Korean representatives demanded that the wholesale company formally apologize to Korean merchants for the incident, that employees of the company be more polite to Korean customers in the future, that the company educate its employees on how to serve Korean customers more politely, and that the company compensate the produce retailers for the monetary loss and psychological damage caused by the twohour detention. The company accepted the first three demands and made a formal apology in front of 60 Korean merchants. Wholesalers at Hunts Point Market are now well aware that they will be the targets of boycotts if they do not treat Korean merchants properly. Therefore, they try to satisfy Korean retailers. The secretary of the KPANY told me that they no longer needed to use boycotts because wholesalers responded quickly to their complaints and requests. The simple threat of boycotting is effective because Korean immigrants in New York monopolize the produce retail business. Since Korean merchants make up the majority of customers for most wholesalers at Hunts Point Market, their boycott can seriously hurt wholesale stores. Korean grocers in New York have also taken collective actions to protect their economic interests from suppliers (Min, 1996: 172–4). Unlike produce retailers who visit Hunts Point Market, Korean grocers usually purchase grocery items delivered to their stores by wholesale trucks. Therefore, Korean grocers have not experienced frequent confrontations with employees of wholesalers, and the Korean–American Grocers Association of New York (KAGRONY) usually does not need to resort to boycotts. Instead, it has used price bargaining and collective purchasing to protect its members’ interests against suppliers and manufacturers. The president and staff members of the KAGRONY regularly visit vendors and manufacturers, present them with data on Korean grocers in the New York metropolitan area, and explain how important Korean grocers in New York are to them as customers. They then ask manufacturers and wholesalers to lower prices of major grocery items for Korean retailers, threatening to endorse other competing companies if they do not comply. The KAGRONY has successfully negotiated with many wholesale companies for price reductions for Korean grocers. My interviews show Korean garment subcontractors, unlike Korean produce and grocery retailers, have been unable to use their collective actions effectively to protect their interests against white garment manufacturers, mainly because they are in excessive competition with both Korean and non-Korean immigrant garment subcontractors. Since Korean garment subcontractors approach white manufacturers individually and offer prices to get work, the Korean Apparel Contractors Association of New York can do little collectively to protect the interests of its members. The president of the KACA told me

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that, if Korean subcontractors were to take concerted action, they would have to compete with other immigrant manufacturers (mostly Chinese and Latino) who are willing to do anything to get work from manufacturers. Korean merchants’ collective responses to government agencies Korean merchants in New York also have responded collectively to government regulations on small business activities (Min, 1996: 183–91). The Korean Small Business Service Center, established in 1986, serves as the representative for all Korean trade associations in dealing with government agencies. Two of the major functions of the KSBSC are to negotiate with city and other governmental officials to help Korean merchants who have violated business regulations and to lobby lawmakers and government agencies to make business regulations less strict. Staff members of the KSBSC visit City Hall at least three times a week, meeting government officials to protect Korean merchants both individually and collectively. For example, at the end of 1990, the New York City Environment Control Department increased the fine for violating sidewalk litter law (which requires each store owner to clean the store area) from $25 for a regular violation, and $50 for a repeat violation, to $125 and $250. In 1991, when the increased rates went into effect, some Korean produce owners were charged with repeat violations and found themselves owing large amounts of money, with about 30 Koreans receiving tickets amounting to $10 000 or more. Staff members of the KSBSC helped many Korean merchants reduce fines significantly by negotiating with government officials. The KSBSC has also actively lobbied government officials and politicians to change business regulations. For example, the center successfully lobbied the New York City Consumer Affairs Department to make the Trade Waste Association lower the commercial waste disposal fee by 7.5 per cent, helping nearly 10 000 Korean merchants to save considerable amounts of money. Another instance involved the regulation of sidewalk stands. New York City had stipulated that stores located on streets 16 feet wide or wider could have stands displayed on the sidewalk up to four feet wide and ten feet long. Many Korean produce retailers paid heavy penalties for extending their sidewalk stands beyond these limits. Sing Soo Kim, director of the KSBSC, lobbied the city government administrators and the city council relentlessly, arguing that such a strict rule made it difficult for small produce and flower retailers to survive in New York City. The New York City Council passed a bill effective as of July 1993 that increased the allowable width from four feet to five feet. Kim’s lobbying activities were instrumental in the bill’s passage. He estimated that the extension of sidewalk stands would result in a $25 million increase in annual sales for New York City’s Korean-owned businesses. In addition to the KSBSC, several Korean trade associations have individually lobbied the city or state governments to change regulations in their favor. Let me give an example here (Min, 1996: 189). In 1991, the New York State Legislature proposed a bill that would require anyone operating or working in a nail care salon to have a nail care specialty license and would levy heavy penalties on those who violated sanitary regulations. According to the original bill, the nail care specialty license would have required 600 hours of education followed by a qualification examination. The Korean Nail Salon Association of New York actively lobbied New York State government officials and members of the state legislature to get their alternative bill accepted. Leaders of the KNSANY recommended that those with one or more years of work experience with nail care in New York

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State be given a license without any mandatory instruction or examination. Although the Association of Nail Schools strongly opposed this recommendation, the final bill contained a grandfather clause to accommodate KNSANY’s request. This helped many Korean nail care owners and workers to save thousands of dollars. Furthermore, in enforcing the law, the New York State Division of Licensing Services initially stipulated that only official documents such as Social Security cards, work permits and W-2 or tax return forms would be accepted as evidence of job experiences. The KNSANY successfully negotiated with the Division of Licensing Services to eliminate this requirement, thus enabling many Korean women with no work permits, such as students’ wives, to keep their jobs in Korean nail salons. Conclusion To sum up the foregoing analyses, black hostility toward Korean merchants in black neighborhoods, as the most serious threat to their economic survival, has contributed to Korean ethnic solidarity to a greater extent than any other type of Korean merchants’ business-related inter-group conflicts. Black boycotts of Korean businesses and the destruction of so many Korean stores in the 1992 Los Angeles race riots, in particular, have solidified the Korean community as a whole and awakened Koreans’ political consciousness. Korean merchants’ conflicts with white suppliers, Latino employees, white landlords, and government agencies over business interests have also forced them to use ethnic collective actions. As a result, Korean merchants have not only protected their business interests, but also improved their political skills. Although Korean immigrants have a language barrier, they know how to lobby government officials and politicians better than Indian immigrants who are fluent in English. Korean merchants engaged in typical middleman business such as grocery, liquor and produce retail owners have used ethnic collective actions more frequently because they have had conflicts with both minority customers and white suppliers. Korean merchants engaged in service businesses such as nail care and dry cleaning depend neither on minority customers nor on white suppliers. Accordingly, they have not had frequent recourse to collective action. But all Korean merchant groups, including nail salon owners and dry cleaners, have used collective strategies to protect their economic interests against white landlords and government agencies. The above discussion indicates that Koreans’ business-related inter-group conflicts rather than their concentration in small business itself have generated ethnic solidarity. From this, we can make references about other Asian minority groups active in small businesses. For example, Chinese immigrants in New York are heavily concentrated in Chinese restaurants and garment subcontracting (Kwong, 1987). The Chinese restaurant business is not heavily dependent upon minority customers or white suppliers, so we can infer that Chinese restaurant owners in New York have encountered far fewer business-related intergroup conflicts and have therefore used ethnic collective actions far less frequently than Korean produce or grocery retailers. In fact, the heavy dependence of Chinese businesses on co-ethnic employees has contributed to class conflicts among Chinese immigrants, severely weakening their ethnic solidarity (Kwong, 1987). This suggests that a particular pattern of immigrant entrepreneurship can enhance and weaken ethnic solidarity. This study is important because researchers of immigrant entrepreneurship have not paid much attention to the effects of business patterns on group solidarity.

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Notes 1. Unless Korean immigrants have professional occupations in the mainstream economy, they do not want to live in a small city with a small Korean population. 2. According to my study of Korean businesses in Atlanta, Korean grocery stores located in black neighborhoods were found to be more successful than those in white neighborhoods. See Min (1988: 118). 3. The preference for Latinos is not limited to Korean merchants. As Waldinger and Lichter (2003) have demonstrated, all business owners and managers, regardless of industry, prefer Latino employees for similar reasons. But the relationship between Korean merchants and Latino employees is problematic because proportionally more Korean merchants hire Latino employees. Chinese garment subcontractors in New York City depend heavily upon Chinese immigrants and illegal residents. 4. At least in Koreatown in Los Angeles, where Mexicans comprise the majority of the population, the two groups are involved in two other types of economic conflict: as landlords and renters, and as storeowners and customers. According to Oliver and his associates (Oliver et al., 1993), these three dimensions of conflict explain why a large number of Mexican residents participated in looting Korean stores in Koreatown during the Los Angeles riots. 5. A few Korean female respondents reported that they were unwilling to work in Korean-owned garment factories with many Mexican employees because ‘those garment factories would treat us more like Mexican workers and thus exploit us more’. 6. Korean immigrants’ strong competition to acquire business premises is partly responsible for this rent hike. It is not uncommon, when a Korean immigrant leases a building for business operation, for another Korean to offer a higher rent to the landlord. 7. This description of the effects of the 1990 Brooklyn boycott of two Korean stores on Korean ethnic solidarity is based on the subsection, focusing on the topic, of my 1996 book, Caught in the Middle, pp. 148–54.

References Abelmann, Nancy and John Lie (1993), Blue Dreams: Korean Americans and the Los Angeles Riots, Cambridge: Harvard University Press. Asante, M.K. and E.J. Min (eds) (2000), Socio-cultural Conflict between African Americans and Korean Americans, Lanham, MD: University Press of America. Blalock, Hubert M., Jr (1967), Toward a Theory of Minority-group Relations, New York: John Wiley. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 35, 583–94. Bonacich, Edna, Lucie Cheng, Norma Chinchilla, Nora Hamilton and Paul Ong (1994), Global Production: The Apparel Industry in the Pacific Rim, Philadelphia: Temple University Press. Chin, Ku-Sup, In-Jin Yoon and David Smith (1996), ‘Immigrant small business and international economic linkage: a case study of the Korean wig industry in Los Angeles, 1968–1977’, International Migration Review, 30, 485–510. Coser, Lewis (1964), The Functions of Social Conflict, 2nd edn, Glencoe, IL: Free Press. Joyce, Patrick D. (2003), No Fire Next Time: Black–Korean Conflicts and the Future of American Cities, Ithaca: Cornell University Press. Kim, Claire Jean (2000), Bitter Fruits: The Politics of Black–Korean Conflict in New York City, New Haven: Yale University Press. Kim, Illsoo (1981), New Urban Immigrants: The Korean Community in New York, Princeton, NJ: Princeton University Press. Kim, Kwang Chung (ed.) (1999), Koreans in the Hood: Conflicts with African Americans, Baltimore: Johns Hopkins University Press. Korea Times Los Angeles (1992), ‘Korean businesses in South Central Los Angeles’, 1 January. Kwong, Peter (1987), The New Chinatown, New York: Noonsday Press. Lee, Heon-Cheol (1993), ‘Korean–Black conflict in New York City: a sociological analysis’, PhD dissertation, Columbia University. Light, Ivan and Edna Bonacich (1988), Immigrant Entrepreneurs: Koreans in Los Angeles, Berkeley: University of California Press. Light, Ivan and Carolyn Rosenstein (1995), Race, Ethnicity, and Entrepreneurship in Urban America, New York: Aldine de Gruyter. Min, Pyong Gap (1988), Ethnic Business Enterprise: Korean Small Business in Atlanta, Staten Island: Center for Migration Studies. Min, Pyong Gap (1990), ‘Problems of Korean immigrant entrepreneurs’, International Migration Review, 24, 436–55. Min, Pyong Gap (1991), ‘Cultural and economic boundaries of Korean ethnicity: a comparative analysis’, Ethnic and Racial Studies, 14, 225–41. Min, Pyong Gap (1995), ‘The entrepreneurial adaptation of Korean immigrants’, in Silvia Pedraza and Ruben

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Rumbaut (eds), Origins and Destinies: Immigration, Race, and Ethnicity in America, Belmont, CA: Wadsworth Publishing Company, pp. 302–14. Min, Pyong Gap (1996), Caught in the Middle: Korean Communities in New York and Los Angeles, Berkeley: University of California Press. Min, Pyong Gap and Mehdi Bozorgmehr (2000), ‘Immigrant entrepreneurship and business patterns: a comparison of Koreans and Iranians in Los Angeles’, International Migration Review, 34, 707–38. Oliver, Melvin, James H. Johnson and Walter C. Farrell (1993), ‘Anatomy of rebellion: a political–economic analysis’, in Robert Gooding-Williams (ed.), Reading Rodney King/Reading Urban Uprising, New York: Routledge, pp. 117–41. Park, In-Sook, James Fawcett, Fred Arnold and Robert Gardner (1990), ‘Korean immigrants to the United States: a pre-departure analysis’, Papers of the East–West Population Institute, no.114, Hawaii: Population Institute, East-West Center. Rinder, Irwin (1958–59), ‘Stranger in the land: social relations in the status gap’, Social Problems, 6, 253–60. Simmel, Georg (1955), Conflict and the Web of Group Affiliations, Glencoe, IL: Free Press. Waldinger, Roger (1986), Through the Eye of the Needle: Immigrants and Enterprise in New York’s Garment Trades, New York: New York University Press. Waldinger, Roger and Michael I. Lichter (2003), How The Other Half Works: Immigration and the Social Organization of Labor, Berkeley: University of California Press. Yoon, In-Jin (1997), On My Own: Korean Businesses and Race Relations in America, Chicago: University of Chicago Press. Yu, Eui-Young (ed.) (1994), Black–Korean Encounter: Toward Understanding and Alliance, Los Angeles: Institute for Asian American and Pacific Asian Studies, California State University.

15 The Iranian ethnic economy in the United States Mohsen Mobasher

Introduction The large volume of studies on the ethnic economy is a consequence of the recent growth of new ethnic populations and of the impact of fundamental economic and technological restructuring of American society on the economic activities of immigrants and ethnic minority groups (Eitzen and Baca Zinn, 1989; Waldinger, 1986; Waldinger et al., 1990). Some immigrants and ethnic groups have responded by establishing their own businesses and creating their own economy, whereas others have been relegated to jobs with low wages, harsh working conditions, and little or no opportunity for job mobility in the secondary sector (Waldinger et al., 1990). There is growing evidence that self-employment has played an important role in the economic adaptation of the newly arrived Iranian immigrants in the United States (Bozorgmehr, 1992; Dallalfar, 1989, 1994; Light et al., 1993, 1994; Light and Karageorgis, 1993; Moallem, 1991; Mobasher, 1996; Min and Bozorgmehr, 2000; Sabagh and Bozorgmehr, 1987; Waldinger, 1990). Like several earlier immigrant groups in the United States, such as Jews, Chinese, Italians, Greeks and others, Iranian’s proportionately higher involvement in entrepreneurial activities differentiates them from much of the native population. Given their short history of immigration, the rapid spread of an ethnic economy among Iranian immigrants in major US metropolitan areas such as Los Angeles, New York, Dallas, Houston and Washington DC is striking. This chapter highlights the major characteristics of Iranian ethnic economy and focuses on issues of internal ethnicity, class and ethnic resources, market orientation and intra-ethnic competition among Iranian entrepreneurs, and the role of ethnic media in providing a link between Iranian ethnic economy and Iranian community. I review the major studies on Iranian entrepreneurship in the United States and relate their findings to my own research on Iranian ethnic economy in the Dallas–Fort Worth metropolitan area conducted in three consecutive stages between 1993 and 1995.1 Other data sources used in this study include the US Census reports for 1990 and 2000, the Iranian Yellow Page Directory for California, New York and Texas for 2002, immigration data collected from the Statistical Yearbook of Immigration and Naturalization for the last 35 years, and the data collected and published by scholars on Iranian immigrants and ethnic economy in America. History of Iranian immigration to the United States There is a demographic prerequisite for the emergence and the operation of an ethnic economy. This demographic requirement is generally met through immigration. Without immigration, no ethnic economy develops. Therefore, a complete explanation of the emergence, growth, and operation of the ethnic economy requires an analysis of the causes of emigration of a particular ethnic group as well as the demographic characteristics of the immigrant population. 228

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Examining the history and the patterns of Iranian migration to the United States for the past 50 years indicates that Iranians did not appear in the United States abruptly. Rather, the presence of Iranian immigrants in major US cities has been related to such economic, political, and social pull factors as educational and occupational opportunities in the United States and the push factors of political and religious repression in the homeland. Although the earliest data reported for Iranian immigrants by the Immigration and Naturalization Service (INS) are for the fiscal years 1921–30, all available published reports from the INS indicate that Iranian immigration to the United States before 1950 was negligible.2 As indicated in Table 15.1, between 1921 and 1950 a total of 1816 Iranians migrated to the United States as permanent residents. This number increased to 13 727 between 1951 and 1970. Between 1971 and 1979, the number of Iranian immigrants admitted to the United States averaged 3563 per year. In 1980 alone 10 410 Iranian immigrants were admitted to the United States. During the fiscal years 1981–90, the average annual number of Iranian immigrants doubled in size, reaching 12 624 per year. The average annual number of Iranians during 1991–2000 was 11 259 per year. As the Immigration and Naturalization Service’s statistics presented in Table 15.2 indicate, the Iranian Revolution in 1978 was the great divider in the migration history of Iranians to the United States both quantitatively and qualitatively. Before the revolution, the immigration pattern of Iranians to the United States was mainly characterized by a heavy concentration of Iranian professionals and students. This was followed successively by a rise of religious minorities and high ranking officers during the revolutionary period and by refugees and immediate family members of the naturalized citizens in the postrevolutionary period. As indicated in Table 15.2, during the 1978–79 revolutionary period, nearly 200 000 non-immigrants and 14 317 immigrants from Iran entered the US. The number of Iranian refugees and people seeking asylum in America before the revolution was negligible. After the revolution, however, the number of Iranian refugees increased significantly. Overall, compared to the pre-Revolutionary and the Revolutionary immigrant, postRevolutionary Iranian immigrants who entered the United States were a more heterogeneous group with diverse socio-cultural backgrounds, religious affiliations, political orientations, family situations and age distributions. As a result the Iranian community in the US changed from a population composed of dispersed sojourners and temporary Table 15.1

Iranian immigrants admitted, fiscal years 1921–2000

Year

Number

1921–1930 1931–1940 1941–1950 1951–1960 1961–1970 1971–1980 1981–1990 1991–2000

241 195 1 380 3 388 10 339 45 136 126 244 112 597

Source:

Statistical Yearbook of the Immigration and Naturalization (2003).

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Table 15.2 Iranian immigrants, non-immigrants, and refugees and asylees admitted to the United States, fiscal years 1970–2003 Year

Immigrants

Non-immigrants

Refugees & asylees

2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970

7 251 13 029 10 497 8 519 7 203 7 883 9 642 11 084 9 201 11 422 14 841 13 233 19 569 24 977 21 243 15 246 14 426 16 505 16 071 13 807 11 163 10 314 11 105 10 410 8 476 5 861 4 261 3 731 2 337 2 608 2 998 3 059 2 411 1 825

6 448 12 316 20 268 21 787 20 117 19 753 20 461 20 461 22 333 24 555 27 767 27 719 27 387 30 302 26 859 23 882 29 950 42 561 57 831 44 629 36 506 22 955 16 926 13 332 63 813 130 545 98 018 72 549 35 088 30 164 22 561 18 238 14 927 14 475

2 030 4 806 1 364 956 1 030 754 1 447 1 212 1 245 2 186 3 875 3 093 8 515 8 649 8 167 6 895 5 559 6 022 5 420 3 544 1 450 701 366 124 13 15 78 52 36 6 7 NA NA NA

Sources: US Immigration and Naturalization Service, Statistical Yearbook (2003) and Bozorgmehr and Sabagh, ‘High status immigrants: a profile of Iranians in the United States’ (1988).

migrants (students, interns) to a community of non-returnee middle and upper class professionals and entrepreneurs. This major demographic growth and change set the stage for the gradual emergence of a number of ethnic institutions such as the ethnic media, ethnic language classes for the second generation, and professional associations. The emergence of the Iranian ethnic community, ethnic institutions, and networks generated the infrastructure and resources for ethnic businesses.

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The Iranian ethnic economy in the United States Table 15.3 Ranked geographical distribution of the total foreign born Iranians for the top ten largest Iranian concentrations (1990 and 2000) Rank

State

1 2 3 4 5 6 7 8 9 10

California New York Texas Virginia Maryland Illinois Florida New Jersey Massachusetts Washington

1990

2000

115 415 15 204 10 412 7 957 7 924 5 189 4 753 4 053 3 895 2 742

159 016 22 856 22 545 14 970 12 935 8 184 9 625 4 790 5 764 6 351

Source: Census (1990 and 2000).

Demographic characteristics of Iranian immigrants Before examining characteristics of the Iranian ethnic economy and the extent of strategies that Iranian entrepreneurs employ in making use of class and ethnic resources available to them, it is important to review the demographic characteristics of Iranians in the United States. Considering the short immigration history of Iranians to the United States and the scarcity of relevant statistics and research, it is hard to give an accurate and reliable figure regarding the size and distribution of the Iranian ethnic group in the United States. The only available official data sources are the 2000 US censuses, and the Immigration and Naturalization Service reports which give an imprecise picture. Table 15.3 shows the number, regional distribution, and the growth of the Iranian ethnic group since 1990. The 2000 US Census estimated the total number of persons with an Iranian ancestry at about 338 266. Although this number indicates a 53.2 per cent growth rate since the 1990 US Census, the actual number of Iranians in the US is believed to be larger. The Iranian Interest Section in Washington, DC claims to hold passport information for as many as 900 000 Iranians in the United States (Iran Census Report, 2003). The errors associated with estimating the total number and distribution of Iranians in the US are many. First, since the census form does not offer a designation for individuals of Iranian descent, only a small per centage of Iranians choose to write in ‘Iranian’ as their ancestry. Second, given that Iran has a relatively large number of minorities with Armenian, Assyrian, and Turkish ancestry, another possible source of error in underestimating the number of Iranians is the identification of members of these minority groups with their ancestry rather than with their Iranian nationality (Bozorgmehr, 1992). According to the 2000 Census, there are 385 488 persons of Armenian ancestry, 82 355 persons of Assyrian ancestry, and 117 575 persons of Turkish ancestry residing in the United State. Irrespective of the accuracy of the 2000 census data, after the Lebanese and Armenian groups with a population of 440 279 and 385 488 respectively, Iranians are the third largest ethnic group in the United States within the North African and Middle Eastern categories. Geographically, Iranians in the United States are concentrated in a few states and

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metropolitan areas. As was the case in the 1990 Census report, close to half (47 per cent) of Iranians in the United States reside in California. After California, the second and the third largest concentrations of Iranians are in New York (22 856) and Texas (22 545), respectively. Although California, New York and Texas contain the majority, Iranians tend to be dispersed throughout many states. Virginia (14 970), Maryland (12 935), Florida (9625), Illinois (8184), New Jersey (4790), Massachusetts (5764), and Washington (6351) ranked fourth to tenth, respectively in 2000. Iranian immigrants in America come from all parts of Iran. Most of them, however, lived in such large urban centers as Tehran, Abadan, Mashad, Esfahan, and Shiraz prior to emigrating. Before their arrival, many of them lived in other countries. This is mostly the case for the post-revolutionary refugees and non-immigrant Iranians who had to wait in another country to obtain a visa or asylum status before entering the United States. Iranian immigrants are extremely diverse. Religiously, contrary to expectation, Iranians are composed of Muslims, Christians, Bahais, Jews, Zoroastrians, and many individuals with no preference for any particular religion. Ethnically, they include Turks and Persians as well as smaller numbers of Lors, Kurds, and Ghashgha’is. Differences also appear with regard to the time and purpose of entrance, and to socioeconomic status. Based on the 2000 US Census report, close to 27 per cent (61 534) of the total foreign born population of Iranians (231 138), entered the United States between 1990 and March 2000. Another 33 per cent (75 876) came to America in the 1980s. The remaining 40 per cent (93 728) of Iranian foreign born population in the United States are pre-revolutionary migrants who entered prior to 1979. Young people are disproportionately over-represented in the Iranian population of the United States. Close to 30 per cent are under the age of 20. Another 59 per cent are between the ages of 20 and 59. Young individuals between ages 35 and 44 constitute the largest (21 per cent) age segment of the Iranian population, while the proportion of elderly Iranians is very small. As indicated by the 2000 Census, the median age for Iranian men and women in America is 37.9 and 33.8, respectively. This type of age structure not only accounts for the very low mortality rate, but the relatively high rate of natural increase for the Iranian population. As indicated in the census, about 73 per cent of the Iranians in the United States live in family households. Married couple families constitute 81 per cent of the Iranian households. The rate of Iranians becoming US citizens has accelerated. This is in part related to the Immigration Reform and Control Act of 1986 which made thousands of Iranian immigrants eligible for permanent residency. Of the 231 138 foreign born Iranians living in the United States, approximately 60 per cent have become US citizens. One distinct quality of the Iranian immigrants in America is their unusually high level of educational attainment. According to census data, 57.2 per cent of Iranians in the United States have a bachelor’s degree or higher. This exceptionally high level of education among Iranians, which was largely a result of the heavy influx of Iranian immigrants in the late 1970s and early 1980s for the purpose of education has had a major impact on their annual incomes. According to US Census data, the median family income of Iranians in 1999 was $69 590. Another remarkable characteristic of the Iranians in America is their high rate of economic activity, particularly for women. As indicated in the 2000 census report, 65 per cent of Iranians who are at the working age (16 years and older) are in the labor force. The

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total unemployment rate for Iranians in the United States is only 3 per cent. One of the most conspicuous characteristics of the Iranian immigrants is the relatively high rate of self-employment. One out of every five employed in the Iranian labor force is selfemployed. This does not include those who are unpaid family workers. Participation of the Iranian women either as self-employed or as wage earner is relatively high. Nearly 50 per cent of Iranian immigrant women are economically active. Only 2.8 per cent in the labor force in 2000 were unemployed. Surprisingly, almost 12 per cent of these working women are self-employed. Iranian immigrants are employed in all occupational categories. While 53 per cent work in managerial, professional, and related occupations, 28 per cent are employed in sales and office occupations. Another 10 per cent work in service occupations such as personal care, food preparation, and healthcare support occupations. The relatively high occupational ranking of many Iranian immigrants is closely associated with their high level of education. After the management and professional, sales and office occupations, service occupation, production, and transportation ranks the fourth largest occupational category. Iranian ethnic economy In the last two decades, there has been a substantial amount of research on Iranian immigrants in the United States (Ansari, 1977, 1988, 1992; BiParva, 1994; Bozorgmehr and Sabagh, 1988; Fathi, 1991; Hanssab, 1991; Hoffman, 1989; Kelley et al., 1993; Modarres, 1992; Momeni, 1984; Naficy, 1991, 1993; Niknia, 2001; Sabagh et al., 1986; Sabagh and Bozorgmehr, 1987). However, only a few researchers have examined ethnic entrepreneurship among Iranians (Bozorgmehr, 1992; Dallalfar, 1989, 1994; Light et al., 1993, 1994; Moallem, 1991; Mobasher, 1996; Min and Bozorgmehr, 2000). Because of concentration of close to 50 per cent of Iranians in California, the bulk of research on Iranian ethnic economy was conducted in Los Angeles. Consistent with the ethnic economy literature, research on Iranian ethnic economy has primarily addressed the reasons for such a high rate of self-employment among Iranians; the impact of gender, ethnic, class resources and social networks on Iranian ethnic economy; the link between religious affiliation and entrepreneurship among Muslims and other religious groups from Iran; and the relationship between ethnic economy, ethnic institutions, and the Iranian community. Despite some contradictory results mainly due to differences in the demographic composition of Iranian immigrants where these studies were conducted, the common conclusion pervading the research is that Iranians are among the most entrepreneurial new immigrants in the United States. According to Light et al. (1993), 58.6 per cent of Iranians in Los Angeles are selfemployed. Similarly, Mobasher’s (1996) research on Iranian ethnic economy in Dallas estimates that about 56 per cent of those working are self-employed. Waldinger et al. (1990) agree that the self-employment rate among Iranians is high. Sabagh and Bozorgmehr (1987) estimated that 30 per cent of Iranian men in Los Angeles had been self-employed in 1980. In another survey conducted in 1987–88 they found that 56.7 per cent of Iranian heads of household were self-employed. In all, 61.3 per cent of Iranians worked in the Iranian ethnic economy. Min and Bozorgmehr (2000) consider Koreans and Iranians as the two most entrepreneurial groups in Los Angeles. Their findings indicate that the self-employment rate of Iranians increased from 20.9 per cent in 1980 to 27.8 per cent in 1990.

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Table 15.4 Top ten states with highest self-employment income for Iranian households (1999)

Rank

State

1 2 3 4 5 6 7 8 9 10

California New York Texas Virginia Maryland Florida Illinois New Jersey Massachusetts Georgia

Total number of Iranian households

Iranian households with self-employment income

58 112 8 460 8 444 5 186 4 557 3 702 3 143 2 721 2 136 2 264

13 449 1 615 1 587 861 775 536 502 472 447 336

Source: Census (2000), Summary file 4-sample data.

It is difficult, if not impossible, to estimate the exact number of self-employed Iranians in the United States. The only reliable source is the 2000 US Census. Table 15.4 shows the top ten states with the highest number of Iranian households in 1999 whose income is generated through self-employment. As anticipated, states with the largest Iranian concentration have the highest selfemployment rate for Iranian men and women. After California and New York, Texas, Virginia, and Maryland have the largest Iranian ethnic economies in the US. This is very consistent with the geographic distribution of Iranian immigrants. To examine the characteristics of the Iranian ethnic economy in states with a notable number of self-employed Iranians, I surveyed the Iranian Yellow Page Directory for Los Angeles County, Orange County, San Diego, Northern California, New York, New Jersey, Texas, Washington, Washington DC, Virginia, Maryland, and Pennsylvania. These yellow page directories list a total of 4515 Iranian establishments. Acknowledging that these directories undercount the number of Iranian owned businesses and most likely list business with an Iranian clientèle, the listing of business establishments in these directories would provide a sample for analysis. Using the Occupational Outlook Handbook of 2004–05, published by the Bureau of Labor Statistics, I assigned these businesses to ten occupational categories. These categories include management and business and financial operation occupations; professional and related occupations; service occupations; sales and related occupations; office and administrative support occupations; farming, fishing, and forestry occupations; construction trades and related workers; installation, maintenance, and repair occupations; production occupations; and transportation and material moving occupations. As indicated in Table 15.5, nearly half of these businesses are in professional and related occupations with a sizable proportion involving health diagnosis and treatment. Businesses in this category tend to require high levels of educational training. Concentration of a considerable number of Iranian firms in professional categories is consistent with the high level of educational achievement. As indicated by Min and Bozorgmehr (2000) this also suggests

The Iranian ethnic economy in the United States Table 15.5

Occupational classification of Iranian firms

Occupational category

Number of firms

Management and business and financial operation Management Business and financial operations

459 220 239

Professional and related occupations Architects, surveyors and cartographers Engineers Social scientists Community and related social services Legal Educational, training, library and museum Art and design Entertainers and performers, sports and related Media and communications-related Health diagnosing and treating Health technologists and technicians

2088 28 15 70 36 261 152 38 226 201 1050 11

Sales and related occupations Insurance sales agents Real estate and sales agents Retail sales Securities, commodities and financial services Travel agents

884 126 181 456 21 100

Service occupations Healthcare support Protective service Food preparation and serving-related occupations Building and grounds clearing and maintenance Personal care and service occupations

562 2 5 317 13 225

Office and administrative support occupations Office and administrative support worker supervisors and managers

5 5

Construction traders and related work

104

Installation, maintenance and repair occupations Electrical and electronic equipment mechanics, installers and repairers Vehicle and mobile equipment mechanics, installers and repairers Other installation, maintenance and repair occupations

235 33 152 50

Production occupations Printing Other production

133 51 82

Transportation and material moving occupations Motor vehicle operators Material moving Farming, fishing and forestry occupations Total

235

45 19 26 0 4515

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that a significant number of Iranian proprietors in the United States rely on cultural aspects of class resources in pursuit of their entrepreneurial activities. After professional category, sales and related occupations, particularly retail sales, real estate, insurance, and travel agents seem to be the second business line with a large concentration of Iranian entrepreneurs. It should be noted that, despite self-employment, some firms in this category may be branches of larger companies. This is especially the case for real estate and insurance agents. Service occupations such as beauty salons, restaurants, and personal care and service followed by management and financial occupations appear to be other attractive lines of business for self-employed Iranians. On the whole, Iranian entrepreneurs seem to avoid office and administrative support, and farming occupations, and have a marginal presence in production and construction occupations. Although the number of self-employed Iranians is relatively large and growing, there is yet to be a ‘Little Iran’ or what sociologists call an ‘ethnic enclave economy’, that is, a spatial clustering of firms, economic interdependency or vertical and horizontal integration between the enterprises, and hiring co-ethnic employees (Light and Karageorgis, 1993) anywhere in the United States. On the whole, with the exception of a small cluster of businesses that are oriented toward the Iranian community (see the discussion on market orientation of Iranian firms) Iranian firms rely less on co-ethnic employees and are diffused geographically. There are very small Iranian commercial pockets of Iranian restaurants, ethnic food stores, Persian rug stores, and travel agencies, in Dallas, Houston, and Los Angeles, but they do not fit the enclave model. Ethno-religious diversity of the Iranian ethnic economy The concept of ethnic economy derives from historical sociology and from the literature on middleman minorities (Light and Karageorgis, 1993). It was operationalized and defined by Bonacich and Modell for the first time in 1980 as ‘any ethnic or immigrant group’s selfemployed, employers, and their co-ethnic employees’ (1980: 45). Thus defined, two of the most important characteristics of the ethnic economy, among others, are the dependence upon ethnicity, not national origins, and co-ethnic personnel (Light and Karageorgis, 1993). The difference between the national-origin definition of the ethnic economy and a definition based on ethnicity is theoretically significant. An ethnic immigrant group may contain within it several different sub-ethnic groups based on religion or region in their country of origin. Thus the ethnic identity of immigrant minorities may not coincide with their national origin. In that case, in studying ethnic economy, one needs to be aware of the internal ethnic boundaries actually salient to the immigrants, themselves. As noted by Light and his colleagues (1993) the recognition of internal ethnicity allows one to examine the real sub-ethnic economies within the immigrant populations. Neglecting internal ethnicity, however, can oversimplify the concept of ethnic economy (Light et al., 1993). In their study of the Iranian ethnic economy in Los Angeles, Light et al. (1993) address the influence of internal ethnicity. By internal ethnicity they mean the existence of ethnic subgroups within an immigrant group. Immigrants who come from ethnically heterogeneous countries, instead of identifying themselves with their nationality, may identify themselves with the ethnic sub-group to which they belong. In that case, Light et al. (1993) assert, ethnicity transcends national origin and is not synonymous with it. Light and his associates reveal that the real economic organization within the Iranian community in Los Angeles centers around four internal ethnic economies which are based

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on ethno-religious (Armenian, Bahai’e, Jewish and Muslim) affiliations rather than national affiliation. These separate economies are weakly tied to an encompassing Iranian ethnic economy. Furthermore, their findings suggest that each ethno-religious Iranian sub-group has a distinctive occupational and industrial clustering and employment structure. Whereas Jews tend to be more clustered in the wholesale and retail trade, especially clothing and jewelry, Iranian Armenians are primarily concentrated in finance, insurance and real estate, and business repair and service. Iranian Muslims, in contrast, are more concentrated in construction and durable goods manufacture. Lastly, Bahais are most concentrated in durable goods manufacture, and other health and legal services. Based on the employment structure of the Iranian ethnic economy, Light and his colleagues distinguish five exhaustive classes of self-employed Iranians: (1) those who work alone, (2) those who work with unpaid family members, (3) those who work with partners, (4) those who work with both employees and partners, and (5) those who work with employees and unpaid family workers. Market orientation and diversity of Iranian businesses In addition to ethno-religious diversity, the Iranian ethnic economy encompasses three distinct types of enterprises based on their market orientation. My fieldwork between 1993 and 1995 in Dallas–Fort Worth metropolitan area indicates that Iranian firms are not uniform in their market orientation. While some Iranian businesses are predominantly oriented toward the Iranian community and clientèle, others are oriented toward non-Iranian clientèle. Still others have a mixed market orientation and provide services to both co-ethnics and non-co-ethnics. Enterprises with co-ethnic clientèle provide what Light (1972) calls a ‘protected market’. Ethnic grocery stores, ethnic restaurants, tax accountants, translation agencies, entertainers, and educational businesses which offer Persian language and Persian music classes are some examples of businesses with ethnic clientèle. Most of the businesses in this category are open more than ten hours a day, seven days a week. Enterprises in this category were among the first businesses that were established at the early stage of the formation of the Iranian community. Thus the origin and popularity of these enterprises is linked to demographic and cultural factors. Without exception, the history of establishment of these enterprises throughout the United States parallels the immigration of thousands of Iranian immigrants into the United States during the post-Revolutionary period. Furthermore, these enterprises provide goods and services specifically directed toward ethnic taste, need, and unique features of the Iranian culture that native enterprises do not provide. Finally, in these businesses, economic transactions are conducted in a very traditional way. Business transactions are very informal and co-ethnic customers try to argue the price down. Most of the businesses in this category rely on the labor of the co-ethnic employees for their operation. This is in part related to language convenience for customers. Businesses with ethnic clientèle have more attachment to the ethnic community and interact more with co-ethnics. Consequently, they have access to a wider network for community news and information. Moreover, for advertising and hiring purposes, these businesses are strongly woven into a network of ethnic institutions, particularly the ethnic media. One of the major characteristics of Iranian businesses with co-ethnic clientèle is the prevalence of severe intra-ethnic competition. This competition is more conspicuous among Iranian grocery stores and restaurants. It results mainly from the heavy

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dependency of the few Iranian restaurants and grocery stores on a limited pool of Iranian customers in the community. One way to cope with this competition is horizontal integration between Iranian grocery stores and restaurants and other ethnic institutions such as professional associations. This horizontal integration is formed through direct participation of business owners in such community events as the New Year celebration and the lecture series sponsored by professional associations. By donating money and time to these community events, Iranian grocery stores and restaurants find an opportunity to proclaim monetary and moral support of the community and gain more respect, a better reputation, and ultimately more customers in the community. In addition to enterprises which mainly cater to Iranian immigrants, the Iranian ethnic economy in Dallas consists of enterprises which go beyond the boundaries of the ethnic community for their survival. Since the main pool of customers for these businesses are nonIranian populations, the ethnic resource utilization by these enterprises is very selective and minimal. The only ethnic resources that are commonly utilized by enterprises in this category are co-ethnic employees and ethnic networks for partnership arrangements. In general, compared with businesses with co-ethnic clientèle, businesses with non-co-ethnic clientèle are more likely to rely on class resources such as capital, personal skills, and educational or professional training than ethnic resources for business start-up and operation. Unlike ethnic enterprises with ethnic customers which are strongly present and visible in the ethnic community, ethnic enterprises with non-co-ethnic clientèle tend to be removed from the ethnic community and its affairs. Ethnic enterprises with non-co-ethnic clients can be divided into two sub-categories considering the nature of the enterprise and individual skills of the entrepreneurs: (1) white-collar enterprises such as various engineering firms, and (2) blue-collar enterprises such as non-ethnic restaurants, gas stations, convenience stores, and cab companies. Although similar in market orientation, these two enterprise sub-categories are extremely different in operation, and in the demographic characteristics of their proprietors. Whereas self-employed Iranians who own a whitecollar firm put in fewer hours and enjoy the luxury of a two-day weekend rest from work, proprietors of blue-collar ethnic firms put in more hours and work much harder. Compared to self-employed Iranians in blue-collar ethnic firms, white-collar entrepreneurs have higher levels of education and language skills. Moreover, they usually establish a firm after obtaining a college degree in the United States and working for another firm in the primary sector of the market. Unlike owners of the blue-collar enterprises who turn to self-employment mainly because of low educational skills, insufficient qualifications for a white-collar job, and the language barrier, owners of the white-collar ethnic enterprises have turned to self-employment because of blocked mobility in the primary sector of the labor market, not individual disadvantages such as language difficulty. Finally, because the owners of the white-collar firms possess such class resources as educational and occupational skills and provide professional services, ethnic resource utilization for operation of these firms is irrelevant and insignificant. Enterprises with mixed clientèle are the third category of Iranian businesses, which are typical American small businesses such as photo-labs, print shops, mechanic shops, jewelry stores, and repair shops. These mixed customer-oriented business enterprises constitute the largest portion of the Iranian ethnic economy in Dallas. This is the only sector of the Iranian ethnic economy in which the proprietors seem to have had some previous experience before emigration from Iran. In addition to proprietors with previous experience, this

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sector of the Iranian ethnic economy is also dominated by persons who immigrated to the United States as students, but were unable to find a desirable job in their educational field. In general, proprietors of these enterprises rely on both ethnic and class resources for their survival. Nevertheless, the significance of the ethnic and class resources changes over the course of business development. Because of their reliance on both the non-ethnic and the co-ethnic customers, these enterprises advertise in the ethnic community as well as in the host community. However, advertising in the ethnic community tends to be sporadic and is often done through various ethnic media sources. Nevertheless, many of the business owners whom I interviewed indicated that they get most of their ethnic customers through word of mouth and referrals through networks of friends. Advertising in the host community, however, is done mainly through the local business guides and coupon books for various business enterprises. Compared to ethnic enterprises in the first two categories, ethnic enterprises in this category have a stronger desire to hire non-co-ethnic employees for customer relations and marketing positions. In almost all of the enterprises within this category which I observed there was at least one full-time American employee. Results of the interviews with owners of these enterprises confirmed my field observations. Regardless of the market orientation and ethno-religious diversity of Iranian businesses today, almost any goods or services an Iranian immigrant might need, from the most authentic food items and Persian music classes to financial advising and insurance, is provided by another Iranian within the confines of the Iranian ethnic economy. Whether Iranians confine themselves to their own ethnic economy for their economic needs is, however, open to question. Evidence from my community survey in Dallas–Fort Worth suggests that, while a large number of Iranians frequent Iranian businesses to purchase their goods and services, many Iranians refuse to do so. My survey results indicate that as many as 52 per cent of Iranian immigrants in Dallas–Fort Worth frequent Iranian businesses on a regular basis. Another 41 per cent frequent enterprises owned by Iranians occasionally. This is especially true for ethnic enterprises with culturally distinctive goods and services. As anticipated, ethnic grocery stores and restaurants are the top two businesses visited by Iranian customers. After ethnic grocery stores and restaurants, travel agencies, mechanic shops, insurance agencies, and beauty salons are the second most popular enterprises utilized by Iranian customers. The dependence of Iranian customers upon these co-ethnic businesses is greater among the new arrivals and older immigrants who have language barriers. In general, these businesses acquire co-ethnic customers through networks of friends, word of mouth, and the ethnic media. Ethnic economy, ethnic institutions and Iranian community The ethnic economy literature has been relatively insensitive to the link between the ethnic economy and the ethnic community, yet, as indicated earlier, a segment of the Iranian ethnic economy, that is, the segment which is oriented toward the co-ethnic market, is an integral part of the Iranian community. These entrepreneurs maintain and reinforce this link mainly through participation in such community events as the New Year celebration and the lecture series sponsored by Iranian professional organizations. By donating money and time to these community events, Iranian business owners find an opportunity to proclaim monetary and moral support of the community and gain respect, reputation, and customers in the community.

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During the first stages of the development of the Iranian community, when major ethnic institutions and community centers were underdeveloped, Iranian ethnic grocery stores provided a multitude of social and economic services throughout the Iranian community. The ethnic grocery stores helped many newly arrived immigrants to find housing and employment. They also functioned as an information center, providing names and telephone numbers of immigration attorneys, major government institutions, and community specialists such as entertainers, religious leaders, and advisers. In addition to their social services, ethnic grocery stores provided many commercial services such as exchanging money and sending immigrants’ remittances to Iran. In addition to providing ethnic items, Iranian ethnic grocery stores are the nucleus of the Iranian community in many other ways. Virtually every cultural and social event in the Iranian community, whether major, such as the New Year celebration concert, or minor, such as a small poetry reading night, is promoted and publicized in these stores. Promoting a particular event, however, depends on the relationship between the store owner and the event’s sponsor. Like Iranian grocery stores, Iranian restaurants play significant social, cultural, and economic roles in the community life of Iranian immigrants. These establishments are the arenas for social exchange between widely scattered people and groups. At lunch time, the patrons receive and pass on news regarding community events, businesses and the rest. For many self-employed Iranians these restaurants are convenient places to meet friends and clients, and discuss business. In addition to Iranian grocery stores and restaurants, ethnic associations play a major role in maintaining a link between the Iranian ethnic economy and Iranian community. Between September 1993 and August 1995, the period of my fieldwork, the Iranian professional associations in Dallas sponsored approximately 34 programs including picnics, film festivals, lectures, educational classes and workshops, cultural celebrations, and concerts. These programs help the Iranian ethnic economy directly and indirectly in several ways. First, about 10 per cent of the lectures were presented by Iranian ethnic entrepreneurs such as tax accountants, real estate brokers, computer consultants, insurance agents, and engineers in a different field. These lectures and meetings provide an opportunity for the white collar ethnic entrepreneurs within the Iranian community to advertise their services, develop and maintain ties with other entrepreneurs, and obtain clients. Second, to organize the community events and celebrations, the Iranian professional associations rely on ethnic restaurants for catering, ethnic entertainers for music, and other ethnic businesses such as print shops for printing the pamphlets and electronic shops for setting up the sound system. In addition to the financial benefits of such events for both the organizers and ethnic businesses, these events contribute to the formation of horizontal integration among these businesses. Finally, some of the programs organized by the professional associations are co-sponsored and supported by ethnic entrepreneurs for business reasons as well as a sense of in-group loyalty. In particular, this has been the common marketing and competition strategy adopted by some of the ethnic restaurants and grocery stores. By participating, co-sponsoring, and sometimes providing space, beverage, pastries and the like, the owners of ethnic restaurants and grocery stores strive to gain reputation and credibility as concerned, decent, generous, and well-thought-of members of the community. This reputation is not only crucial for their success within the Iranian community, but also very effective in competing with non-ethnic businesses who

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offer some of the same goods and services to the Iranian community. Another way for Iranian entrepreneurs to maintain their link to the community is through regular extensive advertisement on Iranian mass media, particularly, the print media. Today the Iranian community in America contains more than ten Iranian Yellow Page directories, one in each of ten US cities, listing only Iranian firms, as well as hundreds of monthly and weekly Iranian magazines, and numerous radio and TV stations. Except for two or three TV stations and a few magazines, all of the print and electronic Iranian media in exile is produced in California, particularly Los Angeles. Every Iranian Yellow Page directory and issue of Iranian magazines contains advertisements about the local restaurants and grocery stores, Iranian physicians, dentists, certified tax accountants, travel agents, and other businesses owned by Iranians. Similarly, through radio and TV commercials, the Iranian media in exile provides an opportunity for ethnic entrepreneurs to advertise their goods and services as well as their commitment and loyalty to the immigrant community. In addition to business commercials, the ethnic media advertises business opportunities and invitations for employment in ethnic enterprises. In addition to the lower prices, better quality products and services, and accessibility to experienced co-ethnic personnel, such cultural values as rastee (honesty), dostee (friendliness), samemeeat (cordiality/sincerity) and safa (pleasantness) are strongly emphasized in these ads. Moreover, Iranian customers are constantly reminded of how the atmospheres of these places revive pleasant memories of Iran. In summary, the Iranian ethnic media is very crucial for the survival of the Iranian ethnic economy and maintaining its link to the ethnic community. Through the ethnic media, businesses owned by co-ethnics are introduced to the community. Information about the type and location of Iranian businesses conveyed through the local ethnic media sources helps to expand and strengthen the ethnic economy in many ways. First, it increases the participation of the businesses in the community by publicizing their services, and calling attention to their importance in the community. Second, it increases the interaction between co-ethnics and the business owner. Third, it facilitates employment opportunities within the ethnic economy. Finally, it facilitates the potential economic advancement of ethnic entrepreneurs. The Iranian print media in exile has been instrumental not only in strengthening the Iranian ethnic economy and linking it to the ethnic community, but also in promoting and enhancing the significance of Iranian ethnic identity and Iranian culture in exile. In almost every business ad and commercial such words as Iran, Iranian, Persian, Iranian community, Iranian compatriots, Iranian nationality and Iranian culture are manipulated as an important basis for economic transaction between the business owners and the co-ethnic customers. Ethnic and class resources One of the most important issues in contemporary anthropological study of ethnic groups is the relationship between ethnicity and social class (Bonacich, 1975; Harris, 1995). As part of their attempt to improve their position in the social and economic hierarchy, ethnic groups mobilize their resources to get jobs, develop enterprises and dominate an economic niche. Many studies concerned with ethnic groups and occupations focus narrowly upon the utilization of ethnic and class resources by ethnic entrepreneurs in their economic activities (Bonacich, 1975; Light, 1984; Light and Bonacich, 1988; Waldinger, 1989; Yoon, 1991; Zimmer and Aldrich, 1987). Light (1984) defines class resources as ‘private property in the means of production and distribution, human

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capital, and money to invest’ (Light, 1984: 201). In their definition of class resources Light and Karageorgis (1993) distinguish the cultural from the material endowment of the bourgeoisie. By material endowment of class, they mean private property, wealth, capital to invest, and human capital. The cultural endowment, however, includes the vocational culture of the bourgeoisie as well as its status culture. Whereas class resources are available only to a segment of an ethnic group whose social and economic position in society enabled them to invest in human capital or to be endowed with these resources by their parents, ethnic resources are available to every member of an ethnic group who shares the common origin and culture (Yoon, 1991; Light, 1984; Light and Bonacich, 1988; Light and Karageorgis, 1993). Light and Karageorgis define ethnic resources as ‘Socio-cultural and demographic features of the whole group which co-ethnic entrepreneurs actively utilize in business or from which their business passively benefits’ (1993: 38). Like most other immigrant groups, Iranians often rely on ethnic and class resources to establish an enterprise. Min and Bozorgmehr’s (2000) analysis of business patterns among Iranian immigrants in Los Angeles indicates that Iranian entrepreneurs depend upon class resources for establishment and operation of their business. Because of their wealth, English fluency, high educational level, and relevant occupational skills, Iranian immigrants in Los Angeles have developed a high level of participation in professional and capital-intensive businesses such as medical firms, real estate agencies, engineering firms, garment manufacturing, and construction (Min and Bozorgmehr, 2000). According to Min and Bozorgmehr (2000), Iranian’s reliance on class resources has enabled them to find high earning occupations that serve a non-ethnic, white clientèle, widely dispersed in middle-class white neighborhoods. Business concentration away from low-income black and Hispanic neighborhoods and customers has protected Iranian entrepreneurs against ethnic hostility and business-related inter-group conflicts. While Min and Bozorgmehr’s study underlines previous business experience and class resource utilization as major reasons for business establishment among Iranian entrepreneurs in Los Angeles, my study of Iranians in Dallas–Fort Worth (1996) reveals the opposite. As a first step in the examination of the extent of class endowment of entrepreneurship among Iranians, I asked the business owners in the sample two questions concerning their occupation and their father’s occupation in Iran. These questions were constructed on the basis of Light’s assertion (1984) that the cultural endowments of class resources, such as bourgeois values, attitudes, knowledge, and skills which are internalized through the socialization process allow the bourgeoisie’s youth to prosper in a market economy (Light, 1984). Consequently, it was hypothesized that self-employed Iranians would more often come from families with an entrepreneurship background. However, a considerable number (56 per cent) of Iranian entrepreneurs in the sample were sons of white-collar government employees and professionals. This indicates that nearly half of Iranian business owners were not predisposed to an entrepreneurial culture prior to their emigration from Iran. Moreover, a significant number (64 per cent) of Iranian entrepreneurs in the sample were students and had no business experience prior to their departure from Iran. Only 7 per cent of the respondents had their own business prior to emigration from Iran. The remaining 29 per cent indicated that they had white-collar occupations. Since a significant number of Iranian proprietors in Dallas were neither self-employed nor had self-employed fathers in Iran, the cultural aspects of the class resources of

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entrepreneurship fall short as an explanation of Iranian entrepreneurship in Dallas. However, when the socio-economic aspects of class such as education, occupation and money to invest are considered, a stronger correlation between class resources and entrepreneurship appears. These data indicate that Iranian entrepreneurs are a select group with a high pre-immigration socio-economic status. In fact, most non-student Iranian immigrants experienced some downward occupational mobility in the period immediately following immigration and this became a major reason for starting a small business. With respect to the Iranian entrepreneurs who were students prior to their emigration from Iran, the limited job opportunities upon graduation from college, as well as their class background, seem to have been the main reasons pushing them toward self-employment. Few of these middle-class Iranians had any business experience when they arrived in the United States, and they often mentioned the lack of business skills and management experience as major problems during the initial stages of their business operation. However, educational training combined with their middle-class social values internalized in the course of primary socialization afforded them the human capital to run a business successfully. My analysis of the Iranian ethnic economy in Dallas indicates that utilization of class and ethnic resources changes over the course of business development and is affected by the type and market orientation of the enterprise. As indicated in Table 15.6, the white-collar Table 15.6 Diversity of Iranian businesses and their relation to ethnic community, ethnic institutions and ethnic resources in Dallas–Fort Worth metropolitan area Non-ethnic clientèle

Community attachment and integration Reliance on co-ethnic workers Reliance on co-ethnic customers Reliance on ethnic institutions Reason(s) for selfemployment Previous experience in America Previous experience in Iran

Ethnic clientèle Mixed clientèle

White collar

Ethnic grocery stores and restaurants, educational and social services

Photo labs, repair shops, beauty salons, insurance agencies

Non-ethnic restaurants, Engineering convenience firms, medical stores, gas and financial stations and cab services companies

High

Moderate

Low

low

High

Low

low

High

High

Moderate

low

low

High

Moderate

low

low

Blue collar

Disadvantages Opportunity Blocked in the market structure and mobility blocked mobility No No Yes

Disadvantages in the market

No

No

Yes

No

Yes

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Iranian businesses that are oriented toward non-Iranian customers are less likely to rely on co-ethnic workers, ethnic institutions, and co-ethnic customers than ethnically-oriented businesses such as ethnic restaurants. The reliance of non-ethnic oriented businesses on ethnic resources seems to be limited to the financial assistance from family and friends at the initial stage of business development. As the business grows and enters the advanced stage, ethnic resources lose their significance. Instead, an individual’s class resources, such as education, fluency in English and interpersonal management skills, become more and more significant in determining the expansion of the business. Conclusion This chapter was written with two principal goals. The first was to review the major scholarly work on Iranian ethnic economy in America. The second was to describe some of the major characteristics of the Iranian ethnic economy in America, based on the research findings in the literature. To the best of my knowledge, with the exception of my own work in Texas, all other research on the Iranian ethnic economy has been confined to California. As indicated earlier, this has mainly been due to the demographic concentration of nearly half of Iranians in California. Despite the lack of research findings about entrepreneurial activities of Iranians in other regions, several major points were evident through the literature review. First, large numbers of Iranians in the United States have turned to entrepreneurship either because of their endowed affluent class resources and pre-migration business experience, as has been the case for most Iranians in California, or to escape disadvantages in the labor market and act upon the desire for upward social and economic mobility as well as for autonomy, flexibility, and freedom associated with self-employment, as has been the case for the majority of Iranian entrepreneurs in Texas. Unlike Iranian entrepreneurs in California, except a small portion, not many of the Iranian business owners in Dallas had previous experience of running a small business in Iran. Most, in fact, immigrated to the United States for educational purposes and did not expect to become entrepreneurs. Second, the Iranian ethnic economy in America is not uniform and homogeneous and contains either several ethnic economies based on ethno-religious group membership or multiple sectors based on market orientation and clientèle, each with reliance on a different level of ethnic and class resources. For example, the white-collar sector of the Iranian ethnic economy that is oriented toward non-Iranian customers is less likely to rely on co-ethnic workers, ethnic institutions, and co-ethnic customers than the business sector with co-ethnic market orientation. Third, despite the high rate of self-employment among Iranians, there is yet to be an Iranian enclave economy in any major US city. As indicated by Min and Bozorgmehr (2000) dispersion of Iranian businesses in non-Hispanic white neighborhoods is largely due to their greater class resources that has enabled them to establish larger and higherskilled professions that serve white customers. Fourth, the tie between the ethnic economy and the ethnic community is crucial and has economic, social and political consequences for owners of ethnic businesses. For one thing, it increases their access to a protected ethnic market and a pool of co-ethnic labor. Moreover, by manipulating words such as ‘dear fellow citizens and compatriots’ in business ads, ethnic businesses promote and strengthen ethnic identity, ethnic culture, and

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group consciousness in exile. In turn, increased ethnic identity and consciousness give rise to support of the ethnic businesses when competing with non-co-ethnic business owners. Finally, the Iranian ethnic media contributes significantly to the expansion and strengthening of the ethnic economy through (1) introducing the ethnic businesses to the ethnic community; and (2) carrying advertising for ethnic business products and services as well as employment and business opportunities. In addition to strengthening the ethnic economy, the ethnic media provides the most effective means through which the ethnic economy and the ethnic community are linked. To conclude, the findings reported in this study present a preliminary examination of some of the major features of the Iranian ethnic economy in the United States. To test the validity of the findings, a comparative study of Iranian ethnic economy in California and Texas as well as other states where there is a relatively large Iranian population needs to be drawn. The array of similarities and differences between the Iranian ethnic economy in California and Texas would provide an excellent opportunity to address several issues of theoretical importance to economic adaptation of immigrants. These include (a) the impact of pre-migration business skills on rate of self-employment and entrepreneurship among immigrants, and (b) the effect of community size and ethnic institutional development on the size, nature, formation, market orientation, and ethnic versus class resource utilization of an ethnic economy. With the exception of few studies (Dallalfar, 1994; Moallem, 1991; Mobasher, 1996) the study of Iranian ethnic entrepreneurship and patterns of class and ethnic resource mobilization has focused primarily upon the activities of Iranian men. Given the active and vital role of Iranian women in the Iranian ethnic economy, to strengthen existing explanations of immigrant entrepreneurship and to enrich our understanding of economic adaptation of Iranians, the analysis of economic activities of Iranian entrepreneurs must incorporate the experiences of Iranian women. Acknowledgement I would like to thank my colleague Greg Getz at the University of Houston-Downtown for reviewing this chapter. Notes 1. My primary objective during my fieldwork in Dallas was to examine the history, nature, characteristics, and dynamics of the Iranian ethnic economy. Owing to the lack of any demographic data on Iranians in Dallas, during the second phase, I devoted most of my time to the distribution of 3500 questionnaires in the community. The number of questionnaires that were completed was 485, or 14 per cent were collected. The survey was in Farsi and contained 28 questions. The questions were very simple and straightforward and could be comprehended by everyone. It covered various demographic characteristics, migration histories, economic activities, and socio-cultural characteristics of Iranians in Dallas. During the last phase of my fieldwork I collected 57 questionnaires and conducted 45 telephone and face-to-face interviews with Iranian men and women who were self-employed and had their own business in various locations in the Metropolitan area. Whereas the questionnaire enabled me to collect objective aggregate data on the reasons for establishing a business, the in-depth open ended interviews allowed me to uncover and understand the subjective dimensions of self-employment and the dynamics of class and ethnic resource mobilization by both Iranian men and women. Questions asked in the interview focused on (1) the nature and the reasons for self-employment and establishing the business, (2) the availability of capital, human capital, information, and other ethnic and class resources, (3) the role of the female family members in the business world, (4) contacts with other Iranians and family members, (5) legal, social, cultural, and economic barriers in establishing a business, (6) advantages and disadvantages of self-employment and (7) management and other aspects of the business such as clients, nationality and relationship of employees, and wages and salaries.

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2. John H. Lorentz and John T. Wertime report that, between 1842 and 1903, as many as 130 Iranian nationals entered the United States. This number increased to 780 between 1925 and 1932. According to Lorentz and Wertime, the number of Iranians who entered the United States between 1904 and 1924 was too small to warrant a separate breakdown in the immigration statistics. Statistics are not available for 1933–44. However, according to the authors, in 1945, there were 82 Iranian immigrants in the United States.

Bibliography Aldrich, Howard and Roger Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Ansari, Abdoulmaboud (1977), ‘A community in process: the first generation of the Iranian professional middleclass immigrants in the United States’, International Review of Modern Sociology, 7, 85–101. Ansari, Abdoulmaboud (1988), ‘Iranian immigrants in the United States: a case of dual marginality’, New York: Associated Faculty Press, Inc. Ansari, Abdoulmaboud (1992), The Making of the Iranian Community in America, New York: Pardis Press, Inc. Auster, Ellen and Howard Aldrich (1984), ‘Small business vulnerability, ethnic enclaves and ethnic enterprise’, in Robin Ward and Richard Jenkins (eds), Ethnic Communities in Business: Strategies for Economic Survival, Cambridge: Cambridge University Press, pp. 39–56. BiParva, Ebrahim (1994), ‘Ethnic organizations: integration and assimilation vs. segregation and cultural preservation with specific reference to the Iranians in the Washington, D.C. Metropolitan Area’, Journal of Third World Studies, 11(1), 369–404. Boissevain, Jeremy (1984), ‘Small entrepreneurs in contemporary Europe’, in Robin Ward and Richard Jenkins (eds), Ethnic Communities in Business: Strategies for Economic Survival, Cambridge: Cambridge University Press, pp. 20–38. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 38, 583–94. Bonacich, Edna (1975), ‘Small business and Japanese American ethnic solidarity’, Amerasia, 3, 96–112. Bonacich, Edna and John Modell (1980), The Economic Basis of Ethnic Solidarity: Small Business in The Japanese American Community, Berkely: University of California Press. Bonacich Edna et al. (1980), ‘Korean immigrant: small business in Los Angeles’, in Roy Simon Bryce-Laporte (ed.), Sourcebook on The New Immigration: Implications for the United States and the International Community, New Jersey: Transaction Books, pp. 167–84. Bozorgmehr, Mehdi and Georges Sabagh (1988), ‘High status immigrants: a statistical Profile of Iranians in the United States’, Iranian Studies, 21(3–4), 5–36. Bozorgmehr, Mehdi (1992), ‘Internal ethnicity: Armenian, Bahai, Jewish, and Muslim Iranians in Los Angeles’, University Microfilms International Dissertation Services, Ann Arbor: Michigan. Chai, Alice Yun (1987), ‘Adaptive strategies of recent Korean immigrant women in Hawaii’, in Janet Sharistanian (ed.), Beyond the Public/Domestic Dichotomy: Contemporary perspective on Women’s Public Lives, New York: Greenwood Press, pp. 65–99. Dallalfar, Arlenee (1989), ‘Iranian immigrant women in Los Angeles: the reconstruction of work, ethnicity, and community’, University Microfilms International Dissertation Services. Ann Arbor: Michigan. Dallalfar, Arlenee (1994), ‘Iranian women as immigrant entrepreneurs’, Gender and Society, 8(4), 541–61. Eitzen, Stanley D. and Maxine Baca Zinn (1989), ‘The forces reshaping America’, in Eitzen Stanley and Maxine Baca Zinn (eds), The Reshaping of America: Social Consequences of the Changing Economy, New Jersey: Prentice-Hall, pp. 1–13. Fata Soraya and Raha Rafti (2003), ‘Strength in numbers: the relative concentration of Iranian Americans across the United States’, Iran Census Report. Fathi, Asghar (1991), ‘Theories of involuntary migration and the Iranian experience’, in Asghar Fathi (ed.), Iranian Refugees and Exiles Since Khomeini, Costa Thesa, CA: Mazda Publishers, pp. 8–18. Gaffarian, Shireen (1987), ‘The acculturation of Iranians in the United States’, The Journal of Social Psychology, 127(6), 565–71. Gold, Steven J. (1988), ‘Refugees and small business: the case of Soviet Jews and Vietnamese’, Ethnic and Racial Studies, 11(4), 411–38. Gold, Steven J. (1992), Refugee Communities, Newbury Park: Sage. Gold, Steven J. (1994), ‘Patterns of economic cooperation among Israeli immigrants in Los Angeles’, International Migration Review, 28(1), 114–35. Hanssab, Shideh (1991), ‘Acculturation and young Iranian women: attitudes toward sex roles and intimate relationships’, Journal of Multicultural Counseling and Development, 19, 11–21. Harris, Marvin (1995), Cultural Anthropology, 4th edn, New York: Harper & Row. Hoffman, Diane M. (1989), ‘Language and culture acquisition among Iranians in the United States’, Anthropology and Educational Quarterly, 20, 118–32.

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Jalali, Behnaz (1982), ‘Iranian families’, in M. McGoldrick, J. Pearce and J. Giordano, (eds), Ethnicity and Family Therapy, New York: Gulford, pp. 289–309. Kelley, R., Jonathan Friedlander and Anita Colby (1993), Irangeles: Iranians in Los Angeles, Los Angeles: University of California Press. Kim, Kwang C. (1985), ‘Ethnic resource utilization of Korean immigrant entrepreneurs in the Chicago minority area’, International Migration Review, 19(1), 82–111. Light, Ivan H. (1972), Ethnic Enterprise in America: Business and Welfare Among Chinese, Japanese, and Blacks, Berkeley: University of California Press. Light, Ivan H. (1979), ‘Disadvantaged minorities in self-employment’, International Journal of Comparative Sociology, 20(1–2), 31–45. Light, Ivan H. (1980), ‘Asian enterprise in America: Chinese, Japanese, and Koreans in small business’, in Scott Cummings (ed.), Self-Help in Urban America: Patterns of Minority Business Enterprise, London: National University Publications, pp. 33–57. Light, Ivan H. (1984), ‘Immigrant and ethnic enterprise in North America’, Ethnic and Racial Studies, 7(2), 195–216. Light, Ivan H. and Edna Bonacich (1988), Immigrant Entrepreneurs: Koreans in Los Angeles 1965–1982, Berkeley: University of California Press. Light, Ivan H. and Stavros Karageorgis (1993), ‘The ethnic economy’, in Neil Smelser and Richard Swedberg (eds), Handbook of Economic Sociology, New York: Russell Sage Foundation, pp. 1–78. Light, Ivan H. and Angel Sanchez (1987), ‘Immigrant entrepreneurs in 272 SMSAs’, Sociological Perspectives, 30(4), 373–99. Light, Ivan, Im Jung Kwuon and Deng Zhong (1990), ‘Korean rotating credit associations in Los Angeles’, Amerasia, 16(1), 35–54. Light, Ivan H., Georges Sabagh, Mehdi Bozorgmehr and Claudia Der-Martirosian (1993), ‘Internal ethnicity in the ethnic economy’, Ethnic and Racial Studies, 16(4), 581–97. Light, Ivan H., Georges Sabagh, Mehdi Bozorgmehr and Claudia Der-Martirosian (1994), ‘Beyond the ethnic enclave economy’, Social Problems, 41(1), 65–80. Min, Pyong Gap (1984a), ‘From white-collar occupations to small business: Korean immigrants’ occupational adjustment’, The Sociological Quarterly, 25, 333–52. Min, Pyong Gap (1984b), ‘A structural analysis of Korean business in the United States’, Ethnic Groups, 6, 1–25. Min, Pyong Gap (1987), ‘Factors contributing to ethnic business: a comparative synthesis’, International Journal of Comparative Sociology, 28(3–4), 171–93. Min, Pyong Gap and Mehdi Bozorgmehr (2000), ‘Immigrant entrepreneurship and business patterns: a comparison of Koreans and Iranians in Los Angeles’, The International Migration Review, 34(3), 707–38. Moallem, Minoo (1991), ‘Ethnic entrepreneurship and gender relations among Iranians in Montreal, Quebec, Canada’, in Asghar Fathi (ed.), Iranian Refugees and Exiles Since Khomeini, California: Mazda Publishers, pp. 180–199. Modarres, Ali (1992), ‘Ethnic community development: a spatial examination’, Journal of Urban Affairs, 14(2), 97–107. Model, Suzanne (1985), ‘A comparative perspective on the ethnic enclave: Blacks, Italians, and Jews in New York City’, International Migration Review, 19, 64–81. Moghaddam, Fathali, Donald Taylor, and Richard N. Lalonde (1987), ‘Individualistic and collective integration strategies among iranians in Canada’, International Journal of Psychology, 22, 301–13. Momeni, Jamshid (1984), ‘Size and distribution of Iranian ethnic group in the United States: 1980’, Iran Nameh, 2, 17–21. Naficy, Hamid (1991a), ‘Exile discourse and television fetishization’, Quarterly Review of Film and Video, 13(1–3), 85–116. Naficy, Hamid (1991b), ‘From liminality to incorporation: Iranian exile television in the USA, in Asghar Fathi (ed.), Iranian Refugees and Exiles Since Khomeini, Costa Mesa, CA: Mazda Publishers, pp. 228–50. Naficy, Hamid (1993), ‘Narrowcasting and nationality: Middle Eastern television in Los Angeles’, Afterimage, 20(7), 9–12. Nassehy-Behnam, Vida (1985), ‘Change and the Iranian family’, Current Anthropology 26(5), 557–62. Niknia Zohreh Mirzadegan (2001), The intersection of immigration and gender: the socioeconomic integration of Iranian immigrant Women in Kansas City’, unpublished PhD. dissertation, University of Missouri-Kansas City. Sabagh, Georges and Mehdi Bozorgmehr (1987), ‘Are the characteristics of exiles different from Immigrants? The case of Iranians in Los Angeles’, Sociology and Social Research, 71(2), 77–83. Sabagh, Georges, Ivan Light and Mehdi Bozorgmehr (1986), ‘Emerging ethnicity: Iranians in Los Angeles’ Institute for Social Science Research, 3, 7–10. Tohidi, Nayereh (1993), ‘Iranian women and gender relations in Los Angeles’, in R. Kelley, Jonathan Friedlander and Anita Colby (eds), Irangeles: Iranians in Los Angeles, Los Angeles: University of California Press, pp. 175–83.

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U.S. Census (1990, 2000). U.S. (2001), Statistical Yearbook of the Immigration and Naturalization Service. U.S. (2003), Homeland Security, Yearbook of Immigration Statistics, Office of Immigration Statistics. Waldinger, Roger D. (1986), Through The Eye of the Needle: Immigrants and Enterprise in New York’s Garment Trades, New York: New York University Press. Waldinger, Roger D. (1989), ‘Structural opportunity or ethnic advantage? Immigrant business development in New York’, International Migration Review, 23, 48–72. Waldinger, Roger D. (1993), ‘The ethnic enclave debate revisited’, International Journal of Urban and Regional Research, 17, 444–52. Waldinger, R., Haward Aldrich, Robin Ward and Associates (1990), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, Newbury Park: Sage Publications. Ward, Robin (1987), ‘Ethnic entrepreneurs in Britain and Europe’, in Robert Goffee and Richard Scase (eds), Entrepreneurship in Europe: The Social Processes, London: Croom Helm, pp. 83–104. Yoon, In-jin (1991), ‘The changing significance of ethnic and class resources in immigrant businesses: the case of Korean immigrant businesses in Chicago’, International Migration Review, 25(2), 303–32. Zenner, Walter (1991), Minorities in the Middle, Albany, NY: State University of New York Press. Zentgraf, Kristine M. (1989), ‘Gender, immigration, and economic restructuring in Los Angeles’, California Sociologist, 12, 111–36. Zhou, Min (1992), Chinatown, Philadelphia: Temple University Press. Zhou, Min and John Logan (1989), ‘Returns on human capital in ethnic enclave’, American Sociological Review, 54, 809–20. Zimmer, Cathrine and Howard Aldrich (1987), ‘Resource mobilization through ethnic networks: kinship and friendship ties of shopkeepers in England’, Sociological Perspectives, 30(4), 422–45.

16 Entrepreneurship among Filipino immigrants J. Mark Muñoz and Ilan Alon

Introduction The global environment has provided for opportunities for intensive migrant flows and cultural propagation across countries. Cohen (1997) alluded to the existence of a contemporary society offering unending streams of destinations and resulting in the convergence of national frameworks. Yet, within this landscape, Brah (1991) argued that economic placements remain shaped by ethnicity and related factors. Nevertheless, in cities around the world, ethnic communities have been empowered to polish their entrepreneurial craft and make a significant impact on their adopted home countries. The role of ethnic entrepreneurs in societies is expanding (Cui, 2001). In the case of the US, data from the US Census Bureau (1997) indicated that, out of 21 million firms in the country, three million are minority-owned, and about one-third of the minority-owned ventures are operated by Asians and Pacific Islanders. Saxenian (1999) indicated that, in 1998, ventures operated by immigrants contributed over $16.8 billion in sales and helped create close to 60 000 jobs in the US. Kurklantzick (2004) cited the importance of minority entrepreneurship in the US, and characterized the process as (1) evolving and growing as more women and minority ventures are expected to be created by 2010, (2) spurred by changes in demographic compositions, (3) perceived favorably thanks to the existence of successful role models, and (4) increasing in visibility and involvement in community affairs. Furthermore, ethnic minorities may comprise over half of the US population by 2060 (Feagin and Feagin, 1996). This chapter explores the dynamics of ethnic entrepreneurship, and seeks to understand its implications for one of the largest migrant communities in the world, the Filipinos. Ethnic entrepreneurship defined In order to better understand the concept of ethnic entrepreneurship, the concept of ethnicity needs to be qualified. Ethnicity has been defined in the context of shared history arising from the divergence of cultures, politics, and economics among groups in a society. By this definition, individuals bonded by such commonalities and engaged in entrepreneurial activities may be described as ethnic entrepreneurs. Yinger (1985) views ethnic entrepreneurs as persons associated with a group through a commonality of culture and origin, while Ibrahim and Galt (2003) indicate that this group remains largely heterogeneous owing to differences in economic class, educational attainment, and cultural influences. There is a confluence of factors that affects entrepreneurial propensities among immigrants. For instance, Waldinger et al. (1990) highlighted that the interplay of characteristics relating to premigration conditions, migration circumstances, and the postmigration situation leads to variations among ethnic enterprises. In addition, Portes and Rumbaut (1990) attribute entrepreneurship propensities among immigrants as being shaped by environmental factors like human capital access, community integration, economic opportunities, and government policies. 249

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Ethnic entrepreneurship is driven by either proactive or reactive factors. Aldrich and Waldinger (1990) observed that the interconnection of social characteristics inevitably impact behavior, relations, and economic advantages among immigrants. Proactive factors refer to underlying circumstances or conditions that favorably encourage immigrants to engage in entrepreneurship in order that an economic advantage may be gained. Light and Bonacich (1988) cited resources such as wealth, values, and knowledge as drivers of ethnic entrepreneurship. The presence of support networks, as well as prior business experiences further encourage migrants to engage in entrepreneurial activities (Massey et al., 1994; Portes and Bach, 1985). In addition, emerging opportunities may open up as immigrants see avenues to bridge trade gaps across regions (Saxenian and Edulbehran, 1998). Reactive factors are circumstances or conditions that force immigrants to engage in entrepreneurship as a means of survival and in coping with a new environment. Portes and Rumbaut (1990) pointed out that some immigrants pursue entrepreneurial activities in order to survive or improve their economic situation, while Mata and Pendakur (1999) noted that immigrants undertake entrepreneurial activities because of constraints on status, language, and human capital limitations. When educated immigrants are hindered by language proficiencies they would be more likely inclined to engage in entrepreneurship (Tienda, 2001). Entrepreneurial activities pursued by ethnic minorities pave the way for domestic and international trade expansion. Galster et al. (1999) pointed out that ethnic entrepreneurs have the ability to prosper in their host countries by capturing local market niches, engaging in trade arbitrage between the host and home countries, and establishing ventures in enclaves in the host country. In the context of the host country, ethnic entrepreneurship can be practiced in ‘enclaves’ consisting of co-ethnic members that serve as avenues for economic upliftment (Portes, 1995). These communities stimulate self-employment, work flexibility, and training (Zhou, 1992). In addition, skilled immigrants are in a position to engage in corporate entrepreneurship. Saxenian (2002) observed that, in 1998, approximately 25 per cent of the senior engineering executives in Silicon Valley were Chinese and Indian immigrants. Within a broader and international context, ethnic entrepreneurs are also in a unique position to make an impact. Basch et al. (1994) pointed out the concept of ‘transnationalism’, where immigrants build upon multi-faceted social links between their country of origin and present residency, while Saxenian (1999) observed the expanding entrepreneurial role of highly skilled immigrants and their ability to establish business ties between domestic and foreign enterprises. In the case of Asian immigrants in the US, Le (2004) attributes the expansion of entrepreneurial propensities to (1) labor market penetration challenges, (2) cultural factors and work ethics, (3) resource availability in the form of capital and skill sets, and (4) economic opportunities derived from ethnic support, location, and venture availability. In addition, Tienda (2001) observed that Asian entrepreneurs perceive business ownership as a way to generate more income and achieve prosperity. International emigration in the Philippines The Philippines is located in Southeastern Asia, in an archipelago between the Philippine Sea and the South China Sea. The country has a population of around 86 million, and is slightly larger than the state of Arizona, with a total land area of 300 000 square kilometers (CIA World Fact Book, 2004).

Entrepreneurship among Filipino immigrants Table 16.1

Number of registered Philippine emigrants (1981–2001)

Country of destination USA Canada Australia Japan UK Germany Others Total

251

No. of emigrants

Percentage

Annual average

799 501 151 127 81 397 56 756 5 732 8 464 23 100

71.0 13.4 7.2 5.0 0.5 0.8 2.1

36 582 6 733 3 782 2 416 265 379 988

1 126 077

100

53 623

Source: Commission on Filipinos Overseas (2004).

Interestingly, the country is among the most active participants in international labor mobilization and migration. Mercado (2002) depicted the Philippines as the largest labor exporter in Asia, having sent over 7.4 million or 22 per cent of its entire labor force of 30 million to over 120 countries. In addition, over one million Filipinos emigrated to other countries in the past 20 years and more than 70 per cent of the migrants headed for the United States. Table 16.1 shows the countries of destination of Filipino emigrants. A number of reasons may be cited for this intense migration. In a study among Philippine immigrants in Italy, Crane (2004) observed that Filipinos migrated in the 1970s and 1980s as a result of economic difficulties experienced during the regime of President Ferdinand Marcos, and in the 1990s as a response to the proliferation of labor intermediary agencies. Scarcity of jobs and higher income abroad has triggered the mass exodus, resulting in a scenario where the total number of overseas Filipinos exceeded 10 per cent of the total population (Mercado, 2002). Migration into the US is largely attributed to family-related reasons. Data from the US Department of Homeland Security (2004) indicate that, out of the 45 397 Filipino immigrants in the US in 2003, 20 498 (45 per cent) were immediate relatives of US citizens, while 14 974 (32 per cent) were family-sponsored. Philippine emigration has also been spurred by marriage to foreign nationals. The Commission on Filipinos Overseas (2004) reported that, in the period 1989–2001, 192 052 Filipinos migrated for marital reasons or as fiancées. Most of this migration flow was towards industrialized countries: USA (39.6 per cent), Japan (30.4 per cent), Australia (8.7 per cent), Germany (4.2 per cent), and Canada (3.8 per cent). The majority (91.3 per cent) were women with an average age of 29 years, were single and never married, and had high school education or some vocational training. Most of the emigrants (47 per cent) had limited knowledge of their country of destination. The majority of Filipinos who left the Philippines in the period 1981–2001 were unemployed and were students and housewives. Those that were employed have been categorized as professional and technical workers. Table 16.2 highlights the emigration volume in 1981–2001 according to occupational groups. The data suggest that, while about 30 per cent of Philippine emigrants during the period had some form of employment, 70 per cent were unemployed. In addition, the emigrants

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Table 16.2

Philippine emigrants according to occupational groups (1981–2001)

Occupational group Employed Professional, technical and related workers Managerial, executive and administrative workers Clerical workers Sales workers Service workers Agriculture, animal husbandry, forestry workers and fishermen Production process, transport equipment operators and laborers Members of the Armed Forces Unemployed Housewives Retirees Students Minors (below 7 years old) Out of school youth Refugees No occupation reported Total

Number

Percentage

118 185 11 849 48 276 47 035 28 623 26 762

10.50 1.05 4.29 4.18 2.54 2.38

46 124

4.10

3 868

0.34

240 867 36 690 272 979 89 288 1 908 3 153 620

21.39 3.26 24.24 7.93 0.17 0.00 13.64

1 126 077

100

Source: Commission on Filipinos Overseas (2004).

are mostly female with a ratio of 100 females for every 67 males, and have an average age of 32. Crane (2004) pointed out that immigration has been socially accepted in Philippine society and has been viewed as a means towards the attainment of economic prosperity. Philippine immigration in the US The Philippines had a long history of worker migration starting in the early 1900s with laborers working in pineapple plantations in Hawaii, fruit picking in California, and fish canning in Alaska (Morada, 2004). Since then, immigration into the US has increased significantly. Data from the US Department of Homeland Security (2004) indicate that, in the past 184 years (1820–2003), a total of 1 673 400 Filipinos have migrated to the United States. The majority of the migration took place in the past 30 years. Table 16.3 shows the number of Filipino arrivals from 1931 to 2000. The Inquirer News Service (2004) characterized the Filipino community in the US as (1) the second largest Asian population and fast growing, (2) predominantly in the California area with 49 per cent of US Filipinos living in the state, and (3) one of the most educated among the US ethnic groups. Filipinos constituted the third largest immigrant group in the US in 2003, with 45 397 migrants accounting for 6.4 per cent of the total 705 827 persons granted lawful permanent status. Most of the US immigrants establish residence in California, New York, Texas, Florida, New Jersey, and Illinois (US Department of Homeland Security, 2004).

Entrepreneurship among Filipino immigrants Table 16.3 Period 1931–1940 1941–1950 1951–1960 1961–1970 1971–1980 1981–1990 1991–2000 Total

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Philippine immigrants in the US (1930–2000) Number of immigrants 528 4 691 19 307 98 376 354 987 548 764 503 945 1 530 598

Source: Department of Homeland Security (2004), 2003 Yearbook of Immigration Statistics.

A number of Filipino professionals have assimilated well in the US society. In a study among US immigrants, Galster et al. (1999) noted that, in the 1980s, Philippine immigrants made inroads in professional positions and income, particularly in the Los Angeles, New York, and Philadelphia areas. Saxenian and Edulbehran (1998) observed that, in Silicon Valley in the 1990s, 30 per cent of the workers in the high-tech sector were foreign born, and many were of Asian origin. Philippine immigrants have a lot to offer to their adopted countries. Crane (2004) characterized the Filipino migrants as (1) well-liked, (2) polite, (3) dependable, (4) optimistic about the future, (5) possessing a wide range of skills, (6) flexible with the demands of the job market, and (7) uncomplaining on tasks assigned. Entrepreneurship among Philippine immigrants in the US Data from the US Census Bureau (1997) show that Filipinos operate close to 85 000 ventures, have more than 100 000 employees, and have generated sales exceeding $10 billion. Table 16.4 presents relevant data on Philippine business ownership in the US. The data further suggest that most of these ventures are in the service industries, retail trade, and real estate. Table 16.5 shows the categories of Philippine-owned ventures in the US. From these data, the following are inferred about Philippine ventures in the US: (1) while the wholesale sector constitutes among the lowest number of participants, it has posted one of the highest sales receipts, (2) while the service industry has the highest sales receipt contribution, there is likely a saturation in the sector, and (3) as shown in Table 16.2, only 2.54 per cent of departing migrants in the Philippines were involved in the service sector, yet in the US a majority of ventures were in the service category. This suggests that numerous immigrants are pursuing service-oriented ventures in the US without having prior training or experience in the field. Research data also suggest that Philippine entrepreneurs in the US have among the lowest number of ventures among immigrants from the Asia-Pacific Region. Table 16.6 shows the relevant data. The data imply that (1) there has been a dramatically higher propensity for Asian Indians, Chinese and Korean immigrants in the US to start entrepreneurial ventures than

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Table 16.4

Philippine venture ownership in the US (1997)

Category

Number

All Firm number Sales receipts ($1000)

84 534 11 077 885

Firms with paid employees Firm number Sales and receipts ($1000) Employees Payroll ($1000)

14 581 8 966 386 110 130 2 667 333

Source: US Census Bureau (1997).

Table 16.5

Philippine-owned ventures in the US (according to classification, 1997)

Category Agricultural services, forestry, and fishing Construction industries, subdividers, and developers Manufacturing

Number

Sales receipts ($1000)

Major activities

831

38 673

2 990

551 610

Special trade contractors

1 615

932 452

Transportation, communication, and utilities

3 628

334 354

Wholesale trade Retail trade

2 672 9 323

2 013 297 764 361

8 356 46 629

628 532 5 375 426

Apparel and textiles, printing and publishing, food Motor freight transportation and warehousing, transport services, and local interurban passenger transport Mostly in durable goods Eating and drinking places, food stores, other retail Real estate and insurance agents Health, business, and personal, engineering, accounting, and management services

8 493

439 180

84 534

11 077 885

Real estate industries Service industries

Other industries not classified Total

Agricultural services

Source: US Census Bureau (1997).

Filipino immigrants, (2) the Asian Indians, Chinese and Korean venture owners in the US achieved greater sales returns than Filipino venture owners, (3) the Asian Indians, Chinese, and Korean venture owners employ more workers in the US than Filipino venture owners and consequently contributed a higher amount in payroll, (4) the average sales per business of Filipino venture owners is approximately $131 000, a figure significantly lower than

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US Census Bureau (1997).

84 534 166 737 252 577 85 538 135 571 97 764 70 868 15 544 3 826 912 960

Filipino Indian Chinese Japanese Korean Vietnamese Other Asian Hawaiian Other Asia-Pacific Asia-Pacific total

Source:

Number 11 077 885 67 503 357 106 196 794 43 741 051 45 936 497 9 322 891 19 016 149 2 250 153 1 888 205 306 932 982

Sales and receipts ($1000)

All firms

14 581 67 189 90 582 23 309 50 076 18 948 22 292 2 023 1 000 289 999

Number 8 966 386 61 760 453 98 233 262 41 294 865 40 745 504 6 768 324 16 800 603 1 956 793 1 768 155 278 294 345

Sales and receipts ($1000)

110 130 490 629 691 757 262 223 333 649 79 035 201 610 20 698 13 349 2 203 079

Employees

Firms with paid employees

2 667 333 12 585 621 12 944 824 7 106 692 5 789 472 1 165 550 3 135 784 497 950 286 293 46 179 519

Payroll

Number of Philippine-owned enterprises in the US in comparison with other races from the Asia-Pacific Region (1997)

Race

Table 16.6

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Table 16.7

Average sales of Asia-Pacific enterprises in the US

Race Filipino Indian Chinese Japanese Korean Vietnamese Other Asian Hawaiian Other Asia-Pacific Asia-Pacific total

No. of ventures

Sales and receipts ($1000)

Average

84 534 166 737 252 577 85 538 135 571 97 764 70 868 15 544 3 826 912 960

11 077 885 67 503 357 106 196 794 43 741 051 45 936 497 9 322 891 19 016 149 2 250 153 1 888 205 306 932 982

131.0465 404.8493 420.4531 511.364 338.8372 95.36119 268.332 144.7602 493.5193 336.1954

Source: US Census Bureau (1997).

those of the Asian Indians, Chinese, and Koreans, and, (5) though Filipino venture owners in the US had fewer ventures compared to Vietnamese, the average sales per business were higher. Table 16.7 shows the average sales of Asia-Pacific business owners in the US. Le (2004) cited a 2000 US Census report indicating that the self-employment rates of Filipino immigrants in the US was the lowest among all Asian groups at 5.8 per cent, compared to Koreans (24.1 per cent), Taiwanese (19.8 per cent), Japanese (12.3 per cent), Asian Indians (11.1 per cent), Chinese (10.9 per cent) and Vietnamese (10.9 per cent). While there are several plausible explanations for the lower entrepreneurial propensity, a valid explanation has been attributed to the Filipinos’ easier absorption into the job market, thereby precluding an urgent need for entrepreneurial activities (Crane, 2004). Opportunities and challenges relating to ethnic entrepreneurship The pursuit of ethnic entrepreneurial activities offers numerous advantages. For instance, Zhou (2002) pointed out that ethnic entrepreneurship facilitates community building and information flow, and enhances relationships. Eaton (1998) suggested that, in the case of smaller cities, immigrants absorb professions that would not have been filled in their absence. A number of Asian ventures in the US are successful (Le, 2004). However, in the course of an immigrant’s assimilation into a new society, cultural identities may be challenged. Thompson (2003) noted that, in the case of Malay men, the intersection of forces such as ethnicity, gender, religion, class, and socio-cultural forces are changing lives. Despite the risk of facing cultural alterations, ethnic entrepreneurship can strengthen intra-cultural bonds. Waldinger (1986) suggested that social formations among ethnic groups strengthen relationships and contribute to firm competitiveness. Academic literature points out numerous benefits arising from the pursuit of ethnic entrepreneurship: informal networks contribute to business success (Masurel et al., 2002); through the strategic use of support networks there is gained knowledge about industry practice and management, capital acquisition, and human resources development (Smart, 2003); ethnic support networks expand entrepreneurial contacts, facilitate training and business advice, and provide access to loans and credit, including money pools and loan clubs (Chotigeat et al., 1991; Ginsberg, 2003); gain support from co-ethnic members

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thanks to trust, ease of communication, credit privileges, and cultural compatibility (Tienda, 2001); and spurs the formation of economic clusters that reinforce value systems (Portes and Zhou, 1992). Relevant research also points out challenges, such as limitations on class resources (Ram et al., 2000); non-usage of formal business loans and tax credits from the government (Ginsberg, 2003); language barriers and non-transferability of degrees acquired in their home countries (Tienda, 2001); existence of quasi-legal structures and taxation challenges (Ginsberg, 2003); poor personnel practices and low rate of utilization of institutionalized training programs (Ram et al., 2000); non-awareness of new venture government support programs and benefits (Tienda, 2001); being segregated in certain locations and lack capitalization (Louie and Ong, 1995); facing the challenge of capital acquisition (Kurklantzick, 2004); and the existence of internal diversity (Crane, 2004). Operational hurdles also need to be addressed. Le (2004) identified some of the challenges of Asian immigrant ventures in the US as (1) having overworked owners putting in long hours, (2) exposed to inter-racial tension, (3) experiencing low profit margins, and (4) experiencing high rates of failure. Ethnic ventures tend to be more common in industries such as restaurants, personnel services, and retailing, owing to the fact that entry barriers are lower (Butler and Greene, 1997). Despite similarities among ethnic ventures, differences exist. Immigrants in contemporary society are socio-economically diverse (Min and Bozorgmehr, 2000). Masurel et al. (2002) alluded to the fact that levels of performance tend to be different among ethnic groups. In starting new ventures, certain ethnic groups face more obstacles than others (Robb, 2002). Basu and Altinay (2002) attribute these differences to cultural attributes such as family tradition, motive for migration, religion, family linkages, entrepreneurial experience, and educational background. In essence, certain ethnic groups have a higher entrepreneurial predisposition than others. A range of other economic, business, and cross-cultural factors also affect selfemployment propensities among ethnic minorities. Razin and Light (1998) pointed out the role of location and ethnicity on entrepreneurship, self-employment, industry preferences, and competitive approaches. Chrisman et al. (2002) highlighted the impact of family involvement on venture performance among ethnic groups, while Rasheed (2004) observed the confluence of factors such as gender and education on capital access and market penetration. Factors affecting entrepreneurship among Philippine immigrants The incidence of entrepreneurship among Philippine migrants is low. There are only 85 000 Filipino owned ventures in the US, out of a total of 21 million businesses in the country, and self-employment rates are lower than those of their Asian counterparts (Inquirer News Service, 2004; US Census Bureau, 1997; Le, 2004). The authors corresponded with several Philippine embassies around the world to determine the breadth and scope of entrepreneurship among Filipino immigrants. The data gathered also confirm a low incidence of entrepreneurship in other locations outside of the US. Table 16.8 shows selected data on the number of Filipinos in foreign locations, and the incidence of entrepreneurship. In the US, the ease of finding jobs, and closer cultural assimilation with the mainstream society, has inhibited Filipino migrants from pursuing avenues for self-employment and

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Table 16.8 Selected information on Philippine entrepreneurship in international locations (2004)

Location

No. of Filipinos

Entrepreneurs

Description Mostly temporary migrants working in UN agencies, multi-national companies engaged in construction engineering, or international consulting, non-government offices, and government institutions Mostly employed as consultants, managers, technicians and workers in the service sector Majority employed in government and private offices, including hotels, restaurants, factories, and family residences. Majority (60 per cent) are classified as skilled workers. Presence of entrepreneurial activities were noted in education, and the food industry (restaurants) Mostly employed as consultants, managers, technicians and workers in the service sector Mostly professionals in the information and communication technology sector. Others are spouses of expatriates, and workers in international organizations such as Red Cross, WHO, and the UN Mostly employed as consultants, managers, technicians and workers in the service sector Mostly employed as consultants, managers, technicians and in the service sector Mostly employed as consultants, managers, technicians and workers in the service sector Majority are students, unskilled workers (i.e. domestic helpers), and housewives. Majority (68 per cent) are females, and most are 18–45 years old Many are employed as overseas foreign workers hired by the American Embassy as service crew in cafeterias, and recreation or day care centers. Others work as domestic helpers in private homes Mostly employed as consultants, managers, technicians and workers in the service sector Mostly employed as consultants, managers, technicians and workers in the service sector Mostly employed as consultants, managers, technicians and workers in the service sector Mostly employed as consultants, managers, technicians and workers in the service sector

Afghanistan

300

None known

Angola

605

None identified

Bahrain

30 000

Very few

Botswana

260

None identified

India

450

None known

Lesotho

269

None identified

Mozambique

170

None identified

Namibia

934

None identified

Pakistan

500

None known

Russia

116

None known

South Africa Swaziland Zambia Zimbabwe

1 111

None identified

70

None identified

175

None identified

44

None identified

Source: Philippine Embassy official correspondence to J.M. Munoz (2004).

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has dampened the urgency to pursue entrepreneurial activities (Min, 1986; Crane, 2004). Saxenian and Edulbehran (1998) pointed out the presence of Filipino executives handling semi-skilled and administrative positions in the high-tech environment in Silicon Valley. Employability among Filipinos arises from attractive skills and friendly demeanor. Greenemeier (2002) noted the existence of technology skills, and DiCarlo (2003a) observed the good language skills and strong customer service orientation. Andres and Ilada-Andres (2001) pointed to ‘popularism’ as among the attributes possessed by Filipinos, while Mendoza (2001) cited the culture’s high regard for authority and high premium placed on good interpersonal relationships. A combination of attributes has facilitated the Filipinos’ rapid assimilation into foreign environments. Min (1986) pointed out the advantages of Filipino migrants as (1) proficiency in English, (2) commonality with US educational approaches, (3) possession of a high level of cultural integration. In addition, the Philippines has been exposed to Asian, European and American cultures throughout its history. The country has traded with China since 960AD, has been under Spanish rule for over 300 years, and has been a US colony for about 50 years (Sison, 2003). DiCarlo (2003a) observed the country’s compatibility and affinity with Western culture, while Sison (2003) noted the Filipinos’ creative and innovative spirit that often spurs improvisation. Faster assimilation into societies has also resulted from the support of the community. In Italy, Crane (2004) observed that Filipino immigrants enjoyed the support of the Catholic Church and co-ethnic members. The Filipinos have a strong sense of group loyalty and social harmony, and emphasize reciprocity (Henderson, 1999; Timbermann, 1995). In the management of entrepreneurial ventures in foreign shores, Filipinos are likely to implement practices that are inherently different from the prevalent practices in the society owing to its unique characteristics. Henderson (1999) depicted the key attributes of traditional Philippine management as formal (need to use titles, formal names, and handshakes); punctual (need to prepare for delays due to traffic congestion), relaxed (allow time for small talk); sensitive (avoid raising voices or implication of incompetence); paternalistic; dense with close work networks; emphasize group loyalty and social harmony; indirect and elusive communicative responses (executives tend to use a variety of approaches to say ‘no’ to soften the blow and prevent embarrassment); leave projects uncompleted (ningas cogon); and anchored on trust building (tiwala), a key ingredient in building a successful relationship. Andres and Ilada-Andres (2001) cited the Philippine culture as possessing attributes such as personalism, familism, and particularism, while Mendoza (2001) pointed out that these attributes are misaligned with certain Western values that emphasize objectivity, professionalism, and goal orientation. These cultural differences can lead to misunderstandings and work conflicts with employees, business partners, and other stakeholders. Values play a role in venture formation and entrepreneurial activity (Bryan, 1999; Lipset, 2000). For instance, the value of sharing among Filipinos can curtail business propensity and efficiencies. The moral pressure of obligatory sharing has hindered entrepreneurial Filipinos from engaging in commerce (Szanton, 1998). The Philippine culture has a favorable disposition towards entrepreneurship, except for the aspect of individualism. Hofstede (1991) in his cross-cultural study has shown that the Philippine culture has high power distance, high masculinity and low uncertainty avoidance. These attributes have been identified by McGrath et al. (1992) as traits typically

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present among entrepreneurs in various cultures. However, as shown in Hofstede’s (1991) study, Filipinos scored low on individualism, high individualism rating typically characterizes entrepreneurs (McGrath et al., 1992). The culture’s low level of individualism can have an adverse impact on entrepreneurial tendencies. Furthermore, Mueller and Thomas (2000) uncovered that cultures possessing high individualism and low uncertainty avoidance created a succeeding generation with stronger entrepreneurial attributes. The entrepreneurial propensity among Filipino immigrants can also be dampened by the culture’s fatalism. Sison (2003) pointed out the culture’s short-term perspective and fatalistic or ‘bahala na’ attitude, where fate is ultimately left to God. The Philippine culture scores low on long-term orientation (Hofstede, 1991). A shortterm rather than long-term focus translates into the immediate desire for financial gains that are not often attainable in self-employment or in start-up entrepreneurial ventures. Additionally, many Filipinos view their immigration as a temporary period and eventually dream of returning to their home country (Crane, 2004). This perspective therefore discourages the formation or acquisition of concrete and long-term business infrastructure in foreign locations. Filipino immigrants often have remaining relatives in the home country and many provide financial support to relatives in the Philippines. In 2003, remittances from overseas workers to families in the Philippines reached US$7.6 billion (Banco Central ng Pilipinas (a), 2004). Immigrants tend to continue to view their home countries as cultural reference points and benchmarks for success (Crane, 2004). Thanks to the corporate and business success attained by many Filipino immigrants, and the poor economic conditions in the Philippines, the flow of emigration from the country will likely continue. The economic environment in the country is delimited by drastic currency devaluation over the past ten years (Banco Central ng Pilipinas (b), 2004); government facing a $3.5 billion annual budget deficit (Daily Times, 2004); significant socio-political risks due to peace and order concerns and cases of bribery (DiCarlo, 2003a); highest unemployment in Asia, at 13 per cent, and difficulties in providing jobs for about 300 000 graduates each year (Daily Times, 2004), and prevalence of labor migration (Leung, 2003). As emigration continues, tough entrepreneurial challenges face new migrants. As indicated in Table 16.2, 70 per cent of the Filipinos who departed the country in the period 1981–2001 were unemployed and were mostly students and housewives. Furthermore, most of the emigrants (47 per cent) had limited knowledge about their country of destination (Commission on Filipinos Overseas, 2004). Most of the emigrants were female and they had an average age of 32. Many left the country for family reasons or as spouses of foreign nationals (US Department of Homeland Security, 2004; Commission on Filipinos Overseas, 2004). This demographic profile exposes the group to several challenges that confront new migrants, such as limitations on capital and relevant resources (Louie and Ong, 1995; Ram et al., 2000); non-awareness and non-usage of formal business loans and tax credits from the government (Tienda, 2001; Ginsberg, 2003); language barriers and non-transferability of degrees (Tienda, 2001); and challenges in capital acquisition (Kurklantzick, 2004). Since, the migrants were predominantly unemployed they are likely to possess limited business skills. Lucas (1978) highlighted the importance of managerial ability in the practice of entrepreneurship. As previously unemployed spouses, many are likely financially dependent on their spouses. In general, ethnic minorities have limited

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ability to provide for personal collateral (Bates, 1997). As women minorities, their quest for venture capital may be hindered because of higher interest rates and collateral requirements (Coleman, 2000). Asian women business owners face challenges within the business environment and in the framework of society as they balance role expectations in their families and communities (Wright et al., 2003). Women-owned firms also tend to have higher incidences of closure, lower survival rates, and are numerous in the retail and service industries (Srinivasan et al., 1993; Boden and Nucci, 2000; Robb, 2002). In addition, the migrants need time to be acclimatized culturally and economically before venture opportunities are identified and pursued. While striving to understand the new environment better, migrant entrepreneurs are challenged in their acquisition of relevant business and economic data that will help gauge the attractiveness of the market (Wright et al., 2003). While these are daunting challenges, opportunities ascribed to ethnic entrepreneurship also apply to migrating Philippine migrants. Specifically, advantages may be derived from co-ethnic support networks through entrepreneurial contacts, acquisition of business advice, training, and loan or credit access (Masurel et al., 2002; Smart, 2003; Chotigeat et al., 1991; Ginsberg, 2003) and participation in activities in economic clusters (Portes and Zhou, 1992). The path toward self-employment may be the way to overcome obstacles in job acquisition and financial betterment (Srinivasan, 1992). Boissevain et al. (1990) pointed to the need for ethnic minorities to pursue a unique set of strategies. A well-conceived and effectively executed set of strategies can pave the way for entrepreneurial success and prosperity among Philippine immigrants. Strategic entrepreneurial approaches for Philippine immigrants In light of the research findings, the authors recommend 12 approaches for Philippine immigrants to use. Develop a keen understanding of the new business environment The business and economic environments of the home and host countries are different. A thorough examination of the business dynamics of the host country leads to knowledge about markets and trends, legal policies and procedures, as well as viable business development approaches. Puttnam (2004) highlighted organizational benefits that may be gained through understanding the market dynamics in a new location. Wilson (2001) indicated that ethnic groups are in a position to tap into business opportunities by producing and distributing goods that did not have prior demand. Opportunity identification is facilitated by a good understanding of the business landscape. Gain relevant work exposure Acquiring experience in a preferred industry can add to knowledge that can heighten venture success in the future. The data in Table 16.5 suggested that numerous Philippine immigrants are pursuing service-oriented ventures in the US without having prior training or experience in the field. Raijman and Tienda (2000) observed that employment, even in the informal sector of a society, can eventually lead to a migrant’s business formation. Ram et al. (2000) view employment among immigrants as a period of ‘apprenticeship’ where future entrepreneurs can gain new skills and training. Knowledge of an industry can enhance prospects for business survival (Cooper et al., 1994).

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Engage in creative capital acquisition New Filipino immigrants would likely face challenges in capital acquisition as a credit history would not likely be recorded in the host country or would not be as extensive. Capital can be acquired through innovative approaches. Ginsberg (2003) noted that immigrant entrepreneurs utilized informal sources for capital acquisition, such as money pooling, loan clubs and by borrowing from family, friends, and co-ethnic members and by pooling resources in order to gain large discounts from suppliers. In addition, Saxenian and Edulbehran (1998) alluded to potential benefits that may be derived when international capital flows from overseas flow into ethnic ventures. Pursue entrepreneurial activities in smaller phases and degrees There is a low self-employment rate among Filipinos that may be attributed to their ease of job acquisition (Le, 2004; Crane, 2004). As an alternative, Philippine immigrants can engage in entrepreneurial activities on a part-time basis to test the waters. They can pursue venture interests initially on a staggered basis or as venture partners, without giving up their jobs. Kloosterman et al. (1998) observed that some immigrant ventures have a semiformal structure. Ethnic and women ventures organized in the form of partnerships had higher survival rates than those organized as sole proprietorships (Robb, 2002). Capitalize on uniquely competitive skills Competition in new environments is not easy for new entrants. Building on distinctive strengths and competencies can provide a unique advantage. DiCarlo (2003b) noted the technological strengths in the Philippines as anchored in accounting, finance, call centers, animation, and human resources. Build on co-ethnic market niches Tapping into the co-ethnic market offers a unique starting point and can be a foundation for future business development. In Bahrain, Filipino entrepreneur Eliseo Bautista built a successful restaurant called Bahay Kubo that provided Filipino food specialties for immigrants and foreign workers in the country (Maglaya, 2004). Setting up a venture in ethnic neighborhoods can be used to reach specific ethnic customers and can serve as preliminary building blocks for future business expansion (Dyer and Ross, 2003; Ginsberg, 2003). As immigrant ventures further assimilate into the broader economy avenues for profit enhancement and better employee welfare expand (Zhou, 2001). Arbitrage opportunities across countries There exist potential demand, supply, and price gaps among products and services between the home and the host countries. Philippine immigrants can tap into these disparities and profit from them. Saxenian and Edulbehran (1998) pointed out that immigrants are in a position to identify and bridge trade gaps across countries. As an example, Maglaya (2004) cited the case of Filipino entrepreneur Amable Aguiluz, who founded AMA International University (Bahrain) in an effort to transfer competencies in technology and education developed in the Philippines into a new and growing market. In the US, there may be unique opportunities for trade arbitrage in the wholesale sector. As shown in Table 16.5, this sector has among the lowest level of competition and has one of the highest sales receipts among Philippines ventures.

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Prepare to undertake cultural and management adjustments The Philippine management style is unique thanks to its inherent attributes. Mendoza (2001) pointed out that certain cultural attributes may lead to conflict with Western expectations on objectivity, professionalism, and goal orientation. Modifications in management approaches to suit the new environment may be beneficial. Provide emphasis on profitability Le (2004) observed that Asian immigrant ventures tend to have low profit margins. This is often a result of the utilization of price rather quality as a competitive strategy (Rath and Kloosterman, 2000). Data gathered from Table 16.6 show that, in the US, Asian Indians, Chinese and Korean venture owners achieved greater sales returns than Filipino venture owners. Attention needs to be provided to financial management and pricing approaches in order that profit streams may be expanded. Seek support from the host government Among the cited challenges of ethnic entrepreneurs is their non-awareness of existing business programs offered by the government in the host country. Few ethnic entrepreneurs seek the support of government agencies (Fadahunsi et al., 2000). Tienda (2001) recommends the implementation of specific policies directed at supporting ethnic entrepreneurs, such as (1) reinforcement of business and legal knowledge and finance acquisition, (2) strengthening economic linkages, (3) assistance in market analysis, strategy formulation, and venture sustainability, and (4) broadening avenues for training. In addition, the authors propose that ethnic entrepreneurs should take a proactive role, and work with the host government by requesting relevant information and soliciting support. Identify role models and work with mentors There are numerous successful ethnic entrepreneurs in different countries. Ibrahim and Galt (2003) pointed out the merits of tapping into the expertise of ethnic mentors. By understanding the successful methodologies employed by other immigrant entrepreneurs, Philippine ethnic entrepreneurs can shorten the learning curve and avoid major business pitfalls in the host country. Request assistance from the home government and support groups The Philippine government has embassies worldwide. Filipino immigrants contemplating new ventures can seek the assistance of ambassadors and commercial attachés in acquiring business information or in building business networks and contacts. In addition, support may be derived from business organizations (Ram and Smallbone, 2002). Philippine immigrants worldwide have reached the millions. Despite daunting obstacles brought about by inherent cultural constraints, as well as the dynamics of business and economics in new environments, venture opportunities need to be continually perused and pursued. Since the majority of the migrants are women who were previously unemployed, engaging in self-employment puts them on a position to conquer potential career obstacles and sets them in a more prosperous path. The road ahead is not without challenges, yet the creative leveraging of skills, abilities, resources, and the pursuit of strategic approaches paves the way towards success.

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References Aldrich, H.E. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Andres, T.D. and P.C.B. Ilada-Andres (2001), Understanding the Filipino, Quezon City, Philippines: New Day Publishers. Banco Central ng Pilipinas (2004a), ‘Overseas Filipino workers remittances’ (accessed October 2004), available at http://www.bsp.gov.ph/Statistics/sefi/ofw.htm. Banco Central ng Pilipinas (2004b), ‘Philippine exchange rates’, available at http://www.bsp.gov.ph/Statistics/ spei/tab12.htm. Basch, L., N. Glick-Schiller and C. Blanc-Szanton (1994), Nation Unbounded: Transnational Projects, Post Colonial Predicaments, and Deterritorialized Nation States, Langhome, PA: Gordon and Breach. Basu, A. and E. Altinay (2002), ‘The interaction between culture and entrepreneurship in London’s immigrant business’, International Small Business Journal, 20(4), 371–93. Bates, T. (1997), ‘Unequal access: financial institutions lending to black and white-owned small business startups’, Journal of Urban Affairs, 19, 487–96. Boden, R. and A. Nucci (2000), ‘On the survival prospects of men’s and women’s new business ventures’, Journal of Business Venturing, 15(4), 347–62. Boissevain, J., J. Blaschke, H. Grotenberg, I. Light, M. Sway, R. Waldinger and P. Werbner (1990), ‘Ethnic entrepreneurs and ethnic strategies’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs, Beverly Hills, CA: Sage Publications. Brah, A. (1991), ‘Questions of difference and international feminism’, in J. Aaron and S. Walby (eds), Out of the Margins, London: Falmer Press. Bryan, L. (1999), ‘American Indian entrepreneurs: Rosebud and Pine Ridge Reservations’, case studies, MT Salish Kootenai College Press. Butler, J. and P. Greene (1997), ‘Ethnic entrepreneurship: the continuous rebirth of American enterprise’, in Donald L. Sexton and Raymond W. Smilor (eds), Entrepreneurship 2000, Chicago, IL: Upstart Publishing Co., pp. 267–89. Chotigeat, T., P.W. Balsmeier and T.O. Stanley (1991), ‘Fueling Asian immigrants’ entrepreneurship: a source of capital’, Journal of Small Business Management, 29(3), 50–61. Chrisman, J.J., J.H. Chua and L.P. Steier (2002), ‘The influence of national culture and family involvement on entrepreneurship perceptions and performance at the state level’, Entrepreneurship Theory & Practice, 26(4), 113–30. CIA (2004), ‘The Philippines, World Fact Book’ (available at http://www.cia.gov/cia/publications/factbook/ geos/rp.html#Geo). Cohen, R. (1997), Global Diasporas: An Introduction, London: UCL Press. Coleman, S. (2000), ‘Access to capital and terms of credit: a comparison of men and women-owned small business’, Journal of Small Business Management, 38, 37–51. Commission on Filipinos Overseas (2004), ‘Number of registered Filipino emigrants by major country of destination: 1981–2001’ (accessed September 2004); available at http://www.cfo.gov.ph/stat_bod.htm). Cooper, A., J. Gimenco-Gascon and C. Woo (1994), ‘Initial human and financial capital as predictors of new venture performance’, Journal of Business Venturing, 9(5), 371–95. Crane, K. (2004), ‘Governing migration: immigrant groups’ strategies in three Italian cities, Rome, Naples, and Bari’, Psychoanalytic Institute for Social Research, Rome (accessed September 2004; available at http://www.feem.it/NR/rdonlyres/6D92E1D5-F3B4-4727-A5C6-ADC8BBF58E41/1081/3704.pdf). Cui, G. (2001), ‘Marketing to ethnic minority consumers: a historical journey (1932–1997)’, Journal of Macromarketing, 21(1), 23–31. Daily Times (2004, 16 September), ‘Feature: Philippines frets as US targets outsourcing (accessed Sept, 2004; available at http://www.dailytimes.com.pk/default.asp?page=story_15-8-2004_pg 5_27). Department of Homeland Security (2004), ‘2003 Yearbook of Immigration Statistics’ (accessed Sept. 2004; available at http://uscis.gov/graphics/shared/aboutus/statistics/IMM03yrbk/2003IMM.pdf). DiCarlo, L. (2003a), ‘The Philippines fights for US business. Forbes.com’ (accessed Sept. 2004; available at http://www.forbes.com/2003/05/22/cx_ld_0522philippines.html). DiCarlo, L. (2003b), ‘Best countries for outsourcing. Forbes.com’ (accessed Sept. 2004; available at http://www. forbes.com/2003/08/27/cx_ld_0827bestcountries.html). Dyer, L.M. and C.A. Ross (2003), ‘Customer communication and the small ethnic firm’, Journal of Developmental Entrepreneurship, 8(1), 19–40. Eaton, A.L. (1998), ‘Immigration and the structure of demand: do immigrants alter the labor market composition of US cities’, working paper 98-11, Seattle Population Research Center, University of Washington, Seattle. Fadahunsi, A., D. Smallbone and S. Supri (2000), ‘Networking in ethnic minority entrepreneurship: an analysis of ethnic minority owned firms in North London’, Journal of Small Business and Enterprise Development, 7(3), 228–40.

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Feagin, J.R. and C.B. Feagin (1996), Racial and Ethnic Relations, 5th edn, New Jersey: Prentice-Hall. Galster, G.C., K. Metzger and R. Waite (1999), ‘Neighborhood opportunity structures and immigrants’ socioeconomic advancement’, Journal of Housing Research, 10(1), 95–127. Ginsberg, T. (2003), ‘Immigrants pool money, find success’, The Philadelphia Inquirer (accessed Oct. 2004; available at http://www.philly.com/mld/inquirer/7279815.htm?1c). Greenemeier, L. (2002), ‘Offshore outsourcing grows to global proportions’, Insurance & Technology, 27(5), A12. Henderson, C. (1999), ‘Filipino business norms, etiquette, and style’, Asia Pacific Management Forum (accessed June 2004; available at http://www.apmforum.com/columns/orientseas 6.htm). Hofstede, G. (1991), Culture and Organizations: Software of the Mind, London: McGraw-Hill. Ibrahim, G. and V. Galt (2003), ‘Ethnic business development: toward a theoretical synthesis and policy framework’, Journal of Economic Issues, 37(4), 1107–19. Inquirer News Service (2004), ‘Filipino business leaders share secrets to success (accessed Sept. 2004; available at http://inq7.net/globalnation/ser_ann/2004/jul/30-01). Kloosterman, R.C., J.P. van der Leun and J. Rath (1998), ‘Across the border: economic opportunities, social capital, and informal business activities of immigrants’, Journal of Ethnic and Migration Studies, 24(2), 239–58. Kurklantzick, J. (2004), ‘About face. Entrepreneur.com’ (accessed October 2004; available at http://www. entrepreneur.com/Magazines/Copy_of_MA_SegArticle/0,4453,312260,00.html). Le, C.N. (2004), ‘Asian small businesses. Asian-Nation: The landscape of Asian America’ (accessed October 2004; available at http://www.asian-nation.org/small-business.shtml). Leung, L. (2003), ‘Taking IT offshore’, Network World, 20(34), 57. Light, I. and E. Bonacich (1988), Immigrant Entrepreneurs: Koreans in Los Angeles, Los Angeles: University of California Press. Lipset, S.M. (2000), ‘Values and entrepreneurship in the Americas’, in R. Swedberg (ed.), Entrepreneurship: The Social Science View, Oxford, UK: Oxford University Press. Louie, W. and P. Ong (1995), ‘Asian immigrant investors and the immigration act of 1990’, California Policy Seminar Research Project Report, Berkeley, California Policy Seminar. Lucas, R.E. (1978), ‘On the size distribution of firms’, The Bell Journal of Economics, 9(2), 508–23. Maglaya, E.M. (2004), ‘In an official correspondence to the authors, in his capacity as Philippine Ambassador to Bahrain.’ Massey, D., J. Arango, G. Hugo, A. Kovaovci, A. Pellegrino and J.E. Taylor (1994), ‘An evaluation of international migration theory: the North American case’, Population and Development Review, 20, 699–752. Masurel, E., P. Nijkmamp, M. Tastan and G. Vindigni (2002), ‘Motivations and performance conditions for ethnic entrepreneurship’, Growth & Change, 33(2), 238–60. Mata, F. and R. Pendakur (1999), ‘Immigration, labor force integration, and the pursuit of self-employment’, International Migration Review, 33(2), 378–402. McGrath, R., I. McMillan and S. Scheinberg (1992), ‘Elitists, risk-takers, and rugged individualists? An exploratory analysis of cultural differences between entrepreneurs and nonentrepreneurs’, Journal of Business Venturing, 7, 115–35. Mendoza, M.L. (2001), ‘The crisis of management culture in the Philippines: neither East Asian nor Western’, paper presented at the 3rd EUROSEAS Conference in London, UK and the 4th European Philippine Studies Conference in Alcoba, Spain, September. Mercado, J.L. (2002), ‘Chatting up Filipinas in airport queues’, Philippines Today Online edition (accessed October 2004; available at http://www.philippinestoday.net/ofwcorner/ofw11_3.htm). Min, P.G. (1986), ‘Filipino and Korean immigrants in small business: a comparative analysis’, Amerasia Journal, 13(1), 53–71. Min, P.G. and M. Bozorgmehr (2000), ‘Immigrant entrepreneurship and business patterns: a comparison of Koreans and Iranians in Los Angeles’, International Migration Review, 34(3), 707–38. Morada, H.B. (2004), ‘Left behind households of Filipino overseas workers’ (accessed September 2004; available at http://www.manila-online.net/bles/download/lbh.pdf). Mueller, S. and A. Thomas (2000), ‘Culture and entrepreneurial potential: a nine-country study of locus of control and innovativeness’, Journal of Business Venturing, 16, 51–75. Philippine Embassy Correspondences (2004), ‘Official correspondences sent to J.M. Munoz in September 2004 by Robespierre Bolivar (Second Secretary and Consul, Russia); Ma. Agnes Cervantes (Chargé d’Affaires, Pakistan); Information Section (New Delhi); Medardo G. Macaraig (Second Secretary and Consul, Ottawa, Canada); Eduardo Pablo Maglaya (Ambassador, Bahrain); and Oscar G. Orcine (Chargé d’Affaires, South Africa). Portes, A. (1995), ‘Economic sociology and the sociology of immigration: a conceptual overview’, The Economic Sociology of Immigration (ed. Alejandro Portes), New York: Russell Sage Foundation. Portes, A. and R. Bach (1985), Latin Journey: Cuban and Mexican Immigrants in the United States, Berkeley: University of California Press. Portes, A. and R. Rumbaut (1990), Immigrant America: A Portrait, Berkeley & Los Angeles: University of California Press.

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Portes, A. and M. Zhou (1992), ‘Gaining the upper hand: economic mobility among immigrant and domestic minorities’, Ethnic and Racial Studies, 15(4), 491–522. Puttnam, D. (2004), ‘Hearts before pockets’, New Statesman, 17(793), 26. Raijman, R. and M. Tienda (2000), ‘Pathways to business ownership among immigrants to Chicago: a comparative ethnic perspective’, International Migration Review, 34(3), 681–705. Ram, M. D. Smallbone (2002), ‘Ethnic minority business policy in the era of the small business service’, Government and Policy, 20(2), 235–49. Ram, M. and B., Sanghera, T. Abbas and G. Barlow (2000), ‘Training and ethnic minority firms: the case of the independent restaurant sector’, Education & Training, 42(4/5), 334–41. Rasheed, H.S. (2004), ‘Capital access barriers to government performance: moderating effects of ethnicity, gender, and education’, Journal of Developmental Entrepreneurship, 9(2), 109–26. Rath, J. and R. Kloosterman (2000), ‘Outsiders’ business: a critical review of research on immigrant entrepreneurship’, International Migration Review, 34(3), 657–81. Razin, E. and I. Light (1998), ‘Ethnic entrepreneurship in America’s largest metropolitan areas’, Urban Affairs Review, 33(3), 332–60. Robb, A.M. (2002), ‘Entrepreneurship performance by women and minorities: the case of new firms’, Journal of Developmental Entrepreneurship, 7(4), 383–97. Saxenian, A. (1999), ‘Silicon Valley’s new immigrant entrepreneurs’, Public Policy Institute of California (accessed September 2004; available at http://www.ppic.org/content/pubs/R_699ASR.pdf). Saxenian, A. (2002), ‘Silicon Valley’s new immigrant high-growth entrepreneurs’, Economic Development Quarterly, 16(1), 20–31. Saxenian, A. and J. Edulbehran (1998), ‘Immigrant entrepreneurs in Silicon Valley’, Berkeley Planning Journal, 12, 32–49. Sison, A.J. (2003), ‘Business and culture in the Philippines: a story of gradual progress’, (available at http://www. unav.es/empresayhumanismo/2activ/seminario/miembros/sison/ii26/default.html). Smart, J. (2003), ‘Ethnic entrepreneurship, transmigration, and social integration: an ethnographic study of Chinese restaurant owners in rural western Canada’, Urban Anthropology and Studies of Cultural Systems & World Economic Development, 32(3/4), 311–42. Srinivasan, S. (1992), ‘The class position of the Asian petty bourgeoisie’, New Community, 19 (1), 61–74. Srinivasan, R., C. Woo and A. Cooper (1993), ‘Performance determinants for male and female entrepreneurs’, in W.D. Bygrave, S. Birley, N.C. Churchill, E. Gatewood, F. Hoy, R.H. Keeley and W.E. Wetzel (eds), Frontiers of Entrepreneurship Research, Babson Park, MA: Babson. Szanton, D.L. (1998), ‘Contingent moralities – social and economic investment in a Philippine fishing town’, in R.W. Hefner (ed.), Market Cultures: Society and Morality in the New Asian Capitalisms, Boulder, CO: Westview Press. Thompson, E.C. (2003), ‘Malay male migrants: negotiating contested identities in Malaysia’, American Ethnologist, 30(3), 418–38. Tienda, M. (2001), ‘Comparative perspectives on ethnic and immigrant entrepreneurship and business development in Chicago’, paper prepared for the Illinois Coalition for Immigrant and Refugee Rights (accessed September 2004; available at http://www.roosevelt.edu/ima/pdfs/ethnic-immigrant-entrepreneurship.pdf). Timbermann, D. (1995), A Changeless Land. Continuity and Change in Philippine Politics, Singapore: Institute of Southeast Asian Studies. U.S. Census Bureau (1997), ‘Economic census minority and women owned businesses, United States’ (accessed September 2004; available at http://www.census.gov/epcd/mwb97/us/us.html). Waldinger, R. (1986), ‘Immigrant enterprise: a critique and reformulation’, Theory and Society, 15, 249–85. Waldinger, R., H. Aldrich, R. Ward and associates (1990), Ethnic Entrepreneurs: Immigrant Business in Industrial Societies, Newbury Park: Sage Publications. Wilson, F.D. (2001), ‘Ethnic niching and metropolitan labor markets’, working paper 99-29, Center for Demography and Ecology, University of Wisconsin-Madison. Wright, L.T., L.M. Martin and M. Stone (2003), ‘Exploring the characteristics, attitudes to targeting and relationship marketing of small ethnic minority businesses’, Journal of Targeting, Measurement & Analysis for Marketing, 12(2), 173–84. Yinger, J.M. (1985), ‘Ethnicity’, Annual Review of Sociology, 11, 151–80. Zhou, M. (1992), Chinatown: The Socioeconomic Potential of an Urban Enclave, Philadelphia, Temple University Press. Zhou, Y. ( 2001), ‘Caught under the fashion runway in the big apple: immigrant enterprises in the garment industry in New York city’, in Jan Rath (ed.), Unraveling the Rag Trade: Immigrant Entrepreneurship in Seven World Cities, Oxford: Berg Publishers. Zhou, M. (2002), ‘How neighborhoods matter for immigrant adolescents’, CPRC Brief, 14(8) (accessed September 2004; available at http://www.ucop.edu/cprc/neighborhoods.pdf).

17 Minority entrepreneurship in New York Jerome Krase

Introduction This chapter synthesizes some of the most powerful ways of theorizing about ethnic minorities in modern and, indeed, post-modern, cities. In the process it also presents an innovative way to assess the impact of ethnic minorities on urban centers via a consideration of the visible productions of their entrepreneurs. This approach has been developed over the course of a decade in the presentation and publication of a series of papers by the author (Krase, 1993, 1997, 2002, 2003a, 2003b, 2004a, 2004b). The new and not so new city Five years ago American social scientists and practitioners of all sorts were anxiously awaiting the results of the 2000 United States Census. Some were hoping to test their hypotheses about the changing ethnic and other demography of American cities and others anticipated new data in order to better plan for them. Since the 1960s, there have been major real and imagined changes in the structure and appearances of America’s most well-known metropolitan areas, such as New York City, Chicago, and Los Angeles. Social scientists have also been debating the relative roles of the market and government in accounting for these developments. The term ‘globalization’ is often used in this context to describe a combination of factors changing values and norms that are spread across the world. These include new technologies, increased trade, concentration of economic control, reduced welfare state, spatial integration of economic activities and, most important for this chapter, movement of both capital and people. Another term that has entered our post-modern urban vocabulary is ‘de-industrialization’, referring in general to the reduced importance of manufacturing, movement abroad of heavy industry, as well as the decline of historically important urban ports and railroad centers. Concomitant with this has been increased reliance on air, auto, and truck transportation resulting in the spread, perhaps, even better, the ‘displacement’, of the city toward the fringes and suburbs. Many of the newest ethnic flavors of the city are accounted for by post-1965 changes in American immigration laws that have made possible an increasing diversity of permanent and temporary residents of our cities. The diversity of residential neighborhoods, and lower-level workforces, has been further enhanced in recent decades by large numbers of undocumented aliens (Portes, 1995). From a distance it might appear that the new elements thrown into the assimilation cauldron of the American ‘Melting Pot’ are blending together, but up close at the street level they appear more as pieces of a complex and rapidly changing jigsaw puzzle. As was true in the past, but even more so today, by the time the 2000 Census information was published many of the facts that we literally ‘see’ on neighborhood streets are already contradicting those we are reading in the reports. There are at least two reasons for this lack of fit between published data and contemporary urban life. The first is the 267

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rapidity of localized population changes due to the migration and immigration of ethnic minorities. The second is the concentration of ‘illegal aliens’ in specific sections of Global Cities who, although quite apparent to pedestrians, are often invisible to researchers. In this chapter I hope to offer some spatial semiotic insight into this problem as well as some Visual Sociological alternatives, or enhancements, to standard research on immigration and the ethnic composition of Global Cities in the US and abroad. A major factor in this phenomenon is the visual and symbolic impact of ethnic minority entrepreneurs as they change the appearance and therefore the meanings of commercial streetscapes and in the process create diminutives of their places of origin. Their visual impact can be documented all over the city even though they sometimes are ignored by those who for social or political reasons try hard not to recognize them. From West African sidewalk vendors in the heart of major retail centers and Latinos hawking piraguas within the confines of El Barrio, to small Haitian tailoring shops and large Chinese supermarkets, ethnic minority entrepreneurs challenge the visual hegemony and therefore the meanings of highly contested spaces and places. In the same way, then, we can argue that new immigrants, by displaying their own cultural and social practices are undoing what others did before them, and this in turn might be a cause of conflict. For example, there have been many incidents reported in local newspapers of inter-minority bias crimes such as physical and verbal assaults by American Blacks on Asian grocers. Asians and Middle-Easterners have moved into vacant entrepreneurial niches. Even the tragic loss of thousands of lives and the destruction of the World Trade Center created economic opportunity for vendors as the hallowed Ground Zero was rapidly surrounded by entrepreneurs hawking mementos, books, posters and t-shirts emblazoned with painfully profitable images. These concrete as well as purely symbolic battles are added to those which already exist between classes as in the related processes of gentrification, displacement, and renewal, or regeneration. The presence of immigrant and migrant minorities can be interpreted as either a positive or negative sign. To some they are a stigma which indicates the incipient decline of older ethnic groups, or the neighborhood qua city or country as a whole. To others, thriving ethnic commercial retail centers announce that cities continue to be engines of urban economic vitality which attract legions of needed energetic newcomers. New and old approaches Ever since Robert Ezra Park and Ernest Burgess published their classic research on Chicago, which described ‘how’ residential neighborhoods follow a distinct ecological pattern, generations of urban practitioners and theoreticians have been arguing about ‘why’ they are spatially distributed. In a simpler time, Ernest W. Burgess’ Concentric Zone diagram from The City (Park, Burgess and McKenzie, 1925) provided students of urban life with ‘The’ semiotic for ‘The’ City. Since then much ‘urban’ research continued to be focused on the domains and denizens of ‘Inner City’ or other euphemisms for what Ernest W. Burgess called the ‘Zone of Transition’. There one found roomers, hobos, addicts, poor folks, nonwhite minorities, and lower class immigrants who lived in real and symbolic places called the Ghetto, Slum, Black Belt, Chinatown, Underworld, Vice, and Little Sicily. At the turn of the century tens of thousands of immigrants flooded Chicago and mobilization for World War I brought with it a large number of southern blacks. Urban

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Ecology, the study of the spatial distribution of human activity, developed as a way to make sense of what was for the period an amazingly complex ethnic and racial city landscape. Simply put, the Chicago School of Urban Sociology had borrowed an analogy from biology, in the principles of cooperation and competition for space and resources, to create inadvertently an icon for urban development. Heuristically, the Chicago School’s powerful notions such as ‘Natural Areas’ and ‘Invasion and Succession’ well served those who sought to understand racial segregation, as well as immigrant and ethnic enclaves. Increasingly, however, the accepted wisdom that the stability and change of the metropolis was merely ‘natural’ as opposed to the consequence of the way that powerful people and institutions think and plan became contested. The discipline of Urban Ecology was seen by more radical analysts as too timid (for example ‘conservative’) for honest analyses of White flight, Urban Blight, Red-Lining, not to mention simultaneous Gentrification and Dis-investment (Feagin, 1998: 19). In my opinion, however, its basic descriptive principles continue today to have a great deal of value when contemporized by studious attention to more analytic notions such as ‘Circuits of Capital’ and ‘Spatial Semiotics’. Under these newer rubrics the same immigrant and ethnic enclaves are treated not as much as merely ‘natural’ but nevertheless ‘inevitable’. Today’s major urban models and paradigms continue the sociological profession’s tradition of place names such as the Los Angeles and New York City ‘Schools’. One must ultimately agree that no concrete entity can adequately serve as an abstract concept, but we must recognize the value of ideas that are grounded in empirical geographical realities. A look at Chicago by Erick Howenstine is a literal case of déjà vu: ‘Eighty years ago the ethnic mosaic of Chicago was defined primarily on the basis of first and second generation European groups settling in inner-city neighborhoods. Thirty years ago a large population of first and second generation Black internal migrants from the South changed the character of that mosaic. Today the mosaic is again being changed by immigrant groups, this time from Latin America and Asia. Today’s ethnic mosaic has extended to suburban territory. Details of the specific settlement and segregation patterns, as shown in these analyses, continue to change. Nonetheless, Chicago continues to be an ethnically diverse and also, to an important extent, a racially segregated urban area’ (1996: 47). Note here the use of the visually meaningful term ‘mosaic’, as opposed to neat concentric rings to enhance the factual description of demographic facts. Next is a peek at the heteropolis of Los Angeles by Mike Davis who, after discussing some of what I would call the range of signs and symbols, semiotics if you will, of various Latino groups in American cities, concludes: Yet, if there is no reducible essence to latinidad – even in languages or religion – it does not necessarily follow that there is no substance. In playing with the Rubik’s Cube of ethnicity, it is important to resist the temptation of prematurely resolving its contradictions. ‘Hispanic/Latino’ is not merely an artificial, racialized box like ‘Asian-American’, invented by the majority society to uncomfortably contain individuals of the most emphatically disparate national origins who may subsequently develop some loosely shared identity as a reaction-formation to this labeling. Nor is it simply a marketing ploy – like right-wing Coors brewery’s opportunistic promotion of the 1980s as the ‘Decade of the Hispanic’ – that exploits superficial national similarities in language, cuisine and fashion. To be Latino in the United States is rather to participate in a unique process of cultural syncretism that may become a transformative template for the whole society. Latinidad, Flores emphasizes, has nothing to do with ‘post-modern aesthetic indeterminacy, . . . it is practice

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rather than representation of Latino identity. And it is on this terrain that Latinos wage their cultural politics as a social movement. As in Octavio Paz’s famous definition of mexicanidad, to be Latino is ‘not an essence but a history.’ (Davis (2001), 15)

My own work on Italian and Italian American spaces identified the spatial and visible components of the complex, as yet undeconstructed, notion of Italianita such as how notions of both omerta and bella figura are visually available as social performance and in vernacular architecture (Krase, 1993). As Mike Davis argued for Latinidad, I would submit that Italianita as well as any other ethnic performance can be viewed as practice as well as representation (Krase (1993), 15). It is agency which transforms mere representation into practice. I use a simple formula for this process; members of ethnic minority groups, by simply going about their daily business, present themselves to the observer; the observer re-presents their performances as description; which in turn becomes representation. Mike Davis clearly indicates the necessity of exploring the role played by space and place in ethnicity and ethnic identity of all self- or otherwise identified social groups. It might be useful for us to think for a moment of immigrant and other minority neighborhoods for example as ‘Third Spaces’ or interstitial places where things such as ethnic identity are being created and then negotiated, demonstrating in this way the agency of ordinary people. Whereas much of Third Space discourse concerns the negotiation of identities of persons within real and imagined spaces, my own special interest has been in how those identities change the meaning of the space in which ethnicity is acted out or practiced. Consequently one can also consider how the newly defined space affects the identities of the people within it. I would argue that, by doing ‘their thing’, immigrants and other ethnic minorities in America socially created new spaces or changed their prior meanings. Little Italies and Chinatowns as genres are well-practiced examples of this phenomenon. Compared to 1900, in 2000 the proportion of the total US population that is foreignborn is not nearly as great. In contrast to the simpler times and spaces of the past, the changing uses of urban spaces today give the appearance to some that newer immigrant settlements follow no pattern whatsoever. It is more likely, however, that the patterns are simply not seen as such. Many of the most recent poor and working-class migrants to American cities are no longer found near the expected, stereotypical places where jobs for newcomers were found in decades past because that ‘traditional’ work is no longer done in those places. In addition, many of the historical areas of first wave settlements are concurrently being gentrified. Yet, in order to find new immigrant and ethnic enclaves, we still must take into account the same factors that have always been part of location formulas such as public transportation routes, proximity to work, rental rates, ethnic markets, social networks, and ethnic institutions. Whether or not ‘globalization’, ‘de-industrialization’, ‘post-industrialism’, and/or ‘postFordism’ have produced a ‘New Spatial Order’ for the ‘Global City’ was considered by Ronald Van Kempen and Peter Marcuse. They cautioned that no uniform pattern can be expected as ‘The functional, social, and cultural division we expect to find is one of consistent and general tendencies expressed in widely varying contexts, along widely varying lines, with widely varying results’ (1997: 293). And to those who are suggesting the decreasing value of the traditional ‘neighborhood’ in the new city, they offer contemporary residential community forms in the ‘citadels of the rich’, gentrified areas, middle-class

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suburbs, tenement areas, ethnic enclaves, and what is to them a ‘new type’ of ghetto (Van Kempen and Marcuse (1997), 4). In a related way, Robert A. Beauregard and Anne Haila note that Postmodern urbanists tend to ‘portray the contemporary city as fragmented, partitioned, and precarious, and as a result, less legible that its modernist precursor’. Discussing Modernist and Post Modernist, Fordist and Post-Fordist Cities they write that ‘No one would dispute that the city of the late 20th century differs spatially from the city of the early to mid-20th century. The multiple business centers, transformed waterfronts, gentrified neighborhoods, and hollowed-out zones of manufacturing distinguish the contemporary US city from its precursors’ (Beauregard and Haila, 2000: 23). They conclude, and I strongly concur, however that a distinctly ‘postmodern’ city has not displaced the modern one despite a more complex patterning of old and new, and of continuing trends and new forces. As noted by Lyn H. Lofland, urban areas have always been changing in response to the entrance of ‘strangers’ (1985). The difference today is primarily the rapidity and variety of that change which produces different kinds of segregation and a different logic of location. Especially important is the uneven spatial competition that lower class immigrants face with more privileged members of society. Gentrification of areas which once offered good-paying blue-collar jobs, industrial loft conversions for artists, and co-op and condo conversions of workingmen’s houses create inner city neighborhoods where visible indications of ethnicity are merely a part of the local ‘ambiance’. For those who study the city there are two essential questions. The first is descriptive: ‘Who or what is where in the city?’ The second is analytic: ‘How and why’ they got there. The purely descriptive models of Classical Urban Ecology come from a biological analogy. In the city, equilibrium is expressed through the interaction of human nature with geographical and spatial factors producing ‘natural’ areas. This view is seen as ideologically conservative as others, more to the left, see these same ecological zones as the result of ‘uneven development’ or perhaps even planned cycles of decay and renewal. On a theoretical plane Sharon Zukin discusses two schools of thought about the urban environment: ‘One, identified with political economy, emphasizes investment shifts among different circuits of capital that transfer the ownership and uses of land from one social class to another. Its basic terms are land, labor, and capital. The other school of thought, identified with the symbolic economy, focuses on the representations of social groups and visual means of excluding or including them in public and private spaces. From this view, the endless negotiation of cultural meanings in built forms – in buildings, streets, parks, interiors – contributes to the construction of social identities’ (1996: 43). Her suggestion that we employ both approaches to interpret landscapes of culture and power in the city is well taken. Another tool for deciphering the complex metropolis is spatial semiotics, defined by Mark Gottdiener as ‘the study of culture which links symbols to objects’ (1994: 15–16). A spatial semiotician would recognize that social and cultural meanings are attached to urban landscapes as well as to the people and activities observed on the scene. According to him the most basic concept for urban studies is the settlement space which is both constructed and organized. Looking at an immigrant ethnic neighborhood in this way, as part of national and global systems, ‘It is built by people who have followed some meaningful plan for the purposes of containing economic, political, and cultural activities. Within it people organize their daily actions according to meaningful aspects of the constructed space’(16). Semiotic and sociospatial analysis makes it possible to see the most powerless

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of urban dwellers as social ‘agents’ in the local reproduction of regional, national, and global societal relations. In this regard, it is important to note that perceptions and valuations of residential neighborhood spaces, for example, may be significantly different for insiders as opposed to outsiders. For the casual passersby, foreign language shop signs are easily noticed, but understanding the meanings of the spaces they define requires sensitivity and understanding of the particular culture that creates, maintains, and uses the re-signified space. Most of this work is framed in the terms of Henri Lefebvre’s ‘Spatial Practices’, as presented by David Harvey. Harvey (1989) recognizes that those who have the power to command and produce space are therefore able to reproduce and enhance their own power. It is within the parameters outlined by these practices that the local lives of ordinary urban dwellers take place. ‘Material social practices refer to the physical and material flows, transfers, and interactions that occur in and across space in such a way as to assure production and social reproduction.’ ‘Representations of space encompass all of the signs and significations, codes and knowledge, that allow such material practices to be talked about and understood, no matter whether in terms of everyday common sense or through the sometimes arcane jargon of the academic disciplines that deal with spatial practices.’ ‘Spaces of representations are social inventions that seek to generate new meanings of possibilities for spatial practices.’ Accessibility and distanciation speaks to the role of the ‘friction of distance’ in human affairs. Distance is both a barrier to and a defense against human interaction. It imposes transaction costs upon any system of production and reproduction. ‘The appropriation of space examines the way in which space is used and occupied by individuals, classes, or other social groupings. Systematized and institutionalized appropriation may entail the production of territorially bounded forms of social solidarity.’ ‘The domination of space reflects how individuals or powerful groups dominate the organization and production of space so as to exercise a greater degree of control either over the friction of distance or over the manner in which space is appropriated by themselves or others’ (1989: 261–4). Anthony D. King (1996) speaks of cities as ‘text’ to be read. Ethnic Vernacular Landscapes are crucial, yet often ignored parts of that text. In basic agreement, Zukin noted that the emphasis and interest by urbanists has been on the geographic battles over access and representations of the urban center: ‘Visual artifacts of material culture and political economy thus reinforce – or comment on – social structure. By making social rules “legible” they represent the city’ (1996: 44). As a sign of decline, for example, ‘In the long run vacant and undervalued space is bound to recede into the vernacular landscapes of the powerless and replaced by a new landscape of power’ (49). ‘In Henri Lefebvre’s framework, New York is an example of abstract space: simultaneously homogeneous and fragmented, subordinated to the flows and networks of world markets, and divided into units of exchange by real estate developers’ (1991: 50). ‘In this enigmatic text immigrant shopping strips sometimes fare better than Madison Avenue and combative ethnic groups maintain uneasy coexistence in Brooklyn neighborhoods’ (50). Manuel Castells provides us with another view of how real and imagined urban spaces are used, contested, and transformed by different social groups. For him power is information, and ‘Spaces of Places’ are superseded by networks of information or ‘Spaces of Flows’. Along with this comes the tribalization of local communities. As local identities lose meaning, place-based societies and cultures (cities, neighborhoods) also lose power.

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Castells proposes that this momentum toward the total disempowerment of urban dwellers can be reversed by the reconstruction of place-based meaning via social and spatial projects at cultural, economic, and political levels. Territorially defined ethnic groups, for example, can preserve their identities and build on their historical roots by the ‘symbolic marking of places’, preservation of ‘symbols of recognition’ and the ‘expression of collective memory in actual practices of communication’ (1989, 1996). Visual sociology Douglas Harper divided Visual Sociology into two types: ‘Visual Methods, where researchers “take” photographs in order to study social worlds’, and ‘Visual Studies’, in which researchers ‘analyze images that are produced by the culture’. In this second approach, ‘sociologists typically explore the semiotics, or sign systems, of different visual communication systems’ (Harper, 1988). John Grady broadened the visual perspective by defining it pragmatically: 1. ‘Seeing’: how sight and vision helps construct social organization and meaning’, 2. ‘Communicating with Icons ‘looks to how images and imagery can both inform and be used to manage social relations’, and 3. ‘Doing Sociology Visually’ or ‘how the techniques of producing and decoding images can be used to empirically investigate social organization, cultural meaning and psychological processes.’ Here the techniques, methodologies and concerns of Visual Sociology are the best known and where the camera and other techniques of representation play crucial roles in the analytic process (Grady, 1996: 14). Finally, Jon Rieger notes, that among many research advantages, such as freezing a complex scene or enabling unobtrusive measurement, ‘Photography is wellsuited to the study of social change because of its capacity to record a scene with far greater speed and completeness than could ever be accomplished by a human observer taking notes’ (Rieger, 1996). Given the rapidly changing scenes, the value of visual methods and techniques is therefore obvious. Visual Sociology of even the most deteriorated central city area would vividly demonstrate the ‘Human Agency’ of even the least empowered, if only by capturing the ‘deliberate efforts of human beings, thinking and acting, alone or in concert’ to create or modify the spaces they occupy, demonstrated in the marking of their own vernacular landscapes with graffitti and vandalism. In this regard the work of Camilo Vergara is especially instructive (1995). Visual attention to Vernacular Landscapes allows us to read conflict, competition, and dominance at a level not usually analysed. Just think of how more useful Lefebvre’s (1991) notions of ‘accessibility’ and ‘distanciation’ become when we visualize discrimination in local housing markets. How better to explain ethnic or class-based neighborhoods than when Harvey writes: ‘Successful control presumes a power to exclude unwanted elements. Fine-tuned ethnic, religious, racial, and status discriminations are frequently called into play within such a process of community construction’ (1989: 266). Seeing other productions of Symbolic Capital, defined by Bourdieu as ‘The collection of luxury goods attesting to the taste and distinction of the owner’ (1977: 188) might help us to understand the gentrification of immigrant ethnic enclaves during a later phase in the second circuit of capital when they become shabbily chic ‘in’ places to live. The vernacular landscape The study of the vernacular ethnic landscapes lends itself to both the new and old urban sciences. As a sociologist, I must admit that one can’t go further than John Brinckerhoff

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Jackson in appreciating what ‘lies underneath below the symbols of permanent power expressed in the “Political Landscape” ’ (1984: 6). His perceptive work neatly complements Sociology’s interest in how and why groups are where they are in the city, and how space effects their social interactions and opportunities. According to Helen Lefkowitz Horowitz, ‘Jackson always asserted that to interpret landscapes accurately we must turn to the common places of ordinary people rather than to the rarefied designs of architects and planners.’ . . . ‘The side of him that recognized his own “commonness” insisted the landscape shaped by the needs and tastes of average working people was more important than that created by architects and planners. In this vein, he argued that we should consider the houses and places of work of the poor as well as the rich, of those on the margin as well as those at the center. In essays that others have criticized as being too accepting of contemporary blight, Jackson insisted that we are not rejecting the common landscape but seek to understand and love it’ (1997: xxx–xxxi). Jackson noted that, what people do in a particular physical territory and how they use objects therein are critical for understanding the space. Writing about gentrification, and the displacement of the activities of the poor from the streets and city spaces in eighteenth and nineteenth-century England, he noted that ‘in brief, much of the traditional play, popular with working class citizens, located at the center of town where the players lived and worked, was driven out, either by the shortage of space or by police decisions to improve traffic circulation and promote order’ (11). As to why the study of vernacular, as opposed to ‘polite’, architecture has become more valuable for insight into social history, he argued that, since the nineteenth century, ‘Innumerable new forms have evolved, not only in our public existence – such as the factory, the shopping center, the gas station, and so on – but in our private lives as well’ (118–19). In the same way, Dolores Hayden (1990) recognized the potential contribution of immigrant and ethnic vernacular urban landscapes for urban planners in helping to make city life more livable, equitable and at the same time visually interesting (7). Harvey seems to be in total agreement with Jackson, and Hayden, when he writes that ‘Different classes construct their sense of territory and community in radically different ways. This elemental fact is often overlooked by those theorists who presume a priori that there is some ideal-typical and universal tendency for all human beings to construct a human community of roughly similar sort, no matter what the political or economic circumstances’ (1989: 265). For those lacking power (especially ‘low-income populations’) ‘the main way to dominate space is through continuous appropriation. Exchange values are scarce, and so the pursuit of use values for daily survival is central to social action. This means frequent material and interpersonal transactions and the formation of very small-scale communities. Within the community space, use values get shared through some mix of mutual aid and mutual predation, creating tight but often highly conflictual interpersonal social bonding in both private and public spaces. The result is an often intense attachment to place and “turf ” and an exact sense of boundaries because it is only through active appropriation that control over space is assured’ (265–6). For Puerto Rican residents of New York City, folklorist Joseph Sciorra provides a radical and noble, but ultimately naïve, framework for the vernacular and the ethnic: ‘It is within this imposed economic, political and social marginality that poor people of color struggle to change the existing conditions in which they live by creating spaces of their own design that serve as locations of resistance to a system of inequity and domination’

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(1996: 61). In the South Bronx, East Harlem, and the Lower East Side they ‘clear the detritus of urban decay to cultivate bountiful gardens and construct wood-frame structures typical of the Caribbean. These transformed sites serve as shelter for the homeless, social clubs, block associations, cultural centers, summer retreats and entrepreneurial ventures. The cultural production of vernacular horticulture and architecture create local landscapes of empowerment that serve as centers of community action where people engage in modes of expressivity that are alternatives to those imposed from above by the dominant culture. In turn these concerted actions pose a direct challenge to official notions pertaining to the status of public land and its future use. These vernacular forms are united temporally and spatially with the historic dispossession of laboring people by the forces of a global capitalist economy’ (61–2). As with the spontaneous vernacular expressions of Hispanic agency lionized in Mike Davis’s LA, those of New York’s Latinos are easily commodified and placed on the cultural tourism menu. New York’s indigenous Latinidad is represented today by exclusive receptions and openings at Museo el Barrio on the once dangerous and now chicly gentrified East Side of Manhattan. According to the Lonely Planet Travel guide to Los Angeles, ‘A few blocks east of the Civic Center, El Pueblo de Los Angeles is a 44-acre (18ha) state historic park commemorating the site where the city was founded in 1781 and preserving many of its earliest buildings. Its central attraction for most visitors is Olvera Street, a narrow, block-long passageway that was restored as an open-air Mexican marketplace in 1930. In addition to its restaurants, Olvera St teems with the shops and stalls of vendors selling all manner of Mexican crafts, from leather belts and bags to handmade candles and colourful piñatas’ (2004). Like Census and other survey data, images can also be deceiving. The power of the visual is clearly demonstrated by Steven A. Camarota (2000), noting that stories of immigrant businesses revitalizing neighborhoods are a staple of local news coverage used by immigration advocates to show ‘that immigrants infuse the country with an entrepreneurial spirit unmatched by natives’. However, data show that immigrants are not more likely to be selfemployed than natives. People are more likely to encounter immigrant entrepreneurs than immigrant workers. ‘The immigrant restaurant owner who greets customers is much more likely to be remembered than are the immigrant cooks and dishwashers, whom the patron never sees.’ And ‘Most Americans have much more personal contact in their daily lives with self-employed immigrant street vendors or kiosk operators than with immigrant farm laborers or construction workers. Since most people make generalizations based on their own experience, it is not surprising that they see immigrants as particularly entrepreneurial’ (32). As an aside to ethnic impressions created by commercial streets in immigrant neighborhoods, I note that many ‘Indian’ restaurants in New York City are operated by Bangladeshis, as are ‘Japanese’ restaurants owned and operated by Koreans, Italian restaurants by Albanians, and ‘Mexican’ eateries by other-than-Mexicans. In addition to the obvious décor and menu, the ethnic authenticity of the establishment rests on the visual competency of the patron vis-à-vis the staff. There is of course a special relevance of race (and racism) for the visualized spatial structure of cities – for most Americans, Blackness, Latinoness, Asianess, are generalized visual values that are partial explanations for some areas looking more ‘dangerous’, ‘inviting’ and/or at least ‘exotic’. Ethnic enclaves are products as well as sources of both social and cultural capital. When new immigrants alter the territory allowed to them, they simultaneously become part of the transformed urban landscape. The images they create eventually come to represent them

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and, in the process, they lose their autonomy. In some cases the enclave comes to symbolize its imagined inhabitants and is also commodified. For example, for the delight of New York’s tourists, the expropriated cultural capital of more recent Caribbean immigrants, as well as that of turn-of-the century Italians are turned into ‘Ethnic Theme Parks’ (Krase, 1997). Stepping off in the heart of Caribbean Brooklyn there is the reasonably ‘authentic’ West Indian Day Carnival Parade while the San Gennaro Feast in Manhattan’s Little Italy takes place in an area populated primarily by Asians. In these and other cases visual study can show how what I have termed ‘Traces of Home’ (1993) and Lefebvre’s ‘material spatial practices’ are transformed via ‘representations of space’ into ‘spaces of representation’. Summary Theoreticians and practitioners in the field of urban sociology are faced with a wide range of apparently competing theories and methods for describing and analyzing the postmodern metropolitan urban scene. Because the main focus in urban studies is ‘space’, explaining how these actual and virtual spaces are used, contested, and transformed by different social groups is a crucial task. All the ‘urban’ disciplines use visual approaches more or less explicitly, whether through mapping, architectural rendering, photographic surveys, or land use and building condition surveys. In architecture and planning the visual has always been important in documentation, presentation, research and teaching. Historical photographic archives are used in the processes of Historical Landmark research, restoration, and preservation. ‘Windshield’ surveys, conducted with eyes, cameras, and camcorders, have a long tradition in urban studies. In most cases visual techniques are used in qualitative or descriptive studies. It can be argued that generalizations can also be made from visual surveys and employed in hypothesis testing. The simplest types of analytic studies would be longitudinal studies of physical changes as a consequence of specified variables. In any case the method used and the link between the evidence presented in ‘before and after’ photographs, for example, would have to be quite explicit. At the least, as a purely qualitative method, such research ought to produce delightful insights even if of limited generalizability. My own procedure has been to treat observations and photographs as I do other information, such as interviews, or demographic data which are specific to areas, neighborhoods, streets, organizational boundaries, and census tracts. I should note here that my snap shots attempt to be as close as I can get to what an ordinary person might see as they traverse a space. They are not attempts at artist representation, but are intended to document visual surveys. In addition to the general utility of this visual approach, there are I believe distinct advantages of documented visual surveys for social research, urban planning, as well as informing policy makers. Findings from visual surveys can differ significantly from census or other published data. In addition to the general enumeration taking place only every ten years, Census and other data may not be as up-to-date as needed when dealing with ethnically, racially, or culturally sensitive issues. Much published data tend also not to be specific to the smaller pieces of territory that one might study, such as a single intersection or cluster of buildings. As one moves to the block level in Census data, for example, the categories become less meaningful. Not only do official immigration data not accurately show, or locate, the undocumented, but most data are reported by Zip Code for registration of resident aliens. In my experience the visible presence of the undocumented is considerable in certain areas, as are the homeless, and other ‘statistically invisible’ populations.

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We can add to this the simple observations of illegal business and other activities that can be made in these same places, and which contradict official portraits. Finally, in some cases, seeing is the only way of knowing. Ethnic groups can be quite concentrated in small ‘pockets’ but because of the geography of census, or other maps, the numbers can be shared between two or more units. In a related vein, on the basis of published data and casual observation, substantial residential concentrations of ethnic groups can be missed. It is not unusual for people to falsely assume the ethnic character of a neighborhood by reading the symbolic environment of its commercial streets. Such was the case of Brooklyn’s Eighth Avenue in Sunset Park. Even though Chinese dominated the residential scene for at least a decade, it became a virtual ‘Chinatown’ only after the stores on the commercial strip announced their hegemony. Ironically, whereas at first the Chinese were invisible in Sunset Park, other Asians (Burmese, Cambodian, Korean, Laotian Pakistani, Turkish, and Vietnamese) who share some of the territory with them now merely blend into the background. Similarly, in the year 2000, there were well over a half a million Latinos in Brooklyn. Seeing ‘differences’ among Spanish-speaking people from, let us say, Mexico and The Dominican Republic, in the barrios they share can be as easy as deciphering Productos Mexicanos from Productos Dominicanos. Recognizing the national flags, cultural emblems, and religious effigies such as those of La Vierge de Guadalupe are more challenging. Most difficult is noting the variations of native dress worn by the newest arrivals to the neighborhood. In the age of globalization we cannot afford to ignore the ethnic vernacular landscapes as they are part and parcel of the ‘urban’. Ethnic enclaves often belie any ‘simple dimension’. When ethnic minorities alter their territories, they simultaneously become part of the transformed urban landscape. The images they create eventually come to represent them and in the process lose part of their autonomy. In the wake of the twenty-first century, ethnic landscapes co-exist, overlap, and compete with one another, but also get to define the essence of the American city, and ethnic minority entrepreneurs play a major role in this process. References Beauregard, R.A. and A. Haila (2000), ‘The unavoidable continuities of the city’, in P. Marcuse and R. Van Kempen (2000) (eds), Globalizing Cities: A New Spatial Order?, Oxford: Blackwell, pp. 22–36. Bourdieu, P. (1977), Outline of a Theory of Practice, New York: Cambridge University Press. Camarota, S.A. (2000), ‘Reconsidering immigrant entrepreneurship: an examination of self-employment among natives and the foreign-born’, available at: http://www.cis.org/articles/1999/selfemployment/index.html. Castells, M. (1989), The Informational City, Oxford: Blackwell Publishers. Castells, M. (1996), ‘Conclusion: the reconstruction of social meaning in the space of flows’, in R.T. LeGates and F. Stout (eds), The City Reader, London: Routledge, pp. 494–8. Davis, M. (2001), Magical Urbanism: Latinos Reinvent the U.S. City, New York: Verso. Feagin, J.R. (1998), The New Urban Paradigm: Critical Perspectives on the City, Lanham, Maryland: Rowman and Littlefield. Gottdiener, M. (1994), The New Urban Sociology, New York: McGraw-Hill. Grady, J. (1996), ‘The scope of visual sociology’, Visual Sociology, 11(2), 10–24. Harper, D. (1988), ‘Visual sociology: expanding sociological vision’, American Sociologist, 19(10), 54–70. Harvey, D. (1989), The Urban Experience, Baltimore: Johns Hopkins University Press. Hayden, Dolores (1990), ‘The potential of ethnic places for urban landscapes’, Places, 7(1), 1991, 11–17. Horowitz, H.L. (ed.) (1997), Landscape in Sight: Looking at America/John Brinckerhoff Jackson, New Haven: Yale University Press. Howenstine, E. (1996), ‘Ethnic change in Chicago’, in C.C. Roseman, H.D. Laux and G. Thieme (eds), EthniCity: Geographic Perspectives on Ethnic Change in Modern Cities, Lanham, Maryland: Rowman and Littlefield, pp. 31–47.

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Jackson, J.B. (1984), Discovering the Vernacular Landscape, New Haven: Yale University Press. King, A.D. (ed.) (1996), Re-Presenting the City: Ethnicity, Capital and Culture in the Twenty-First Century Metropolis, London: Macmillan. Krase, J. (1993), ‘Traces of Home’, Places: A Quarterly Journal of Environmental Design, 8(4), 46–55. Krase, J. (1997), ‘Polish and Italian vernacular landscapes in Brooklyn’, Polish American Studies, LIV(1), 9–31. Krase, J. (2002), ‘Navigating ethnic vernacular landscapes then and now’, Journal of Architecture and Planning Research, 19(4), 274–81. Krase, J. (2003a), ‘Italian American urban landscapes: images of social and cultural capital’, Italian Americana, XXII(1), Winter, 17–44. Krase, J. (2003b), ‘Chinatown: a visual approach to ethnic spectacles’, CUNY Bulletin of Asian American/ Asian Affairs, the Proceedings of the Asian American Conference ‘Education: Challenges and Perspectives’, Queens, New York, Asian American/Asian Research Institute of The City University of New York, pp. 89–90; also on line at (http://www.aaari.info/2003workshop 4b.html). Krase, J. (2004a), ‘Little Italy, identita e semiotica spaziale’, in N. Ceramella and G. Massara (eds), Merica: forme della cultura italoamericana, Isernia, Italy: Cosmo Iannone Editore, pp. 115–42. Krase, J. (2004b), ‘New York City’s ethnic landscapes’, in J. Krase and R. Hutchinson (eds), Race and Ethnicity in New York City, Vol. 7, Research in Urban Sociology, JAI Press. Lefebvre, H. (1991), The Production of Space, Oxford: Blackwell. Lofland, L.H. (1985), A World of Strangers: Order and Action in Urban Public Spaces, Prospect Heights, Illinois: Waveland Press. Lonely Planet World Guide, Destination Los Angeles (2004) (http://www.lonelyplanet.com/destinations/north_ america/los_angeles/attractions.htm). Marcuse, P. and R. Van Kempen (eds) (2000), Globalizing Cities: A New Spatial Order?, Oxford: Blackwell. Park, R.E., E.W. Burgess and R.D. McKenzie (eds) (1925), The City, Chicago: University of Chicago Press. Portes, A. (ed.) (1995), The Economic Sociology of Immigration: Essays on Network, Ethnicity, and Entrepreneurship, New York: Russell Sage Foundation. Rieger, J.H. (1996), ‘Photographing social change’, Visual Sociology, 11(1), 5–49. Sciorra, J. (1996), ‘Return to the future; Puerto Rican vernacular architecture in New York City’, in A.D. King (ed.), Re-Presenting the City: Ethnicity, Capital and Culture in the Twenty-First Century Metropolis, London: Macmillan, pp. 60–92. Van Kempen, R. and P. Marcuse (eds) (1997), ‘The changing spatial order in cities’, American Behavioral Scientist, 41(3), November/December. Vergara, C.J. (1995), The New American Ghetto, New Brunswick: Rutgers University Press. Zukin, Sharon (1996), ‘Space and symbols in an age of decline’, in A.D. King (ed.), Re-Presenting the City: Ethnicity, Capital and Culture in the Twenty-First Century Metropolis, London: Macmillan, pp. 43–59.

18 Non-economic effects of ethnic entrepreneurship1 Min Zhou

Introduction The growth of contemporary entrepreneurial activities among ethnic and immigrant groups in the United States has produced desirable social mobility outcomes for group members. Ethnic entrepreneurship as a social phenomenon has long fascinated many social scientists and stimulated considerable research and debate. In the past few decades, many relevant concepts and theories have been developed, challenged, and revised. However, existing literature tends to emphasize direct economic effects of entrepreneurship to the neglect of its non-economic effects. Since ethnic entrepreneurs often embed their economic decisions and actions in specific social structures, variations in ethnic social structures may be conceptualized as both causes and outcomes of entrepreneurship. In this chapter, I focus on highlighting some significant ways in which ethnic entrepreneurship affects community building, based on my ethnographic case study of Koreatown in Los Angeles, USA.2 I argue that it is the social embeddedness of ethnic economic activities, rather than the ethnic economy per se, that affects a unique social environment facilitating or constraining group mobility. I begin with a brief conceptual discussion. Middleman-minority entrepreneurs v. ethnic-enclave entrepreneurs Ethnic entrepreneurs are often referred to as simultaneously owners and managers (or operators) of their own businesses, whose group membership is tied to a common cultural heritage or origin and is known to out-group members as having such traits; more importantly, they are intrinsically intertwined in particular social structures in which individual behavior, social relations, and economic transactions are constrained (Yinger, 1985; Aldrich and Waldinger, 1990). Existing literature analytically distinguishes two main types of ethnic entrepreneurs: middleman-minority entrepreneurs and ethnic-enclave entrepreneurs. Middleman-minority entrepreneurs are those who trade in between a society’s élite and the masses. In the past, they were sojourners, interested in making a quick profit from their portable and liquefiable businesses and then reinvesting their money elsewhere, often implying a return home (Bonacich, 1973). Therefore, they most commonly established business niches in poor minority neighborhoods or immigrant ghettos in urban areas deserted by mainstream retail and service industries or by business owners of a society’s dominant group. But, in recent years, they have been found to open up businesses in affluent urban neighborhoods and middle-class suburbs and have shown up, not only in the secondary sector, but also in the primary sector of the host society’s mainstream economy. Because middleman-minority entrepreneurs locate and conduct economic activities in non-coethnic communities, they tend to have few intrinsic ties to the social structures and social relations of these local communities. Ethnic-enclave entrepreneurs, in contrast, include mainly those who are bounded by ethnicity, an ethnic community’s social structures, and a geographic location. In the past, they typically operated businesses in immigrant neighborhoods where their own ethnic 279

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group members dominated, and they themselves were also intertwined in an intricate system of ethnic social networks within a self-sustaining ethnic enclave. In present times, as many ethnic enclaves evolve into multiethnic neighborhoods and new ones develop in affluent middle-class suburbs, those who run businesses in a particular location may simultaneously play double roles – as middleman minorities and as enclave entrepreneurs. For example, a Chinese immigrant who runs a fast food takeout restaurant in a Latinodominant neighborhood is a middleman-minority entrepreneur, but he will become an enclave entrepreneur when he comes back to his other fast-food takeout in Chinatown. Similarly, a Korean immigrant who opens up his business in Los Angeles’ Koreatown may be an ethnic-enclave entrepreneur to his Korean coethnics who live there. Yet, simultaneously to his Latino residents who make up the majority of that neighborhood, he is perceived as just one of many middleman-minority entrepreneurs. The analytical distinction thus becomes sociologically meaningful as economic transactions of these two types of ethnic entrepreneurs are conditioned by different social structures and social relations. For example, the stony face of a Korean shop owner in a black neighborhood is often interpreted as hostile and even racist, and the effect of that facial expression can be exacerbated by a lack of English proficiency. But the same face is taken matter-of-factly by Koreans in Koreatown where a common language often eases potential anxiety. The ethnic economy v. the enclave economy Sociologists Bonacich, Modell, and Light were among the first to theoretically develop the ethnic economy concept which broadly includes any immigrant or ethnic group’s selfemployed, employers, and coethnic employees (Light, 1972, 1994; Bonacich and Modell, 1980). Light and his colleagues later rearticulated the concept to a higher level of generality (Light et al., 1994; Light and Karageorgis, 1994; Light and Gold, 2000). The reconceptualized ethnic economy includes two key aspects: one is the ethnic group’s maintenance of ‘a controlling ownership stake’ and its coethnic labor force or unpaid family labor; and the other is the ethnic group’s control over the employment network, which allows the channeling of coethnics into non-coethnic firms and even into the public sector of the larger labor market (Light and Karageorgis, 1994: 648). The ethnic economy concept, with its dual aspects of coethnic ownership and employment network, is thus a neutral designation for every enterprise that is either owned, or supervised, or staffed by racial/ethnic minority group members regardless of size, type, and locational clustering. It is also agnostic about the intensity of ethnicity, neither requiring nor assuming ‘an ethnic cultural ambience within the firm or among sellers and buyers’ (Light and Karageorgis, 1994: 649). The ethnic economy concept thus encompasses businesses owned by middlemanminorities, businesses owned by coethnics in ethnic enclaves, as well as all other ethnicowned or ethnic-controlled enterprises in the general economy. Under this conception, the groups that are known to have higher than average rates of self-employment, such as Jews, Japanese, Koreans, Chinese, Iranians, and Cubans, have their respective ethnic economies; the groups that are known to have low self-employment rates but have control over recruitment networks in certain industries in non-coethnic firms and even in the public sector, such as blacks, Mexicans, and Salvadorans, would also have their own ethnic economies. Such conception allows for two types of analyses: one is to account for variations in mobility outcomes among ethnic group members who create employment opportunities for

Non-economic effects of ethnic entrepreneurship 281 themselves and their coethnic workers, and the other is to account for variations in the level of economic integration of group members who enter the general economy via coethnic employment networks. However, when a concept is too broad, it risks weakening its explanatory power because substantive internal differences are so large. For example, coethnic businesses concentrated in an ethnic enclave are very different from those dispersed in other non-coethnic neighborhoods serving primarily non-coethnics, a situation more appropriately referred to as the middleman minority. Similarly, businesses that are owned and staffed by coethnics are very different from those that are owned by noncoethnics but staffed by supervisors and coworkers of the same ethnicity, a situation more appropriately referred to as ethnic niching, or ethnic occupational concentration/ segregation (Waldinger, 1996). Furthermore, by extending ethnic economies beyond bounded ethnicity, the ethnic economy concept is decontextualized. Such a broad concept may be useful when examining individual outcomes, such as earnings outcomes or employment opportunities of the disadvantaged; but it is not of much use when examining processes of community building in immigrant or ethnic minority neighborhoods. The enclave economy is a special case of the ethnic economy, one that is bounded by coethnicity and location. Not every group’s ethnic economy can be called an enclave economy. Likewise, not every ethnic economy betokens a middleman minority (Light and Karageorgis, 1994). Portes and his colleagues were among the first to develop the enclave economy concept, drawing on the dual labor market theory (Wilson and Portes, 1980). In its original conceptualization, the enclave economy had a structural and a cultural component. As a distinct type of the ethnic economy, it consisted of a wide range and diversity of economies’ activities that exceeded the limits of small businesses trade and commerce and traditional mom-and-pop stores, as well as ethnic institutions that mediated economic action, such as merchant associations, chambers of commerce, informal credit associations, and family/hometown associations. To a varying degree, it resembled some of the key characteristics of both primary and secondary sectors of the mainstream economy. Unlike the ethnic economy concept that includes almost every business under an ethnic umbrella, the enclave economy has several unique characteristics. First, the group involved has a sizeable entrepreneurial class. Second, economic activities are not exclusively commercial, but include productive activities directed toward the general consumer market. Third, the business clustering entails a high level of diversity including, not just niches shunned by natives, but also a wide variety of economic activities common in the general economy, such as professional services and production. Fourth, coethnicity epitomizes the relationships between owners and workers and, to a lesser extent, between patrons and clients. Last, and perhaps most importantly, the enclave economy requires a physical concentration within an ethnically identifiable neighborhood with a minimum level of institutional completeness. Especially in their early stages of development, ethnic businesses have a need for proximity to a coethnic clientèle which they initially serve, a need for proximity to ethnic resources, including access to credit, information and other sources of support, and a need for ethnic labor supplies (Portes and Manning, 1986). The enclave economy also has an integrated cultural component. Economic activities are governed by bounded solidarity and enforceable trust – mechanisms of support and control necessary for economic life in the community and for reinforcement of norms and values and sanctioning of socially disapproved behavior (Portes and Zhou, 1992). Relationships

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between coethnic owners and workers, as well as customers, generally transcend a contractual monetary bond and are based on a commonly accepted norm of reciprocity. My own study of the garment workers in New York’s Chinatown offers a concrete example. Immigrant Chinese women with little English and few job skills often find working in Chinatown a better option despite low wages, because the enclave enables them to fulfill their multiple roles more effectively as wage earners, wives, and mothers. In Chinatown, jobs are easier to find, working hours are more flexible, employers are more tolerant of the presence of children, and private child-care within close walking distance from work is more accessible and affordable (Zhou, 1992). Such tangible and intangible benefits associated with the ethnic enclave are absent in the general secondary labor market, where coethnicity is atypical of owner–worker relationships and reciprocity is not an enforceable norm. Likewise, ethnic employers who run businesses in non-coethnic neighborhoods or who employ non-coethnic workers can effectively evade the social control of the ethnic community while causing unintended consequences of heavier social costs such as interethnic conflicts. In sum, the enclave economy is not any type of ethnic economy. The word ‘enclave’ is not just there to invoke the concept of ‘ethnic economy’, but refers to a specific phenomenon, one that is bounded by an identifiable ethnic community and embedded in a system of community-based coethnic social relations and observable institutions. The central idea of the enclave economy concept is that the enclave is more than just a shelter for the disadvantaged who are forced to take on either self-employment or marginal wage work in small business. Rather, the ethnic enclave possesses the potential to develop a distinct structure of economic opportunities as well as opportunities of rebuilding social networks which are disrupted by international migration. A focused look at the enclave economy through the case of Koreatown The burgeoning research on ethnic entrepreneurship has been more concerned with the causes and effects of entrepreneurship on economic integration among immigrant and ethnic minorities than with its influence on the social contexts mediating ethnic economic life, and has largely overlooked its non-economic effects. Some non-economic effects, such as serving as an alternative means to social status recognition, nurturing entrepreneurial spirit, providing role modeling that inspire others to follow suit, and strengthening social networks locally and internationally, are noted in the existing literature but lack further investigation. Just through what mechanisms and under what conditions these noneconomic effects are produced is unclear, leaving a substantial conceptual gap. I think that examining how a particular ethnic community may be affected by entrepreneurship can help fill this gap. Before illustrating the relationship between ethnic entrepreneurship and community building, I shall once again reiterate the conceptual distinction between the ethnic economy and the enclave economy, even though the latter is a type included in, and often mistaken for, the former. As I have just discussed, the ethnic economy is an umbrella concept that takes into consideration, not simply job creation by ethnic entrepreneurs, but also access to existing jobs in the general economy by ethnic networks. Such an inclusive concept runs the risk of decontextualization and a loss of analytical rigor when examining group-level processes, particularly variations in ethnic social structures and social capital formation among disadvantaged immigrant and ethnic minorities. For example,

Non-economic effects of ethnic entrepreneurship 283 Korean entrepreneurs running businesses as middleman minorities in non-Korean neighborhoods do not tend to invest in the social structures of the neighborhoods they are serving, because they are not bounded by social relationships with local residents and because their businesses serve a singular function (trade or commerce) with little attachment to any significant social structures there (Min, 1996). Quite the contrary, Korean entrepreneurs running businesses in Koreatown have a ‘stake’ in the community and are intertwined in multiple social relationships with coethnic residents and multiple ethnic social structures there. Therefore, I argue that it is the social embeddedness of ethnic economic activities, rather than the ethnic economy per se, that affects a unique social environment facilitating or constraining group mobility. The enclave economy concept is useful for us to examine the non-economic effects of entrepreneurship and to explain why social environments affecting group mobility vary by national origins or race/ethnicity and why ethnic communities vary in their capacities to protect group members from disadvantages and move them up the ladder in society. Koreatown in Los Angeles Koreatown is located west of downtown Los Angeles. Perhaps more than other ethnic enclaves, there is much ambiguity as to what constitutes the ‘boundaries’ of Koreatown and there is much discrepancy between what the residents identify as Koreatown and what is officially demarcated as Koreatown.3 Nonetheless, Koreatown is a typical inner-city neighborhood that has a concentration of racial minorities, recent immigrants, and the poor. But this neighborhood is an unusual immigrant enclave since it is multiethnic, shared by Koreans, Mexicans, Salvadorans, Guatemalans, and other Asians (mostly Filipinos, along with some Chinese and Southeast Asians). Although Koreans are the fastest growing group, at a growth rate of 164 per cent between 1980 and 1990, they make up only one-fifth of the neighborhood’s population. In contrast, more than half of the residents are Latinos, among whom 28 per cent are Salvadorans, 16 per cent Guatemalans, and 40 per cent Mexicans. No single national-origin group constitutes a numerical majority. Koreatown is known not for its ethnic residential concentration but for its high density of Korean-owned businesses, churches, and other cultural and social institutions. The most distinctive feature of Koreatown’s economic activities is its wide variety of ethnic retail combined with a Korean-flavor recreational entertainment industry, featuring a colorful nightlife and a focus on golf. The Korean-owned businesses encompass both traditional mom-and-pop stores serving local residents and upscale retail and professional establishments catering to the tastes and needs of suburban middle-class Korean families and, to a lesser extent, tourists. Two major shopping malls in Koreatown – Koreatown Plaza and Koreatown Galleria – resemble some of the trendiest shopping centers in Asia. Upscale restaurants cater to a predominantly middle class clientèle: a multi-ethnic lunch crowd and an ethnic evening and weekend crowd. There are three indoor golf ranges in Koreatown, feeding the golf craze that has become fashionable in Asian countries since the early 1990s. There are also quite a few trendy, stylish, and neon-lit nightclubs, karoake bars, pool halls, and video game stores catering to Korean men and young people from the suburbs and nearby colleges. With numerous large and small retail shops and restaurants, numerous large and small professional services, social services, religious organizations, and a complex system of supplementary education, all owned by Koreans, have also sprung up to form the core of the Korean enclave. This particular combination of ethnic economic,

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sociocultural, and religious activities is turning Koreatown into a magnet, attracting suburban Korean immigrants and their families to come to Koreatown to shop, entertain, socialize, and conduct various aspects of their ethnic life on a regular basis. The return of the middle class, in turn, promotes further coethnic business investment and the proliferation of a wide range of cultural, religious, and social institutions. The enclave economy and the ethnic social environment The dominance of Korean-owned businesses and Korean social and religious institutions in Koreatown suggests that Koreans and Latinos who live in this inner-city neighborhood are actually living in two very different social worlds. Korean residents who are poor, and mostly recent immigrants, are in a social environment in which they have convenient access to a wide variety of jobs, ethnic goods and services, and neighborhood-based organizations. They are able to re-establish and maintain frequent contact with their suburban middle class coethnics, who return to the ethnic enclave to participate in the economic and social life there, and benefit tremendously from such contact. Latino residents living in the same neighborhood, in contrast, are unlikely to share the tangible and intangible benefits arising from the Korean social environment. To Latino residents, Koreatown is nothing more than the name of a place where they live, and Korean entrepreneurs and other ethnic (including some Latino) entrepreneurs are merely middleman-minority entrepreneurs. It is apparent that the ethnic social environment should not simply be defined by the neighborhood’s characteristics, nor by residents’ socioeconomic status, nor by institutions that are located there, but by a complicated set of interrelated social relationships between various institutions and residents bounded by ethnicity, which has significant consequences facilitating or constraining possibilities for social mobility. Koreatown’s unique social context for Koreans is a direct outcome of the enclave economy. Let me elaborate further on the way Korean entrepreneurship shapes an ethnic environment conducive to education, that benefits Korean immigrant children to the exclusion of Latino children sharing the same neighborhood. In Koreatown’s enclave economy, there is a visibly high concentration of Korean-owned and Korean-run businesses targeting children and youth, most noticeably the hagwons (after-school tutoring), college preparation schools, Korean language centers, pre-school daycare centers, businesses offering music, dance, karate classes, and vocational training, and recreational facilities. These private businesses constitute an effective system of supplementary education (Bhattacharyya, 2003), functioning as any other for-profit businesses to meet a particular demand, but serving important social functions as well. First, the concentration of educational enterprises in Koreatown gives suburban middle-class Korean immigrants a reason to go to Koreatown other than shopping because they believe that the ethnic system of education is best for their children. When the middleclass suburbanites come to Koreatown, they come for multiple purposes: sending their children to hagwons, going to church, playing golf, eating real Korean food, shopping, and even for a facial, massage or haircut. The presence of the middle class, in turn, stimulates not only more entrepreneurial investment in businesses of varying scales, but also the development of religious and cultural institutions. Second, the ethnic system of supplemental education reinforces the overriding importance of education and facilitates educationally relevant information flows among the children of Korean immigrants. We noticed in our interviews that Korean adolescents in

Non-economic effects of ethnic entrepreneurship 285 Koreatown have a more sophisticated understanding of the educational system and are more informed about college options than their Latino peers. They seem to know what the specific paths to higher education are, such as which middle school is a feeder school to a better high school, which high school offers sufficient Advanced Placement (AP) and Scholastic Aptitude Test (SAT) courses, how to prepare for AP and SAT tests, and when to take these standardized tests. Many mentioned that they had to take SAT tests early so that they had time to retake them if necessary. They also mentioned a lot the names of prestigious colleges, such as Harvard, Princeton, Caltech, and Stanford, and made concrete remarks about the way colleges were ranked; the seniors reported that they had visited the web sites of many colleges. With regard to structured after-school academic or recreational activities, our Korean teenage respondents would say that taking more AP exams, having higher SAT scores, or playing a musical instrument made them ‘look good on college applications’, that participating in after-school activities could connect them to those who ‘know about college admission and financial aid stuff’, or those who ‘can write you recommendation letters for college’. They also would say that voluntary work in the community could help them ‘make up for bad grades in school’. A Korean lowachiever told us why he got involved in a service club: ‘Well, I like to help people, but mostly it’s for college, because my grades aren’t too good. They [colleges] like to see some of that extra stuff.’ Third, multiple purposes for community participation lead to the involvement in multiple institutions, hence broadening the basis for social interaction between local Korean residents and their suburban coethnics. Such relationships, though more secondary and instrumental than primary and intimate, create channels for information exchange and thus ease the negative consequences of social isolation associated with inner-city living. For example, Korean parents, often non-English speaking, are able to obtain detailed information about high school and college requirements, school and college rankings, scholarship and financial aid, and other education-related matters through their casual contacts with a more informed group of coethnics in churches, restaurants, beauty salons, and other ethnic institutions, and also through the Korean language media. They can find tutors and afterschool programs from a range of options offered by for-profit businesses which are advertised in Korean language newspapers. The ethnic media routinely announce and honor Korean children and youths who win national or regional awards and competitive fellowships, get accepted into prestigious colleges, and score exceptionally well on SAT and other scholastic standardized tests. However, while the Korean social environment accrues ample tangible or intangible benefits within the easy reach of Korean residents, it is not equally accessible to Latino residents living in Koreatown. The enclave economy and community building The case of Koreatown offers insights into the understanding of the role of the enclave economy in community building. I argue that social structures in an ethnic community require the support of an enclave economy, not just any type of ethnic economy. For Latinos, Koreatown’s ethnic businesses are not connected to the social structures of their ethnic community, be it Mexican, Salvadoran, or Guatemalan. Korean business owners are merely middleman-minority entrepreneurs. Even Latino business owners tend to be middleman-minority entrepreneurs of their own ethnic groups because of the lack of development of diversity and scale of Latino-owned businesses that can stimulate the

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development of other social structures in the Latino community. When local businesses are intertwined with the social structures of the locality, the community becomes greatly strengthened as it achieves a high level of institutional completeness, which refers to the degree to which an ethnic community’s formal institutions sufficiently satisfy all the needs required by members (Breton, 1964). The development of the enclave economy increases the level of institutional completeness in an ethnic community by stimulating more diverse economic investment and community-based social, cultural, and religious organizations. A high level of institutional completeness, intertwined with the enclave economy, in turn creates a physical site where coethnics of diverse class backgrounds meet one another face-to-face and rebuild social networks that have been disrupted through the process of immigration. New ties may not be as intimate as those based on family and kin, but they are nonetheless bridge ties centering on the enclave while having many outlets branching out of it. Mixed-class interactions among coethnics tend to generate more beneficial social relations and more valuable social capital arising from these social relations, which in turn effectively reduces the level of social isolation in the inner city and leads to effective and practical means to social mobility. Koreatown’s enclave economy apparently helps make Koreatown institutionally complete for Koreans who live there and for other Koreans who live elsewhere. But it does not help build an ethnic community for Latino residents who live and work there. To Latinos, many Korean-owned businesses are not even accessible to them because of cultural and language barriers. Los Angeles’ Koreatown demonstrates that ethnic entrepreneurship has social consequences that go well beyond the economic success of individual entrepreneurs, and that an enclave economy, rather than a mere concentration of ethnic businesses, provides a critical material base for the ethnic community to function effectively. In inner-city minority neighborhoods, many viable social institutions are gone with the out-migration of the middle-class to suburbs, leaving the ‘truly disadvantaged’ trapped in social and economic isolation (Wilson, 1987). Urban public schools, churches, non-profit organizations, and other publicly funded agencies are not, by themselves, up to the task of protecting children from descending into the underclass. Despite multiple risks, however, not all poor inner-city neighborhoods are predestined to ghettoization. Conclusion My analysis of the Koreatown case contributes to the literature on ethnic entrepreneurship by shifting the focal point from ultimate mobility outcomes (earnings or employment opportunities) to intermediate social processes: the creating of an ethnic social environment conducive to upward social mobility. Social organization in immigrant neighborhoods varies by ethnicity and the presence of an enclave economy, not just the concentration of a variety of local ethnic businesses, influences not only the economic life but also the social environment of coethnic group members. The vitality of the ethnic community and its ability to generate resources conducive to the acquisition of skills and information necessary for social mobility depends largely on the development of the enclave economy. Varied levels of enclave economic development among different immigrant groups affect community building, which in turn creates differences in the availability of and access to neighborhood-based resources, especially those pertaining to socioeconomic integration

Non-economic effects of ethnic entrepreneurship 287 of adult immigrants and to the education of immigrant children. Social capital formed in different ethnic social environments appears to have different values, and what appears to be social capital for one ethnic group may not equally benefit another sharing the same neighborhood. In this respect, the enclave economy concept is superior for investigating specific ethnic social environments and processes of group mobility. It allows for a more focused and detailed examination of varied social contexts and their effects on mobility outcomes, hence unpacking the black box of ethnicity. A fuller account of the variations in ethnic social environments, in turn, can offer a better explanation for the ethnicity variable having a positive effect on outcome for some groups and a negative effect for others in the same model. It also allows for the development of a theoretical conception to understand more precisely how social resources are produced and reproduced in the ethnic community. Notes 1. This chapter is based on my article, ‘Revisiting ethnic entrepreneurship: convergencies, controversies, and conceptual advancements’, in International Migration Review, 38(3), 1040–74, 2004. I thank Nancy Foner, Riva Kastoryano, and Alejandro Portes for their insightful comments and Chiaki Inutake and Angela Sung for their research assistance. 2. The study of Koreatown in Los Angeles is part of my comparative ethnographic study of three immigrant neighborhoods in Los Angeles, based on intensive one-on-one interviews and extensive field observations conducted in 1998 to 2000. The other two neighborhoods are Chinatown and Pico-Union (A Mexican/Central American neighborhood). See Zhou et al. (2000) for more detail. 3. Despite the lack of a consistent definition, the neighborhood under study refers to the area bounded by Vermont Street to the east, San Mariro to the south, Western Avenue to the west, and Beverly Boulevard to the north.

References Aldrich, Howard E. and Roger Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Bhattacharyya, M. (2003), ‘Korean supplementary education in Los Angeles: an urban community’s resource for families’, in E.W. Gordon, A.S. Meroe and B.L. Bridglall (eds), Supplementary Education, Denver: Rowman and Littlefield. Bonacich, Edna (1973), ‘A theory of middleman minorities’, American Sociological Review, 38, 583–94. Bonacich, Edna and John Modell (1980), The Economic Basis of Ethnic Solidarity, Berkeley, CA: University of California Press. Breton, Raymond (1964), ‘Institutional completeness of ethnic communities and the personal relations of immigrants’, American Journal of Sociology, 70(2), 193–205. Light, Ivan (1972), Ethnic Enterprise in America: Business and Welfare among Chinese, Japanese, and Blacks, Berkeley, CA: University of California Press. Light, Ivan (1994), ‘Beyond the ethnic enclave economy’, Social Problems, 41(1), 601–16. Light, Ivan and Steven J. Gold (2000), Ethnic Economies, San Diego, CA: Academic Press. Light, Ivan and Stavros Karageorgis (1994), ‘The ethnic economy’, in Neil J. Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology, Princeton: Princeton University Press, pp. 647–69. Light, Ivan, George Sabagh, Mehdi Bozorgnehr and Claudia Der-Martirosian (1994), ‘Beyond the ethnic enclave economy’, Social Problems, 41, 65–80. Min, Pyong Gap (1996), Caught in the Middle: Koreatown Communities in New York and Los Angeles, Berkeley, CA: University of California Press. Portes, Alejandro and Robert L. Bach (1985), The Latin Journey: Cuban and Mexican Immigrants in the United States, Berkeley, CA: University of California Press. Portes, Alejandro and R.D. Manning (1986), ‘The immigrant enclave: theory and empirical examples’, in S. Olzak and J. Nagel (eds), Comparative Ethnic Relations, Orlando, FL: Academic Press, pp. 47–68. Portes, Alejandro and Min Zhou (1992), ‘Gaining the upper hand: economic mobility among immigrant and domestic minorities’, Ethnic and Racial Studies, 15, 491–522. Waldinger, Roger (1996), Still the Promised City? African-American and New Immigrants in Postindustrial New York, Cambridge, MA: Harvard University Press.

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Wilson, Kennith and Alejandro Portes (1980), ‘Immigrant enclaves: an analysis of the labor market experience of Cubans in Miami’, American Journal of Sociology, 86, 295–319. Wilson, William J. (1987), The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy, Chicago: University of Chicago Press. Yinger, J.M. (1985), ‘Ethnicity’, Annual Review of Sociology, 11, 151–80. Zhou, Min (1992), Chinatown: The Socioeconomic Potential of an Urban Enclave, Philadelphia: Temple University Press. Zhou, Min, with JoAnn Adefuin, Angie Chung and Elizabeth Roach (2000), ‘How community matters for immigrant children: structural constraints and resources in Chinatown, Koreatown, and Pico-Union, Los Angeles’, project final report submitted to the California Policy Research Center.

19 The rise and fall of specialized small business investment: taking the taxi to oblivion Milford B. Green and Rod B. McNaughton

Introduction Participation in entrepreneurship by minorities can be a pathway to improved economic standing and income. This is true for the United States as well as other countries. Minority-owned businesses are an important component of the US economy. The Survey of Business Owners revealed there were 2.8 million Black and Hispanic-owned businesses in the US (US Census, 2006a, 2006b). They employed 2.3 million people and generated about $311 billion in revenues. This is about 12 per cent of the US’s non-farm businesses. Hispanics owned 5.2 per cent, while Blacks owned about 3.3 per cent of small businesses. During the period 1997 to 2002, the number of Black businesses grew by 45 per cent and the number of Hispanic firms grew by 31 per cent, more than three times faster than the number of all businesses, and receipts for minority businesses grew faster than those of all US firms (statistics for other minority groups have not yet been released). This growth is important because the promotion of investment in minority entrepreneurship is often advocated as a means of economic and social development for the underprivileged (Van Fleet and Van Fleet, 1985; Bates, 2001a). However, minority entrepreneurs face difficulties raising capital. All small firms face barriers in accessing capital, but minority firms may be additionally saddled with discrimination. Alan Greenspan, the former long serving Chairman of the Federal Reserve Board, recognized this in a speech in 1999: An important key to the success of small and large businesses is having access to capital and credit. . . . Continued efforts to develop the markets for private equity investments will be rewarded by an innovative and productive business community. This is especially true in lowerincome communities, where the weight of expansive debt obligations on small firms can severely impede growth prospects, or more readily lead to business failures. (Greenspan, 1999)

Since the late 1960s there have been efforts in the US to provide support for the creation of Black businesses, with recognition of other minorities coming later. This has occurred at the local, state, federal and corporation levels. Supporters of such efforts argue they are necessary to provide a more level playing field. Opponents view them as a form of reverse discrimination (Sonfield, 2001). The US Federal Government has been particularly active in undertaking programs supporting minority entrepreneurship. Papadimitriou and Mourdoukoutas (2002) argue that two stages of the US government’s attempts to bridge the equity start-up-financing gap have occurred. The first, from 1946 to 1977, was characterized by limited success. The authors advance three reasons for this limited success. First, the Company Act of 1940 prohibited pension funds from investing in Small Business Investment Companies (SBICs) or Specialised SBICs (SSBICs), the primary vehicles the government used to leverage available equity capital. Second, high capital 289

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gains taxes made high risk/return investments unattractive, and third, NASDAQ rules made it difficult for venture capitalists to float initial public offerings (IPOs). The second stage, starting in 1977, saw five policy measures that were more successful: 1. 2. 3. 4. 5.

creation of small business centers to assist start-ups business plan development, the allowance of limited partnerships that paid fund managers on performance, pension plans which could invest a small portion of the funds in venture capital and start-ups, reduction of the capital gains tax, and introduction of the NASDAQ Small Cap market that made equity markets more accessible.

Within this general framework, the needs of minority enterprises were addressed by government programs aimed at their needs. One of these was the Minority Enterprise Small Business Investment Company (MESBIC) program, later renamed the Specialized Small Business Investment Company (SSBIC) program. The administrating agency for the program was the Small Business Administration (SBA). Whistler and Wickmann (1979) argue that minority entrepreneurs have four needs: capital and credit, assistance in management, qualified personnel, and greater opportunity to participate in the economy. The SBA answers the first of these: the need for capital. This chapter reviews the history of the MESBIC and SSBIC programs. The story is of a program that was well intentioned and addressed a real gap in capital markets, but which failed to gain support within government or business communities. Data obtained from the SBA are analyzed to show the pattern of investments by location and industry sector. Investments are concentrated in a few major cities, and in sectors with low barriers to entry. A disproportionate amount of funds are lent for the purchase of taxi medallions (licenses to operate taxi cabs) by immigrant entrepreneurs, and take the form of assetbased lending rather than equity participation. The SSBIC program was discontinued in 1996 and the follow-on New Markets Venture Capital Funds program was cancelled in 2003. However, ‘grandfathered’ firms are still operating. The SBIC and SSBIC programs The Small Business Investment Companies program was created by Congress in 1958 through passage of the Small Business Investment Company Act. At that time, the US venture capital industry was in its nascent stage. The SBIC program had a mandate to stimulate long-term debt and equity investment in American small business. Since 1958, the SBA has funded over 90 000 small businesses, including icons such as Apple Computer, Intel and Staples (Teckler, 2004). The SBIC program provides government assistance to privately owned venture capital firms. The SBICs are licensed by the Small Business Administration (SBA) which provides access to matching capital funds (Rubin, 2001). For the period 1994 to 2002, SBICs provided about 8 per cent of total venture capital financing, 64 per cent of all seed financings and 62 per cent of venture capital funding by number (SBA, 2003, 2004). At the end of 2003 there were 435 licensed SBICs with $5.5 billion invested (SBA, 2004). Most SBICs obtain their funding from the SBA, which provides the opportunity to have their capital matched on a two or three to one basis. There are two types of SBA

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leverage instruments: the Participating Security, authorized by legislation in 1992, and the older form of Debentures (Staebler, 2004). A tax advantage of Participating Securities to tax-exempt institutional investors has led to an increase in SBICs that use this type of leverage (Teckler, 2004). To issue an SBIC license, the SBA required the following: An experienced team of private equity managers must secure minimum commitments from private investors of either $5 million (for a debenture fund) or $10 million (for an equity fund). For every $10 million in private equity, SBIC licensees are eligible to receive up to a $20 million SBA commitment (2: 1 public–private leverage), substantially enhancing prospective portfolio returns. (SBA, 2006a)

The size of an SBIC typically ranges from $30 million to $170 million. SBICs may only invest in ‘small businesses’, defined as net worth less than $18 million and prior two years’ average after-tax income less than $6 million. In addition, the potential recipient must establish the need for SBIC financing in the geographic area in which the applicant proposes to operate (CDFA, 2004). SBICs may not invest in other SBICs, finance and investment companies, unimproved real estate, companies with less than 50 per cent of their assets and operations in the United States, firms not engaged in a regular and continuous business operation, or companies which will use the proceeds to acquire farm land (eSource Center, 2006). The SBIC program was expanded with the establishment of Minority Enterprise Small Business Investment Companies (MESBICs). This program was created in 1969 during the Nixon Administration as an outcome of Nixon’s trumpeting of ‘black capitalism’ as a campaign issue (Kotlowski, 1998). The MESBIC program could be viewed as an outcome of the Civil Rights movement of the 1960s (Bates, 1997; Bean, 2001). The program was to increase the availability of financial capital to minorities. It was originally envisioned as a way that major corporations could participate in the funding of minority business enterprises. It was expected that at least 100 major corporations would participate. This view was wildly optimistic, with only 15 coming forward. Of those, many were sold or shut down during the coming years. The program proceeded through largely minority-owned business investment companies that had capitalizations of only several million dollars (Bates, 1998). MESBICs were renamed Specialized Small Business Investment Companies (SSBICs). SSBICs have a somewhat different mission in that they are to serve entrepreneurs who are denied access to capital because of economic disadvantage (SBA, 2006b). Those who are socially or economically disadvantaged are usually thought to comprise African Americans, Hispanic Americans, Native Americans, Subcontinent Asian Americans, and Asian Pacific Americans. Members of other groups may qualify if they meet specified conditions (SBA, 2006d). SSBICs, unlike SBICs, can get 100 per cent leverage of their private capital through the sale of preferred stock to the SBA. SSBICs also receive a rate subsidy of 3 per cent for the first five years of a ten-year term loan. The SSBIC program was repealed in 1996, but existing firms were grandfathered. The cancellation of the program was fueled by losses (Octopus Asset Management, 2003), public scandals (Bond, 1996) and mismanagement (Mukherjee, 1996). The use of an SSBIC in the Clinton Administration’s Whitewater investment scandal is probably the best-known scandal.

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New markets venture capital program The SSBIC program serves as a template for more recent government initiatives. The New Markets Venture Capital (NMVC) program was modeled after the Small Business Administration’s SBIC program but has the specific mission of economic development in Low-Income (LI) areas. This program was announced in 1999 with the hope of attracting up to $15 billion to economically distressed inner cities and rural areas (SBA, 1999). Through a combination of equity-type financing and intensive operational assistance to smaller businesses located in low-income areas, the program sought to assist local entrepreneurs, to create quality employment opportunities for residents and to build wealth within these communities. The SBA intended to achieve these public policy objectives through financial assistance to newly formed NMVC companies and to existing SSBICs (SBA, 2006c). NMVC companies target entire communities for business investments, while SSBICs seek business investments in small businesses owned by individuals that are socially or economically disadvantaged. NMVC firms focus on the geographic location rather than on the ownership of small businesses. However, SSBICs were eligible to apply for grant funds under the NMVC program to provide operational assistance to businesses located in LI areas, if such SSBICs planned to raise additional capital and to use it to make developmental venture capital investments. As of August 2003, there were only six NMVC firms licensed (SBA, 2006c), and the NMVC program had its funding rescinded in that fiscal year. Previous studies Although the MESBIC and SSBIC programs resulted in over a billion dollars in investment, there has been scarce academic attention paid to them or even to their host, the Small Business Administration. An exception is research conducted by Bates (1997, 1998, 2001b), who provides an extensive critique and history of the MESBIC program. Bates argues that the program was unwanted by the SBA and was consequently either by accident or design poorly administered. The program was created to parallel the SBIC program but additional staff was not allocated. It was rumored that the worst staff were reallocated to the program. Generally, the MESBICs were capitalized at levels too small to permit diversification of investment, or to attain scale economies. Often the MESBIC licensees simply invested in bank certificates of deposit to realize a profit from their subsidized SBA funds. The SBA created further difficulties in the program by reneging upon earlier funding commitments. Bates argues the agency rarely requested adequate funding from Congress. The period 1985 to 1987 saw the Reagan Administration attempt to dismantle the Small Business Administration and its programs. Congress refused and allocated money to the MESBIC program and the SBA. It appears that, although the SBA could not be eliminated from the outside, it was being undermined on the inside. The SBA undertook questionable acts that placed MESBIC program funding in legal uncertainty. Details of these actions are provided in Bates (1998). Congress attempted to revitalize the program in 1989 by allowing MESBICs to repurchase their preferred stock from the SBA for 35 cents on the dollar. Selling preferred stock to the SBA had been the preferred financing method because it required the payment of only a 3 per cent dividend to the SBA. Unfortunately, it took the SBA nearly five years to implement the repurchase program. During this period Congressional funding dwindled from $31 million to $5.8 million. In comparison, the SBIC program received a similar

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repurchase package in 1992 which took two years to implement. Bates (1998) concludes that the MESBIC repurchase experience provides a template for limiting a program’s success: 1. 2. 3. 4. 5.

delaying implementation for as long as possible, continually changing the rules, lack of administrative personnel continuity, using participation in the program to force compliance in unrelated areas, and technical regulations that largely nullify the intent of the program.

Bean (2001) tells a similar story. The Small Business Administration was and is a Federal Agency that serves a constituency that does not really want it. It has served as a political football since its inception and has been used to further goals unconnected with small business. It was one of the first forays into affirmative action by the Federal Government. Its success has been less than sterling and has been marked by repeated scandals. This history had a strong impact on the SSBIC program and explains why small business associations did not vigorously defend the program when it was cancelled. Bates (1997, 2001) provides an analysis of the financial characteristics and performance of 1101 investments made by MESBICs in 1993. He points out that most of the investments made were for the purchase of New York City taxicab medallions by the firm Medallion Funding. This situation continued to be true through 2003, as is shown later in this chapter. Investment in taxicab medallions is illustrative of the asset-based lending which was and is carried out by most MESBICs and SSBICs. Asset-based lending is simple: if the firm succeeds, the investee repays the loan; if the firm fails, the assets are liquidated and the MESBIC gets paid. For lenders who pursue this strategy, growth is not as important as the value of the collateral. Loans to restaurants, laundries and grocery stores are the next most common types of investments (Bates, 2001). The loans go primarily to immigrant Asian entrepreneurs in Los Angeles and New York City. Small MESBIC firms were not economically viable. The period 1969 to 1979 saw the licensing of many MESBICs with median capitalizations of less than $1 million. Such small firms were probably not viable from the start. The mean MESBIC in 1993 lost 2.70 cents per asset dollar. Smaller MESBICs did worse than larger ones. A series of logistic regressions revealed the following: 1. 2. 3. 4. 5.

large MESBICs (over $2 million in capitalization) were more likely to survive than smaller ones, low-cost MESBICs were more likely to survive, MESBICs with high liquidity were more likely to remain active, MESBICs with high loan losses were more likely to close, and MESBICs that could achieve capital gains on their investments were more likely to survive (Bates, 1997, 2001).

Bates and Bradford (2003a) undertook a study of 50 funds operated by active members of the National Association of Investment Companies. The investments by these minorityoriented firms were across a broad range of industries. Most funds were in three or four unrelated industry sectors. The media and communication sector had the largest number of investments, followed by manufacturing, except electronics and computer-related. The

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more mature funds had a mean internal rate of return (IRR) of 23.9 per cent. A regression analysis of the IRR found that higher IRRs were associated with larger investments, venture capital partners being actively involved in the portfolio firm and diversified funds. Lower IRRs were associated with smaller investments, being licensed by the Small Business Administration (SBA) and funds with larger than average capitalization. Bates and Bradford suggest that minority venture capital funds invest in a less risky mix than the private venture capital firms, and that this lower risk orientation means that the minority funds exhibit less of a bust–boom cycle (this is illustrated later in this chapter). Bates and his colleague provide a thorough examination of the MESBIC and SSBIC program from an aspatial perspective, but the geography of the programs are ignored. McNaughton and Green (1989) address this deficiency in their analysis of the investment preferences of MESBICs. They found that MESBICs are smaller than other venture capital firms with disproportionate representation in certain large urban areas, particularly in Washington DC, Miami and Detroit. Further analysis showed that the pattern of office location for MESBICs was substantially different from that for either SBICs or private venture capital firms. MESBICs preferred to avoid high technology investments, concentrating on manufacturing, retailing and distribution and had a marked aversion to investing in early stage deals. Larger MESBICs were found to more closely follow the investment preferences of private venture capital firms. Data The data for this study were provided by the Small Business Administration, Investment Division.1 The data comprise two sets. One is a listing of all SBIC and SSBIC licensees past and present since the inception of the SBIC program. Each company has headquarters location, date of licensee, date of licensee surrender (if applicable), type of firm (SBIC or SSBIC), and type of funding. The second data set is a listing of all investments in dollars made by SBICS and SSBICs since 1985 for each three-digit zipcode in the US. The industry of the investment is also reported. Prior to 2000, it is reported by US SIC code (Standard Industrial Classification) and for the year 2000 and later it is reported by NAICS (North American Industrial Classification System) code. The post 1999 data are recoded into their equivalent SIC class using a concordance provided by the US Census Bureau (2002). There are known data deficiencies in SBA tabulations. Data on reported investment amounts of the SBIC and SSBIC programs collected by the SBA were found to be somewhat incomplete and inaccurate (OIG, 2000). Some years appear to be overestimated as a result, while others may be underestimated. The primary fault is that investments may not be reported to have occurred in the correct year, although the SBA argues that over time the errors average out. The SSBIC program requires the creation of an Eligibility Profile on each small business. This profile affirms the minority status of the small business, and is verified during SSBIC examinations (OIG, 2000). Currently the SSBIC program has only 42 participating firms located primarily in selected large cities (Figure 19.1). New York City has nine firms, the largest number in any city. What is perhaps surprising is that there are many cities with substantial minority populations that have no representation, Chicago is an example. Location matters as venture capital firms tend to fund entrepreneurs in the immediate area. Therefore minority entrepreneurs in cities with SSBICs might experience an easier time in finding funding.

295

Figure 19.1

Locations of SSBIC firms, circa 2003

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Handbook of research on ethnic minority entrepreneurship 4000 3500 Number of deals

3000

Specialized Small Business Investment Company Small Business Investment Company

2500 2000 1500 1000 500 0 1985

Figure 19.2

1987

1989

1991

1993 1995 Year

1997

1999

2001

2003

Number of licensed SSBIC and SBIC firms, 1960 to 2003

The number of firms licensed in the program has been steadily shrinking since the mid1980s (Figure 19.2). The variation in the number of SSBIC firms has been low compared to the companion SBIC program. This may be a reflection of the reluctance of the Small Business Administration to embrace the program with much enthusiasm and the lack of an easily identifiable constituency (Bean, 2001). The program was never provided significant promotion and consequently grew slowly. To be fair, the slow growth in participation was also a reflection of the difficulty in finding suitable candidates. Investment patterns Although the number of SSBIC firms has been declining, the total amount of investment has been relatively constant (Figure 19.3). Figure 19.3 shows the investment trends of SSBICs, SBICs and private venture capital firms since 1985. (Note that the trend lines represent different scales of investment. The private sector investment has been divided by a value of 100 and the SBIC investment has been divided by a value of ten to allow direct comparison of the trends.) Figure 19.3 makes clear the small size of the SSBIC program versus the SBIC program (one-tenth the size) and the private venture capital industry (one-hundredth the size). Both the private firms (as measured by the Moneytree Survey) and the SBIC firms experienced the investment bubble of 1998 to 2001. The SSBIC firms did not participate in the bubble. This is because the industry mix of SSBICs tended not to include the highly speculative technology investments pursued by the other types of investment firms. So, while the SSBICs did not experience some of the very high return rates of the bubble, they also did not experience the collapse. This lack of participation in pursuit of very high rates of return had often been a criticism of the SSBIC program. History, however, has shown the risk of such a strategy, particularly for entrepreneurs that may well be less prepared by experience and opportunity. Although the number of SSBIC firms has been declining, the average deal value has been steadily increasing (Figure 19.4). This results in a generally upward trend for yearly

The rise and fall of specialized small business investment

Investment (millions of US dollars)

1200

297

Specialized Small Business Investment Company (SSBIC) Small Business Investment Company (SBIC)/10 Moneytree Survey/100

1000 800 600 400 200

0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year

Figure 19.3

SSBIC, SBIC and private venture capital investment, 1985 to 2003 1000000

Average deal value (US dollars)

800000

Specialized Small Business Investment Company Small Business Investment Company

600000

400000

200000

0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Year

Figure 19.4

Average deal values for SSBIC and SBIC firms since 1985

investment total as shown in Figure 19.3. Compared with the SBIC program, the SSBIC program has exhibited stable investment patterns. Clearly the SSBIC sector does not follow the general trends of the venture capital industry the way the SBIC firms do. The total amount of investment contributed by SSBICs for the period 1985 to 2003 is shown by state in Figure 19.5. New York State attracted the greatest level of investment. Of that investment, the great majority was in New York City in the taxicab industry (as discussed later). Figure 19.6 presents the investment pattern by state for the SBIC firms

298

Figure 19.5

Total SSBIC investment by state, 1985 to 2003

299

Figure 19.6

Total SBIC investment by state, 1985 to 2003

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Table 19.1 SSBIC versus SBIC investment by industry groupings, top 1985 to 2003 investment (classes)

(SIC code)

SSBIC (%) (%) of 2 SBIC investment of all digit investments ($millions) investment group ($ millions)

(%) of all investment

Local and suburban transit (41) Taxicabs (4121) Eating and drinking places (48) Communications (48) Radio broadcasting stations (4832) Communication services (nec) (4899) Telephone communications (4813) Television broadcasting stations (4833) Hotel, rooming houses, camps (70) Hotels and motels (7011) Food stores (54) Grocery stores (5411) Personal services (72) Power laundries (7211) & dry cleaning (7216) Coin operated laundries (7215) Funeral service and crematories (7261) Wholesale trade (51) Miscellaneous retail (59)

1 248.6

43.8

1 246.4 164.9

5.8

59.8 48.0

2.1 1.7

677.9 471.5

2.1 1.4

Total investments 1985 to 2003

2 852.7

73.7

32 626.0

15.4

162.9 115.4

99.8

0.8

161.4 532.6

1.6

61.9

70.9

2 527.5 394.5

11.6

7.1

494.6

19.6

11.4

7.0

634.1

25.1

9.7

5.9

268.5

10.6

177.5

5.7

260.9

(%) of 2 digit group

6.2

176.8 122.5 94.7 118.1 76.4

122.5 99.6

4.3

7.7 15.6

0.4

81.6

66.6

64.7

216.7 143.1 203.5 28.0

19.7

16.6

9.2

4.5

5.4

4.6

33.5

16.5

77.4 4.1

0.7 66.1 0.6 13.8

to allow for comparison. It is clear that the two investment maps exhibit considerable differences. In particular, SSBIC investment is not of the first rank in California as it is in the case of SBICs or of the rest of the venture capital industry as a whole. Again the industry mix of the investments is responsible. Table 19.1 provides a breakdown of the SSBIC versus SBIC investments for the period 1985 to 2003 industrial groupings. By far the largest class is taxicab investments (SIC 4121) with about 44 per cent of all investment since 1985. This heavy concentration has

The rise and fall of specialized small business investment

301

been noted by both Bates (2001) and Porter (1997). The bulk of this investment is concentrated in New York City. The other major sectors such as restaurants, hotels, and food stores are all lower barrier to entry industries with lower growth potentials. Porter (1995, 1997) however, argues that these sectors are exactly the ones that should receive investment because they are realistic given market conditions in inner cities. The investment patterns of the SSBIC firms can be broken down by urban area to provide a more detailed picture of the investment. Figure 19.7 shows the investment for SSBICs for the period 1985 to 2003 by metropolitan area. As mentioned, the dominance of New York City is clear. It is a factor of ten times the investment of other major centers such as Chicago. A number of small urban areas are present for the lowest levels of investment, but generally only medium level and higher cities as measured by population are represented. SSBIC investment is punctiform in nature, like many other forms of investment. The SBA data provide information on the geographical preferences for investment as expressed by SSBICs. Table 19.2 shows the cross-tabulation of location of the SSBIC and the expressed preferences for investment. The table clearly shows a marked preference for nearby investment. This is consistent with the preferences expressed by other types of venture capital firms (Green, 2004). Taxi medallions In terms of the amount of money invested, the taxi cab medallion industry has been the dominant industry sector. The leading providers of taxi medallions financings have been Medallion Funding Corporation and its subsidiary, Freshstart Venture Capital Corporation. Both were licensed SSBICs (Freshstart became a regular SBIC in 2002, Medallion became a regular SBIC in 1997). The medallions are the licenses required to operate taxicabs in some major cities. The companies provide funding in several cities that include New York, Boston, Chicago, Newark, Philadelphia and Baltimore. The companies claim to have provided over $900 million in financing (Medallion Financial Group, 2004). If this claim is true the companies provide the bulk of financings in the industry for SSBICs (see Table 19.3). The funding level for medallions by SBIC firms is much lower. For medallion financings overall, New York City is overwhelmingly the city of choice. Boston and Chicago are of secondary importance, but have also experienced activity by Medallion Funding Corporation. The importance of medallion investment varies considerably by city (Figure 19.8). The figure shows those cities with substantial investments in taxi cab medallions. For very large cities such as New York, Chicago and Boston, that have regulated taxi industries, medallion financings are the dominant form of investment. While such investment certainly provides opportunity for individual drivers and small companies, it does little to stimulate the overall minority business environment. Regression analysis The SSBIC program was designed to provide increased opportunity for funding for minority entrepreneurs. It is not unreasonable therefore to expect that the level of minority population in a geographic area should be positively related to SSBIC investment levels. This hypothesis is tested by multiple regression where the variables are as follows:

302

Figure 19.7

SSBIC total investment, 1985 to 2003, by Metropolitan Area

303

4

West Coast

1 1

2

1

Local

1

SW

1

1

1

1

SE

1

2 4

NE

1 2

1

Mid Atlantic

Expressed regional investment preferences for SSBIC firms

Alabama California Washington DC Maryland Michigan Minnesota Mississippi New Jersey New York Ohio Puerto Rico Tennessee Texas Virginia

Table 19.2

1

1 1

1 1

2

Own State

1 1

2

1

2

1 1

National

1

1

1

1

Midwest

n34

1 7 1 1 3 1 1 2 8 1 1 2 3 2

Number of firms

304

$1 094 760 278 $108 523 615 $65 902 472 $1 893 977 0 $9 516 972

$1 280 597 314

Total

total

SSBIC

85.47 8.47 5.15 0.15 0.00 0.76

(%) of total

Tax medallion investments by major target cities

New York Chicago Boston Philadelphia Houston 20 other locales

City

Table 19.3

New York Chicago Boston Philadelphia Houston 7 other locales

City

$151 616 652

$143 441 803 $93 872 $3 594 000 $1 893 977 $2 000 000 $536 872

Total

SBIC

92.41 0.06 2.32 3.64 1.29 0.29

(%) of total

The rise and fall of specialized small business investment

Figure 19.8 ● ● ● ● ● ●

New York

Boston

Philadelphia

Los Angeles

Minneapolis

Baltimore

Chicago

Miami

West Palm Beach

305

Taxi cab medallion investment, selected cities

dependent variable: nontaxi Industry SSBIC financings 1985–2003, Totalpop: population of zipcode tract, LT10K: number of households with less than $10 000 income, PWHITE: percentage of zipcode tract classified as White, PBLACK: percentage of zipcode tract classified as Black, PHISP: percentage of zipcode tract classified as Hispanic.

A stepwise multiple regression was performed using SSBIC financings tabulated by threedigit zipcode matched with the year 2000 three digit zipcode census data. The census variables available are limited and included total population of the tract, the number of households in various income classes and the population in various racial categories (US Census, 2004). Percentages of White, Black and Hispanic populations in each tract were calculated. Because taxicab medallion financings are restricted to only a few urban areas with licensing requirements, these financings were removed from the SSBIC financings data. The regression equation has five statistically significant variables. The relationship is somewhat weak, with an r2  0.37. The significant variables, in order of entry, are total population of the zipcode tract, the number of households with less than $10 000 in income, the percentage of the zipcode tract classified as White, the percentage of the zipcode tract classified as Black and the percentage of the zipcode tract classified as Hispanic. The standardized coefficients show that the larger the population of a zipcode, the greater the likelihood of investment. Population is a surrogate for market potential and would naturally be related to business investment opportunity. This is particularly true for small firms that trade locally and would be the likely recipients of SSBIC investments. Since minority status is correlated to income, the second variable, number of households with less than $10 000 income, is also reasonable and it has the expected sign.

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The percentage of Whites in the zipcode had a negative effect on investment, as might be expected. Perhaps surprisingly, the percentage of Blacks and Hispanics also had a negative effect on investment values, although not as strong as that for Whites. Hispanics had the least negative effect, probably reflecting their dominance in small business ownership compared to Black entrepreneurs. The weakness of the regression can be partially attributed to the spatial concentration of SSBIC investments. Only 55.8 per cent of the threedigit zipcode tracts had any investment reported. Conclusions The Specialized Small Business Investment Company program started through political expediency and was plagued by politics for its entire existence. Although the program never reached the scale of its sibling, the Small Business Investment Company program, it has over the last three decades provided billions of dollars of investment for minority entrepreneurs. This funding was concentrated in low barrier-to-entry sectors that had a strong service component. The program has largely funded industries with low barriers to entry. This reduces the possibilities for substantial growth rates for funded companies, as seen in private venture capital portfolios. If the program is judged on its ability to attract minority investment into strong growth sectors, it receives a poor grade. If, on the other hand, it is judged solely on the provision of capital to minority entrepreneurs, it was more successful. The program provided funding for firms that might otherwise have gone unfunded. Both the locations of the SSBIC firms and their investments have been largely concentrated in larger urban areas, particularly New York City. The bulk of the investments have been in taxi cab medallions. These medallions are virtually risk-free for the investor because they have historically appreciated in value and are highly liquid investments. This is asset-based lending, and probably not what the framers of the enabling legislation had in mind. Although the number of SSBIC firms has been falling since the mid-1980s and is now capped with no new licenses, the level of investments made and their size have steadily increased over the same period. This indicates that the viability of the programs’ participating firms has been increasing. The cancellation of the program could be viewed as inevitable as the SBIC program and private venture capital firms become more open to minority participation. The regression analysis of three-digit level zipcodes shows that SSBIC investments are statistically related to levels of total population (a surrogate for market size) and the ethnic breakdown of that population. The relationship, although somewhat weak, indicates that the program has been meeting the mandate of providing investment funds for minorities. The program has served as an important social policy experiment. As Bates (2001) stated, Small Business Administration (SBA) and its programs never really established a strong relationship with the small business sector in the United States. This was particularly true for the Specialized Small Business Investment Company program. When the program was terminated – having taken the taxi to oblivion – there was very little opposition from small business organizations or from the SBA. Note 1. The authors thank John Wilmeth of the Small Business Administration, Investment Division for his assistance in providing data.

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References Bates, T. (1997), ‘The minority enterprise small business investment company program: institutionalizing a nonviable minority business assistance infrastructure’, Urban Affairs Review, 32(5), 683–703. Bates, T. (1998), ‘Is the US small business administration a racist institution’, Review of Black Political Economy, 26(1), 89–104. Bates, T. (2001a), ‘Financing the development of urban minority communities: lessons of history’, in J.L. Blanton, A. Williams and S.L.W. Rhine (eds), Changing Financial Markets and Community Development: A Federal Reserve System Community Affairs Research Conference, Washington D.C., pp. 217–36, (http://www. chicagofed.org/cedric/files/cfmacd_conference_book.pdf). Bates, T. (2001b), ‘Minority-owned businesses: public policy approaches’, Occasional paper Series Number 6, Wayne State University, College of Urban, Labor and Metropolitan Affairs, Detroit Michigan. Bates, T. and W.B. Bradford (2003a), ‘A study of venture capital investment in minority business’, National Association of Investment Companies Journal, 4, 1, 5–6. Bean, J.J. (2001), ‘Big government and affirmative action: the scandalous history of the small business administration’, Lexington, KY: University of Kentucky Press. Bond, C. (1996), ‘Floor statement Division D, the Omnibus Appropriations Bill the Small Business Programs Improvement Act of 1996’, US Senate (http://sbc.senate.gov/104bills/ hr 3719fl.html). Catalogue of Domestic Federal Assistance (CDFA) (2004), ‘59.011 small business investment companies’ (http://12.46.245.173/pls/portal30/SYSTEM.PROGRAM_TEXT_RPT.SHOW?p_arg_namesprog_nbr&p_ arg_values59.011). eSource Center (2006), ‘Overview – small business investment companies (SBIC)’ (http://www.onlinequity.com/ esource_center/business/sba/sbic_overview.htm). Green, M.B. (2004), ‘Venture capital investment in the United States 1995–2002’, The Industrial Geographer, 2(1), 2–29. Greenspan, A. (1999), ‘Changes in small business finance’, Federal Reserve System Research Conference on Business Access to Capital and Credit, Arlington, Virginia, 9 March (http://www.federalreserve.gov/boarddocs/ speeches/1999/19990309.htm). Kotlowski, D. (1998), ‘Black power – Nixon style: the Nixon administration and minority business enterprise’, Business History Review, 72(3), 409–46. McNaughton, R.B. and M.B. Green (1989), ‘Venture capital investment in minority business enterprise: an evaluation of MESBIC investment preferences’, Environment and Planning C, 7, 193–204. Medallion Financial Group (2004), ‘Lending solutions – taxi medallion loans’ (http://www.medallionfinancial.com/lending_taxmedallion.htm). Mukherjee, S. (1996), ‘Congress infuses small biz’, Denver Business Journal, 4 Oct (http://www.bizjournals.com/ denver/stories/1996/10/07/smallb2.html). Octopus Asset Management (2003), ‘Responses to bridging the finance gap: a consultation on improving access to growth capital for small businesses’, Small Business Service, Government of the United Kingdom (http://www.sbs.gov.uk/). Office of the Inspector General (2000), ‘Audit report results act performance measurement for the small business investment company program’, Audit Report Number 0-25, Washington, DC. Papadimitriou, S. and P. Mourdoukoutas (2002), ‘Bridging the start-up equity financing gap: three policy models’, European Business, 14(2), 104–10. Porter, M. (1995), ‘The competitive advantage of the inner city’, Harvard Business Review, 73, 55–71. Porter, M. (1997), ‘New strategies for inner-city economic development’, Economic Development Quarterly, 11(1), 11–27. Rubin, J.S. (2001), ‘Community development venture capital: a double-bottom line approach to poverty alleviation’, in J.L. Blanton, A. Williams and S.L.W. Rhine (eds), Changing Financial Markets and Community Development: A Federal Reserve System Community Affairs Research Conference, Washington, D.C., pp. 121–54 (http://www.chicagofed.org/cedric/files/cfmacd_conference_book.pdf). Small Business Administration (SBA) (1999), ‘President Clinton, SBA offer new markets investment initiatives to Fuel Business and Job Creation in Rural, Inner City Areas’, SBA News Release (http://www.sba.gov/news/ archive99/99-04.html). Small Business Administration (SBA) (2003), ‘Small business investment companies (SBIC) program’ (http://www.sba.gov/INV/specialreport.html). Small Business Administration (SBA) (2004), ‘The SBIC program’ (http://www.sba.gov/INV/programbasics.pdf). Small Business Administration (SBA) (2006a), ‘Frequently asked questions’ (http://app 1.sba.gov/faqs/faqindex. cfm?areaID31). Small Business Administration (SBA) (2006b), ‘Overview: the SBIC program’ (http://www.sba.gov/INV/textonly/ overview.html). Small Business Administration (SBA) (2006c), ‘New markets venture capital investment program’ (http://www. sba.gov/INV/nmvcfaqs.doc).

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Small Business Administration (SBA) (2006d), ‘About small disadvantaged business (SDB) certification and eligibility’ (http://www.sba.gov/sdb/indexaboutsdb.html). Sonfield, M.C. (2001), ‘Re-defining “minority business”: challenges and opportunities’, Journal of Developmental Entrepreneurship, 6(3), 269–76. Staebler, M.B. (2004), ‘An overview of the small business investment company program’ (http://library. lp.findlaw.com/articles/file/00081/003499/title/subject/topic/banking%20%20finance%20law_other/filename/ bankingfinancelaw_1_17). Teckler, M.D. (2004), ‘Evaluating capital sources SBICs in the 2004 funding cycle’, Venture Capital Journal, 1 March, 1. US Bureau of the Census (2002), ‘North American Industry Classification System, revisions for 2002’ (http://www.census.gov/epcd/naics 02/). US Bureau of the Census (2004), ‘American Factfinder’ Census 2000 Summary File 3 (SF 3) Sample Data, Detailed Tables (http://factfinder.census.gov/servlet/DTSubjectShowTablesServlet?_ts106241327171). US Bureau of the Census (2006a), ‘Black-owned firms 2002’, 2002 Economic Census, Survey of Business Owners, Company Statistics Series (http://www.census.gov/prod/ec02/sb0200csblk.pdf). US Bureau of the Census (2006b), ‘Hispanic-owned firms 2002’, 2002 Economic Census, Survey of Business Owners, Company Statistics Series (http://www.census.gov/prod/ec02/sb0200cshisp.pdf). Van Fleet E. and D. Van Fleet (1985), ‘Entrepreneurship and black capitalism’, American Journal of Small Business, Fall issue, 31–40. Whistler, M.J. and H. Wichmann Jr (1979), ‘Providing economic opportunity to small minority enterprises’, Journal of Small Business Management, 17, 1–10.

20 Does ethnicity matter? A study of the strategic intent of Internet ventures founded by ethnic and ‘non-ethnic’ entrepreneurs Rajeswararao (Raj) Chaganti, Radha Chaganti and Monica Treichel

Introduction Waldinger and Aldrich (1990), among other scholars interested in ‘ethnic entrepreneurship’ in the US, examined the incidence of entrepreneurship in different ethnic communities and offered several theories to explain the distinct patterns of incidence (Bates, 1994a; Bonacich and Modell, 1980; Light, 1972, 1980). One is the cultural theory, which posits that the culture of some ethnic groups predisposes members of the community to engage in entrepreneurial behavior (Light, 1972). Another is the sojourner theory (Bonacich, 1987). According to this theory, immigrants often see themselves as temporary residents of the US and, hence, take up economic activities, such as service-oriented ventures, that enable them to return to the home country in the long run. In addition, scholars offer lack of opportunity (Aldrich and Waldinger, 1990; Bonacich and Modell, 1980; Light, 1980) as another explanation. Self-employment-based ventures are started by members of certain ethnic communities because they lack personal resources, including language proficiency and education to seek attractive economic opportunities in the broader markets. These ventures perform rather marginally on sales and employment growth. However, some researchers (Fairlie and Meyer, 1996) question these theories. In fact, Bates’s (1994b) thesis suggests that certain ethnic entrepreneurs who do attain the requisite human capital in education and skills target the broader non-ethnic markets and do not turn to the ethnic networks (Chaganti and Greene, 2002). Concurrently, performance of ventures founded by these ethnic entrepreneurs tends to be strong. From a different perspective, research on a ‘top management team’ (TMT) argues that organization is a reflection of its top executives. A long stream of research on TMTs concludes that TMT characteristics do make a difference to the strategic choices that management teams make. Ethnic entrepreneurs, as members of a venture’s founding team, are valuable resources for new ventures. According to Barney, ‘A firm’s resources and capabilities include all of the financial, physical, human and organizational assets used by a firm to develop, manufacture, and deliver products or services to its customers. They include intangible resources, such as the history, relationships, trust, and organizational culture’ (1995: 50). Resources can be physical, human, organizational assets and skills (Barney, 1991). The lead entrepreneur and her venture team members enable the new venture to seize opportunities, build competitive advantage or at least achieve competitive parity. Ventures whose TMTs are able to accumulate resources that are ‘specialized and difficult-to-replicate or non-imitable resources’ tend to attain a sustainable stream of rents in the market place. While the influence of TMT characteristics on strategy and performance in relatively large firms has been extensively researched, research is limited on the influence of top 309

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management team characteristics on new venture performance. Carpenter, Pollock and Leary (2003) asserted that the top management teams in new ventures, compared to teams in relatively old and established ventures, are valuable because, in new ventures, the top management represents a larger portion of the firm’s resources. In addition, Carpenter, Pollock and Leary note that TMT’s decisions are critical to venture’s survival because of the unique challenges that new ventures face and the short time period during which new venture’s success is determined. The key founder and the characteristics of the new venture interact to influence the survival and growth of the venture. Chaganti, DeCarolis and Deeds (1996) found that the entrepreneurs’ characteristics figure heavily and centrally in the evaluation of the venture by potential investors and creditors. Therefore, TMT theory will be useful in studying the impact, if any, of entrepreneurs’ ethnicity on the strategic intent of new ventures. New ventures, because of their short history, and the stage of development that they are in, cannot be reliably measured on the usual strategy and performance variables, such as growth in sales and earnings, or return on equity. Yet entrepreneurs and founding teams in nascent organizations have visions, ambitions, designs, and intents with respect to strategy that they wish to pursue in creating value. The initial business plan, and the prospectus issued at the time of initial public offering attempt to communicate entrepreneurs’ intended strategies and the odds of success of the venture. Indeed, prospective investors base their investment decisions on entrepreneurs’ ‘strategic intents’. According to Hamel and Prahalad (1989), strategic intent ‘envisions a desired leadership position and establishes the criterion the organization will use to chart its progress’. Strategic intent captures the essence of winning, it is stable over time, and sets a target that deserves personal effort and commitment. However, strategic intents of new ventures with ethnic presence in the founding team have not been studied. Therefore, this study will examine the relationship between ethnic presence and strategic intents of new ventures. Research propositions Entrepreneurship research, specifically ethnic entrepreneurship research, can usefully draw on TMT literature, in that it helps to consider the impacts of not only the lead entrepreneur but also the whole team that is associated with the enterprise. The challenges faced by top executives of relatively new ventures and the challenges faced by the top executives of relatively large and established firms are different and distinct. Although top executives in both new ventures and old firms may be entrepreneurs, for ‘the manager of a new venture, the starting point is typically a chaotic organization with minimal structure and the time orientation . . . is hypnotically centered on the future. For the managers of an established firm, the starting point is typically a bureaucratic organization with a rigid structure and a tendency to stay locked in the past’ (Eisenhardt, Brown and Neck, 2000: 52). Therefore, it is useful to distinguish the teams associated with relatively new ventures from the teams associated with relatively large and established corporations. In this chapter, we will refer to the former set as founding teams. The literature on TMTs is replete with studies of demographics of top executives. The characteristics included in the studies range from educational background, age (for example, Boeker, 1988), previous work experience (for example, Eisenhardt and Schoonhoven, 1990), knowledge and skill, social status and affiliations (for example, D’Aveni, 1990), to international experience (for example, Reid, 1981). Smith, Smith, Olian, Sims, O’Bannon and

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Scully (1994), in their study of top management team demography and processes in hightech firms, tested three models of TMTs: a demography model – demographic characteristics of the top executives dominate the explanation of firm performance, and processes in the firm do not contribute to performance; a process model – process contributes incrementally and directly to performance over and above team demographic characteristics; and an intervening model – process directly affects firm performance and process is affected by team demographics. The results of Smith et al.’s study show that empirical results do not neatly fit into any of the three models. Instead, some demographics directly affect performance, while some others affect processes, viz., social integration and communication. The top management team behavior is more complex than any of the theories suggest. Presence of an ethnic person in a founding team produces a degree of heterogeneity within the team. In a review of the multiple effects of diversity in organizational outcomes, Milliken and Martins (1996), based on an extensive review of literature on diversity in groups, reported: ‘heterogeneity in groups . . . offers both a great opportunity for organizations as well as an enormous challenge. On the one hand, some research suggests that more diverse groups have the potential to consider a greater range of perspectives and to generate more high-quality solutions than less diverse groups. . . . On the other hand, the greater the amount of diversity in a group or an organizational subunit, the less integrated the group is likely to be . . . and the higher the dissatisfaction and turnover’. Research completed on relatively small groups also points to rather conflicting and inconclusive findings: diversity does seem to have positive effects at the individual and small-group levels (Cox, Lobel and McLeod, 1991), but, according to other studies, notably, Pelled, Eisenhardt and Xin (1999) and Tsui, Egan and O’Reilly (1992), heterogeneous groups perform rather more poorly than homogeneous groups. In the top management team (TMT) literature, out of 116 studies catalogued on top management team heterogeneity, 75 studies yielded no significant results. Team heterogeneity was associated with certain managerial processes (such as, group consensus), which in turn might influence firm performance, but there seemed to be no direct path from TMT heterogeneity to firm strategy or performance. To what extent these findings extend to heterogeneity with the top management team arising from ethnic presence is not clear. Does ethnic presence in a founding team make any difference to strategic intent of the venture? Being a voluntary immigrant seems to increase the opportunity-seeking orientation of an individual relative to a comparable native born. Such opportunity-seeking behavior is likely to be particularly pronounced among entrepreneurs who are firstgeneration immigrants. While their distinctive cultural heritage could differentiate these entrepreneurs from the mainstream entrepreneurs in the US, still, as McGrath and MacMillan pointed out, entrepreneurs ‘hold a basic set of beliefs about themselves’ (1992: 419) such as ‘being entrepreneur means being creative’ and ‘these sets of beliefs transcend cultures’ (ibid.: 420). Thomas and Mueller (2000) reiterate that, across varied cultures, the entrepreneurial predisposition is prominent on innovativeness consisting of inventiveness, imaginativeness, and creativity. Logically, therefore, first-generation entrepreneurs would combine the immigrant and entrepreneurial characteristics, and hence their strategic actions would be more attuned towards bold and creative business moves. Of course, the level of actual success achieved by their ventures would depend on a number of additional factors, such as the individual’s human and social capital, nature

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of the business climate and institutional environment in the host country. Accordingly, we proposed the following: P1 New ventures with ethnic presence in a founding team tend to have stronger strategic intents than new ventures with no ethnic presence in the founding team. The venture Cross-cultural studies on entrepreneurship suggest that contextual variables, like public policies and the institutional environment in which ethnic entrepreneurs are situated, combined with individual characteristics, can make a difference to the enterprise success (Tiessen, 1997). We will extend this line of thinking on the contextual variables to include the characteristics of the new venture itself. Strategic intent invariably calls for ‘stretching’ the venture’s existing capabilities; it forces the entrepreneur and her team to be inventive and to make the most of the limited resources. The odds that an ethnic entrepreneur can actually accomplish her strategic intent, in part, hinges on the context in which the firm operates. Decisions and deals that entrepreneurs make in early stages of venture development define the ‘strategic circumference’ of the venture (Timmons, 1999). A variety of attributes of new ventures describe the context: quality of, and risk associated with the opportunity that is at hand, quality of the venture team, bargaining power of the team, fund of resources that is in supply and accessible, length of time before the venture will run out of cash, among others. Financial condition of the new venture and cash burn rate determine the range of options that the ethnic entrepreneur and his venture team face. It is in that financial context that the ethnic entrepreneur attains or does not attain her strategic intents. Therefore, we propose: P2 The relationship between ethnic presence in the founding team and venture’s strategic intent is moderated by the financial context of the new venture. Founding team & its characteristics While ethnic presence in the founding team affects strategic intent, demographic characteristics of the team with ethnic entrepreneur members may diminish, enhance, or suppress the effect of ethnicity on the venture’s strategic intent. Ethnic and non-ethnic entrepreneurs on founding teams, just like other top executives, lead their teams and work with the team members. Group cohesiveness, group dynamics, and group productivity are at work, and other team members serve as resources, too. Accordingly, many group characteristics and processes impact strategy and performance of the venture either directly or indirectly. From the extensive body of TMT literature, we find two demographic attributes as particularly significant for our study: team size and average age of the members. Founding team size Relatively large teams tend to suffer from a lack of social integration, strained group communications, and a lack of group cohesion (Tiessen, 1997). Relatively large teams tend to experience frequent opportunities for conflict, because relatively large teams offer greater possibilities for the formation of sub-groups, each with its own power base (Bales and Borgatta, 1966). Looking at the positive side, relatively large teams can offer a wealth of information and the venture can benefit from the intellectual wealth that is within the group. These positives can be particularly valuable for new

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ventures that have to navigate ambiguous, unstructured, rather risky situations and the benefits associated with relatively large size venture teams may outweigh the downside risks. In any case, ethnic entrepreneurs’ contribution to the strategic intents may depend on the size of the team that he is a member of. Age of the founding team Hambrick and Mason (1984) asserted that relatively young teams, compared to relatively old teams, take great risks and pursue novel and unprecedented approaches. Hambrick and Mason proposed that firms managed by young managers, compared to the firms managed by old executives, grow fast, and profits of firms with young teams tend to vary significantly from the industry average. The founding team the ethnic entrepreneur is associated with can make a difference to the contribution of the ethnic top executive. Therefore, we offer the following proposition for testing: P3 The relationship between ethnic presence in the founding team and the venture’s strategic intent is moderated by the team size and age of the team. Study design To test the propositions, we examined the Security & Exchange Commission filings of 250 Internet ventures that have gone public over a three-year period spanning 1998 and 2000 in the US. Internet-based new ventures are ideal subjects for our study: over the decade or so, Internet-based technologies created a ‘hot spot’ of unprecedented intensity in the financial market; Internet-based technologies spawned several hundred new ventures, approximately 300 of the ventures have gone public within the last three years or so, and market value of the publicly held Internet ventures was $1.4 trillion dollars at the peak of the stock maker; and entrepreneurs from the ‘so-called’ ethnic communities, such as, India, played an important role as lead entrepreneurs, founding team members, and as venture capitalists. For the purposes of our study, new ventures with ethnic presence were defined as ventures that have at least one founding team member who received his or her undergraduate degree from an institution in one of the following countries: Korea, Japan, Taiwan, Hong Kong, People’s Republic of China, Southeast Asia (Vietnam, Thailand, Indonesia, Singapore), South Asia (India, Bangladesh, Pakistan), Mexico, or Puerto Rico. In contrast, a venture that does not have any founding team members with undergraduate degrees from institutions in these countries was categorized as a venture with no ethnic presence. Per this definition, among 250 Internet ventures that have gone public in 1998 to 2000, we identified 27 ventures (about 10 per cent) with ethnic presence. Our study design called for matching each new venture with ethnic presence with a different venture that does not have any ethnic presence. The criterion used in matching was that both ventures in the pair must be based on the same e-business model. That is, both ventures create, produce, and distribute value in more or less the same way, so we can say with a degree of confidence that both ventures are in the ‘same business’. In identifying the e-business models and matching the Internet ventures, we used the typology suggested by Applegate and Collura (2000). For the purposes of this chapter we compared 27 Internet ventures with ethnic presence with 13 ventures that do not have any ethnic presence in the founding teams. That brings the total number of Internet ventures analyzed in this paper to n40 (27 ventures

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with ethnic presence  13 ventures that do not have any ethnic presence). For each new Internet venture included in the study, the following attributes were examined. Strategic intent Strategic intent of ventures is revealed in the objectives of the venture, plans for expansion, speed with which they would like to move ahead of rivals in seizing the opportunity, aggressiveness shown in building competitive edge, expected proportion of dollars allocated to domain creation and domain expansion activities, such as research and development, new product development, market development and market expansion, projected capital expenditures, anticipated financial leverage (Hamilton, Eskin and Michaels, 1998). From the array of possible measures of strategic intent, we selected the following two measures: (a) time to IPO as measured by the number of months since inception of the venture to the time of initial public offering; (b) financial exposure as measured by ratio of debt to total capital. Financial context In nascent ventures and ventures that are in very early stages of development, resource poverty, notably shortage of financial resources, raises the odds of failure. The ‘distance to go’ before reaching the breakeven point, size of the funding base, and the rate at which the new venture is burning its cash, determined the bargaining power of the entrepreneur and the range of options she has. We measured the financial context of the new venture in the following three ways: (a) extent of profit (loss) was measured as ratio of profit (loss) to total revenue; (b) cash resources was measured as ratio of cash to total assets; (c) time to ‘out of cash’ was measured as ratio of cash to profit (loss). Founding team characteristics We included the following two attributes of the venture: (a) founding team size was measured as the number of individuals in the team (not including directors and key employees); and (b) age of the founding team was measured as the average of the chronological age of team members (not including directors and key employees). Study results Descriptive statistics (mean and standard deviation) for all variables in the study are presented in Table 20.1. On average, Internet ventures that we researched have taken 46.47 months from inception to go IPO; and average financial leverage of the ventures was 0.92. With respect to the financial context of the venture: average ratio of profit (loss) to revenue was
3.46; average ratio of cash resources to total assets was 23.90; and average of cash to profit (loss) ratio was
2.0. Finally, average size of the new venture team was 8.60 and the average age of the founding team was 40.80 years. In Table 20.2, we report results from t-tests comparing mean values for strategic intents of ventures with ethnic presence and mean values for ventures that do not have ethnic presence. Among the three strategic intent variables examined, ventures with ethnic presence tended to take less time to IPO, compared to ventures that do not have any ethnic presence (42.82 months versus 55.00 months). However, the difference between the two groups was not significant. For the debt–capital ratio measure of strategic intent, the two groups of ventures were significantly different. Internet ventures with ethnic presence tended to have a lower debt–capital ratio (mean0.54 for teams with ethnic entrepreneur members, and 1.85 for non-ethnic teams, t2.21, p0.05).

Does ethnicity matter? Table 20.1

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Descriptive statistics

Time taken to IPO (months from inception) Ratio of debt–total capital Founding team size Age of founding team Ratio of profit (loss) – revenue Ratio of cash resources – total assets Cash burn rate

n

Minimum

40

8

39 40 40 38 35


1.18 2 30
26.67 0.00

37


50.37

Maximum

Mean

std. deviation

46.47

27.35

4.99 21 52 22.10 1.15

0.92 8.60 40.80
3.46 0.47

1.46 3.39 4.40 7.91 0.31

6.76


2.00

8.48

156

Table 20.2 Strategic intents of new Internet ventures: a comparison of ventures with ethnic presence and ventures that do not have ethnic presence in founding teams (n 40) Ethnic presence1

n

Mean

std. deviation

Time to IPO (months from inception)

0 1

12 28

55 42.82

36.71 22.03

t-value1.07 n.s.

Debt–total capital ratio

0

11

1.85

1.83

1

28

0.54

1.12

t-value2.21 significant at p0.05

Note: 1 0ventures that do not have any ethnic presence in founding team; 1 ventures that have ethnic presence in founding teams.

Therefore Proposition 1, which argued that new ventures with ethnic presence tend to have stronger strategic intent than new ventures that do not have any ethnic presence, did not find support with one measure of strategic intent, viz., time taken to IPO, and did find support with respect to new ventures’ financial leverage. A series of analyses of variance was completed to test the moderating effects of the venture’s financial context on the linkages between ethnicity of TMT and the strategic intent measures. Only significant results are presented in Table 20.3. Among the three measures of financial context, two, namely, the extent of loss at the time of IPO and the venture’s cash burn rate, did not significantly moderate the relationship between ethnic presence and strategic intent, and these results are not shown. In contrast, the remaining financial context variable cash resources of the new venture had a significant effect on time to IPO, as seen in Table 20.3. Further, the results showed that both cash resources of the venture (Eta square0.17, p0.02) and ethnic presence (Eta square0.11, p0.06) seemed to affect the time taken to IPO directly; in addition, cash resources and ethnic presence seemed to interact and jointly determine the time to IPO (Eta square0.11, p0.07). The results are mapped in Figure 20.1. Results for cash burn rate were non-significant and hence

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Table 20.3 Effects of ethnic presence and cash resources of venture on time taken to IPO by new Internet ventures; R Squared 0.237 (Adjusted R squared  0.163) Source

Sum of squares

Corrected model

d.f.

Mean square

F

6401.82

3

2133.94

3.21

63 877.38

1

63 877.38

96.08

Cash resources of venture

4404.71

1

4404.71

6.63

Cash resources of venture ethnic presence Ethnic presence

4397.76

1

4397.76

6.61

3905.66

1

3 905.66

5.87

20 610.86 108 519.00 27 012.69

31 35 34

664.87

Intercept

Error Total Corrected total

Eta square & sig. 0.19 0.04 0.64 0.00 0.17 0.02 0.11 0.07 0.11 0.06

X 66 months

Relatively cash poor ventures Time to IPO (months)

X 46.2 months Relatively cash rich ventures X 43.2 months

33 months X

Ventures with no ethnic presence

Ventures with ethnic presence

Median split on cash resources = 0.4527

Figure 20.1

Relation between ethnic presence, venture’s cash resources, and time to IPO

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Table 20.4 Effects of ethnic presence and age of founding team on time taken to IPO by new internet ventures; R Squared 0.258 (Adjusted R squared0.196) Source

Sum of squares

d.f.

Mean square

F

Eta square & sig. 0.26 0.01 0.08 0.08 0.22 0.00 0.12 0.04 0.10 0.05

Corrected model

7517.31

3

2505.77

4.17

Intercept

1906.55

1

1906.55

3.17

Age of founding team

5946.35

1

5946.35

9.89

Ethnic presence  age of founding team Ethnic presence

2871.84

1

2871.84

4.78

2512.91

1

2512.91

4.18

36 40 39

601.35

Error Total Corrected total

21 648.66 115 563.000 29 165.98

are not shown. Thus, overall, the results with the extent of loss and cash burn rate did not support Proposition 2, but this proposition found support with cash resources of the venture. Finally, between the two founding team characteristics that were examined in the study, founding team size did not show any role in moderating the relationship between ethnic presence and any of the measures of strategic intent. These results are not presented. Table 20.4 presents the results for analysis of variance on age of team and the strategic intent measure of time taken to IPO. Age of the founding team showed significant effect on time taken to IPO. Table 20.4 shows that both founding team’s age (Eta square0.22, p0.00) and ethnic presence (Eta square0.10, p0.05) had significant and direct effect on time to IPO. Further, the two variables seemed to interact (Eta square0.12, p0.04) and jointly impacted the time taken to IPO. The results are mapped in Figure 20.2. Overall, the results show that Proposition 3 did not find support with one of the contextual variables, founding team size, but did find support with the other variable, viz., age of the team. Discussion and conclusions The study presented in this chapter focused on the question: does ethnic presence in the founding team make any difference to the strategic intent of the venture? Answer: Yes, ethnic presence does make a difference, but the effect of ethnic presence depends on the type of strategic intent that is under consideration, the financial context of the venture, and other founding team characteristics. Among the two strategic intent measures that we examined, results for the debt-tocapital ratio, an indicator of the venture’s financial leverage, suggest that there is a strong and significant association between ethnic presence and financial risk exposure. When it comes to funding the venture, there seems to be a pecking order. Ventures with ethnic presence seemed to rely less on debt. To the extent that capital structure signals the founding

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X 61.5 months Relatively old founding teams Time to IPO (months) Relatively young founding teams

X 43.63 months

42 months X X 41.75 months Ventures with no ethnic presence

Ventures with ethnic presence

Median split for the age of the founding team = 40.88 years Figure 20.2

Relation between ethnic presence, age of the founding team, and time to IPO

team’s outlook for the venture, founding teams that have ethnic presence seemed to be less bullish about their outlook. Another possible interpretation of the result for the association between debt ratio and ethnic presence is that these ventures may have a rather limited range of options with respect to funding sources and, therefore, rely rather heavily on equity capital. Conceivably, founding teams with ethnic presence may be lacking in the bargaining power to seek debt capital, and therefore, are forced to distribute the risk among the shareholders and other investors. It is noteworthy that the relatively high financial risk exposure that is seen in ventures with ethnic presence is not dependent on the financial context of the venture or its founding team characteristics. Ethnic presence seemed to have an impact on the time to IPO. However, the direction of its effect is dependent on the financial context of the venture and on the age of the founding team. As shown in Figure 20.1, new Internet ventures that are cash rich seemed to take more time to IPO than ventures that do not have any ethnic presence. In contrast, new Internet ventures that are cash poor seemed to take less time than ventures that do not have any ethnic presence. In cash-poor ventures, the founding team’s motivation to go to IPO seems to be to bolster the resource base and lower the odds of failing on account of resource shortage. Such a motivation appeared to be stronger in ventures with ethnic presence. In cash-rich ventures, motivation to seek equity capital may not be that strong; therefore, ventures with ethnic presence appeared to be willing to delay the IPO and wait for a more opportune time. In sum, not all ventures with ethnic presence rush to the equity

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markets with the same speed. Their aggressiveness in going to the equity markets seemed to depend on the cash resources of the venture, to begin with. Along the same lines, ethnic presence seemed to affect the time to IPO, but the direction of impact was dependent on the age of the founding team: as shown in Figure 20.2, in Internet ventures that have relatively young teams, ethnic presence seemed to lengthen the time to IPO. However, in ventures that have relatively older teams, ethnic presence seemed to shorten the time to IPO. Prior researchers on TMT did not explicitly look at ethnic background of the top executives when considering the age of the team, but this stream of research suggested that younger teams tend to be more aggressive in seizing opportunities. Our findings are in accordance with TMT theory, in that age of the team showed a significant bearing on the time to IPO, but in the opposite direction. Our findings thus seem to add some depth to prior TMT research studies: ethnic background of the team members has a distinct and different effect on strategic intent. Further, our results suggest that the effect of ethnic presence tends to vary across age groups. The ethnic entrepreneurship literature has posited that values that promote entrepreneurship are more alike than different across cultures. At venture level, however, we did find that ventures with ethnic presence did behave differently from ventures that did not have any ethnic presence. Depending on the specific measure of strategic intent that is under consideration, ethnic presence in the founding teams does make a difference, either singly or in combination with financial context of the firm and age of the founding team. The results presented here are preliminary in nature. They need to be confirmed by matching all of the 27 ethnic-presence Internet IPOs with comparable non-ethnic Internet IPOs. Further, generalizability of the results to new and old economy ventures remains to be tested by including ventures from old economy in the study. In this study we have looked at ethnic presence without regard to the position that is held by the person or number of ethnic persons in the team. TMT literature on the relative power of top team members would suggest that ethnic persons in positions of power (for example, lead entrepreneur, lead investor) could have greater influence on the strategic intent than ethnic persons in relatively less powerful positions. Further, size of ethnic presence, that is, number of ethnic persons in the team, can make a difference to the strategic intent. These and other issues may be examined in future studies. References Aldrich, H. and R. Waldinger (1990), ‘Ethnicity and entrepreneurship’, Annual Review of Sociology, 16, 111–35. Applegate, L. and M. Collura (2000), Overview of E-business models, Boston, MA: Harvard Business School Publishing. Bales, R.F. and E.F. Borgatta (1966), ‘Size of group as a factor in the interaction profile’, in A. Paul Hare, Edgar F. Borgatta and Robert F. Bales (eds), Studies in Social Interaction, New York: Knopf, pp. 495–512. Barney, J. (1991), ‘Firm resources and sustained competitive advantage’, Journal of Management, 17(1), 99–120. Barney, J. (1995), ‘Lookng inside for competitive advantage’, Academy of Management Executive, 9(4), 49–61. Bates, T. (1994a), ‘An analysis of Korean immigrant-owned small business startups with comparisons to African American and non-minority-owned firms’, Urban Affairs Quarterly, 30(2), 227–48. Bates, T. (1994b), ‘Social resources generated by group support networks may not be beneficial to Asian immigrant-owned small businesses’, Social Forces, 72, 671–89. Boeker, W.H. (1988), ‘Organizational origins: entrepreneurial and environmental imprinting at the time of founding’, in G.R. Carroll (ed.), Ecological Models of Organizations, Cambridge: Ballinger Publishing Company, pp. 33–51. Bonacich, Edna (1987), ‘Making it in America’, Sociological Perspective, 40(4) (April), 446–66. Bonacich, E. and J. Modell (1980), The Economic Basis of Ethnic Solidarity: Small Business in the Japanese– American Community, Berkeley: University of California Press.

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Carpenter, M., T. Pollock and M. Leary (2003), ‘Testing a model of reasoned risk-taking: governance, the experience of principals and agents, and global strategy in high-technology IPO firms’, Strategic Management Journal, 24(9), 802–20. Chaganti, Radha and Patricia, G. Greene (2002), ‘Who are ethnic entrepreneurs? A study of entrepreneurs’ ethnic involvement and business characteristics’, Journal of Small Business Management, 40(2), April, 126–43. Chaganti, Rajeswararao, Dona DeCarolis and David Deeds (1996), ‘Predictors of capital structure in small ventures’, Entrepreneurship: Theory and Practice, 20(2), Winter 1995 (released Fall 1996), 7–18. Cox, T., S.A. Lobel and P.L. McLeod (1991), ‘Effects of ethnic group cultural differences on cooperative and competitive behavior on a group task’, Academy of Management Journal, 4, 827–47. D’Aveni, Richard (1990), ‘Top management prestige and organizational bankruptcy’, Organization Science, 1(2), 121–42. Eisenhardt, K.M. and C.B. Schoonhoven (1990), ‘Organizational growth: linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978–1988’, Administrative Science Quarterly, 35, 504–29. Eisenhardt, K.M., S.L. Brown and H.M. Neck (2000), ‘Competing on the edge’, in G. Dale Meyer and Kurt A. Heppard (ed.), Entrepreneurship as Strategy: Competing on the Entrepreneurial Edge, Thousand Oaks: Sage Publications, pp. 49–62. Fairlie, Robert W. and Bruce D. Meyer (1996), ‘Ethnic and racial self-employment differences and possible explanations’, Journal of Human Resources, 31(4), 757–93. Hambrick, D.C. and P.A. Mason (1984), ‘Upper echelons: the organization as a reflection of its top managers’, Academy of Management Review, 9(2), 193–206. Hamel, G. and C.K. Prahalad (1989), ‘Strategic intent’, Harvard Business Review, May–June, 63–76. Hamilton, R.D.I., E.D. Eskin and M.P. Michaels (1998), ‘Assessing competitors: the gap between strategic intent and core capability’, Long Range Planning, 31(3), 406–17. Light, I.H. (1972), Ethnic Enterprise in America: Business Welfare among Chinese, Japanese and Blacks, Berkeley: University of California Press. Light, I.H. (1980), ‘Asian enterprise in America’, in S. Cummings (ed.), Self Help in America: Patterns of Minority Economic Development, Port Washington, NY: Kennikat Press. McGrath, R. and I.C. MacMillan (1992), ‘More like each other than anyone else? A cross-cultural study of entrepreneurial perceptions’, Journal of Business Venturing, 75(5), 419–29. Milliken, F.J. and L.L. Martins (1996), ‘Searching for common threads: understanding the multiple effects of diversity in organizational groups’, Academy of Management Review, 21, 402–33. Pelled, L.H., K.M. Eisenhardt and K.R. Xin (1999), ‘Exploring the black box: an analysis of work group diversity, conflict, and performance’, Administrative Science Quarterly, 44, 1–28. Reid, Stand D. (1981), ‘The decision-maker and export entry and expansion’, Journal of International Business Studies, 12(2) (Fall), 101–12. Smith, Ken G., Ken A. Smith, Judy D. Olian, Henry P. Sims, Jr., Douglas P. O’Bannon and Judith A. Scully (1994), ‘Top management team demography and process: the role of social integration and communication’, Administrative Science Quarterly, 39, 412–38. Thomas, A.S. and S.L. Mueller (2000), ‘A case for comparative entrepreneurship: assessing the relevance of culture’, Journal of International Business Studies, 31(2), 287–301. Tiessen, J.H. (1997), ‘Individualism, collectivism and entrepreneurship: a framework for international comparative research’, Journal of Business Venturing, 12, 367–84. Timmons, J.A. (1999), New Venture Creation: Entrepreneurship in the 1990s, Boston, MA: Irwin McGraw-Hill. Tsui, A., T. Egan and C. O’Reilly (1992), ‘Being different: relational demography and organizational attachment’, Administrative Science Quarterly, 37, 549–79. Waldinger, R. and H. Aldrich (1990), ‘Trends in ethnic business in the U.S’, in R. Waldinger, H. Aldrich and R. Ward (eds), Ethnic Entrepreneurs, Thousand Oaks: Sage Publications, pp. 49–78.

PART III ETHNIC MINORITY SELF-EMPLOYMENT IN EUROPE

21 Ethnic entrepreneurship in European cities: 21 a comparative study of Amsterdam Tüzin Baycan-Levent and Peter Nijkamp

1 Introduction In the past decades, most cities in the industrialized world, especially metropolitan areas in many countries, have seen a massive influx of people with different sociocultural or ethnic origins. With this influx of foreign migrants, cities have increasingly become pluriform and multicultural societies. The influx of foreign migrants has certainly brought about economic advantages (such as the fulfilment of structural vacancies in various segments of the labour market), but it has also caused a multiplicity of social and economic tensions (for example, in the local housing market, ghetto formation in cities, differences in lifestyle and behaviour, and sociocultural stress situations). With a few exceptions, ethnic groups belong in general to the lower socioeconomic segment of European cities, mainly as a result of their lack of education and skills. This lower socioeconomic situation has led to a significant shift in the orientation of ethnic groups, namely towards self-employment. This movement is generally referred to as ‘ethnic (or migrant) entrepreneurship’ (see, for example, Baycan-Levent et al., 2003; CEEDR, 2000; Choenni, 1997; Delft et al., 2000; Greenwood, 1994; Masurel et al., 2002; Min, 1987; Nijkamp, 2003; Waldinger et al., 1990; Ward and Jenkins, 1984). After the first wave of orientation towards ethnic products, ethnic markets and customers, or indigenous ethnic business strategies, in recent years ethnic entrepreneurs have gradually become an indigenous and significant part of the local economy, especially in big cities and metropoles, since an expansion of their market potential towards a much broader coverage of urban demand has occurred. Ethnic entrepreneurs, with their untapped job-creating potential, offer, on the one hand, different approaches and management styles within urban economic life which reflect their cultural diversity, and, on the other hand, many opportunities for urban revitalization/development of local economies, thereby increasing economic and cultural diversity, reducing unemployment and social exclusion, mitigating the problematic employment situation of young people in the ethnic segment and raising living standards in ethnic groups that often belong to the more disadvantaged segments of society. Against this background, the aim of this chapter is to investigate the phenomenon of ethnic entrepreneurship in urban economic life on a comparative basis of several case study researches by addressing the attitudes and behaviour of both ethnic male and female entrepreneurs in Amsterdam. The case studies considered in this chapter were conducted among different ethnic groups, including Turkish, Indian/Pakistani and Moroccan male and female entrepreneurs between 1999 and 2002. The focus of our comparative evaluation is on motivation, labour and capital conditions, and customer relationships to highlight gender and generation differences and break-out strategies (see below) in ethnic entrepreneurship. In the next section, ethnic entrepreneurship theories are discussed, 323

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while the entrepreneurial behaviour and processes of ethnic entrepreneurs are investigated. After this overview of the literature, ethnic entrepreneurship in Amsterdam is investigated in Section 3. Various comparative empirical results are given to describe the general profiles of ethnic male and female entrepreneurs and enterprises, gender and generation differences in ethnic entrepreneurship, and trends in break-out strategies. Section 4 concludes with a discussion of the results, and offers recommendations for further research. 2 Ethnic entrepreneurship An increasing participation rate of ethnic minorities in the labour market and, in parallel to this trend, a significant increase in the number of ethnic minorities-owned businesses have led to the emergence of a new concept and a special interest field in entrepreneurship, viz. ethnic entrepreneurship. In recent years, this new concept has become an important research topic in the social sciences (for example, sociology, management science, economics, geography). Much research has addressed the opportunities for and the barriers to ethnic entrepreneurship by identifying critical success or performance conditions for ethnic entrepreneurs. Structural factors (such as social exclusion and discrimination, poor access to markets and high unemployment) and cultural factors (such as specific values, skills and cultural features including internal solidarity and loyalty, flexibility, personal motivation, strong work ethics, informal network contacts with people from the same ethnic group, and flexible financing arrangements) or a blend of these factors, included in the so-called interaction model formulated by Waldinger et al. (1990), that influence the step towards ethnic entrepreneurship, have been examined in these studies. 2.1 Ethnic characteristics in entrepreneurship The motives for ethnic entrepreneurship are to be found largely in the challenges imposed by their less favoured position. Social exclusion, discrimination, lack of education and skills, high levels of unemployment and cultural factors push an increasing number of immigrants towards entrepreneurship. The existence of ethnic and social networks also plays a major role in motivating immigrants towards entrepreneurship (Delft et al., 2000; Kloosterman et al., 1998; Masurel et al. 2002; Ram, 1994; Wilson and Portes, 1980). The empirical results of many case studies show that ethnic entrepreneurs usually set up their business in the sectors where informal production would give them a competitive advantage and where the network of ethnic people provides them with an opportunity for an informal way of doing business and exchanging information. Normally, ethnic enterprises start with a focus on clients from their own ethnic group, with traditional products, services and communication channels. Therefore, the orientation for the majority of ethnic entrepreneurs is internal in the beginning. This internal orientation and the mutual trust within the ethnic network provide, on the one hand, rotating credits, a protected market and a proper labour force (Basu, 1998; Deakins et al., 1997; Kloosterman et al., 1998; Lee et al., 1997), while, on the other hand, they create a more than average loyalty between the ethnic firm and its clients (Dyer and Ross, 2000). Therefore, it can be said that the traditional business strategies including internal orientation, traditional sectors, ethnic employees and ethnic customers may give the impression of a ‘safe haven’.

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2.2 Gender and generation differences in ethnic entrepreneurship Although an internal orientation is the main feature of ethnic entrepreneurship, it is observed that there are different motivations for different generations of immigrants, as the profile of ethnic people is developing over time. This development is heavily related to educational opportunities. In general, the first-generation entrepreneurs entail more push factors, whereas the second generation may exhibit more pull factors. In other words, while first-generation immigrants may be more frequently ‘forced entrepreneurs’, secondgeneration immigrants may act more frequently as ‘voluntary entrepreneurs’. The results of recent case study researches (see, for example, Masurel et al., 2003) show that the younger generation is more open and looks for new opportunities outside the traditional markets. The differences in motivation are not only observed between different generations, but also between different genders. Like young-generation ethnic entrepreneurs, ethnic female entrepreneurs (they also constitute young-generation ethnic entrepreneurs) entail more pull factors. Their motivation stems from their education level and work experience. They show a dual character, ethnic and female, in which sometimes their ethnic characteristics dominate their behaviour and in which sometimes, on the contrary, their female characteristics have a greater effect on their attitudes (Baycan-Levent et al., 2003). As observed generally in ethnic enterprises, most of the ethnic female enterprises belong to the services sector and they are small and relatively young. The existence of ethnic and social networks also plays a major role in motivating females, like their male counterparts, towards entrepreneurship. Besides these similarities in the characteristics of ethnic male and female entrepreneurs, there are also some gender-based differences between them (see Baycan-Levent et al., 2006). In general, gender-based differences in entrepreneurship are to be found in educational background, work experience and skills, business goals and management styles and personal value systems (see, for example, Brush, 1992; Cowling and Taylor, 2001; Fagenson, 1993; Fischer et al., 1993; Verheul et al., 2001). These differences are also observed in ethnic female entrepreneurship. In particular, a better education level and a stronger orientation to the service sector are the most prominent features of gender-based differences in ethnic entrepreneurship. 2.3 Break-out strategies in ethnic entrepreneurship An important issue in ethnic entrepreneurship is whether ethnic entrepreneurs produce for their own ethnic niches or whether they try to cover a wider market of customers. This difference between so-called internal and external orientation has been the subject of many recent empirical investigations (see, for example, Choenni, 1997). An internal orientation may offer a more protected market, but will never lead to market expansion (‘break-out strategy’). An external orientation requires more skills, diversified communication channels and access to government policy support measures (see, for example, Bates, 1997; Deakins et al., 1997; van Delft et al., 2000; Light and Bhachu, 1993). A break-out strategy in ethnic entrepreneurship can be defined as a strategy to get away from the situation in which individual ethnic groups dominate such factors as capital, clients and employees (Baycan-Levent et al., 2005). In other words, a break-out strategy is a strategy to escape from internal orientation or from being an ‘ethnic enclave’

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at some stage in order to move towards external markets. However, breaking out from this ethnic dependency may not be possible, owing to the special relationships between ethnic entrepreneurs and their ethnic niches. The advantages of an internal orientation may also create many disadvantages when a number of ethnic entrepreneurs seek to expand their market domain by offering products and services for a broader group of clients, outside their own ethnic group. An exclusive focus on a limited market in the beginning can pose a serious threat to the future of many ethnic minority firms. The ‘safe haven’ conditions do not create promising opportunities for economic expansion of the firms concerned. However, when they seek a market expansion, a number of ethnic entrepreneurs together may succeed in this goal and thus bring their firms into the next development stage. A number of them will not succeed in this breaking-out strategy and will be left to the commercial constraints of their own group. A number of the latter will deliberately choose to stay in this market niche. Although their own ethnic group offers the entrepreneurs certain advantages in terms of customer loyalty, it seems that this focus makes them vulnerable and denies them opportunities for expansion. So there is a paradox concerning the ethnic minority entrepreneur and his ethnic group: there is both a strength and a weakness, but in the end this seems to be a life-threatening weakness for many ethnic firms. How can breaking-out strategies be achieved? One may expect that promising ethnic business perspectives can be found in niches outside traditional sectors. Although the older generation of migrants tends to be more oriented towards traditional sectors serving the needs of their own ethnic groups, the younger generation is more open and looks for new opportunities outside the traditional markets. They often have more experience of non-ethnic situations, and therefore an orientation towards non-traditional markets may especially help the younger generation of entrepreneurs. Another pathway can be found in the new marketing strategies. It is obvious that break-out strategies require some crucial changes in marketing strategies (see, on marketing strategies, Masurel et al., 2004). In order to develop a break-out strategy, changes in products, people, place, promotion and prices should be envisaged. 3

Ethnic entrepreneurship in Amsterdam: a comparative evaluation

3.1 Prefatory remarks The aim of this chapter is to investigate the phenomenon of ethnic entrepreneurship in urban economic life on a comparative basis of several case studies by investigating the attitudes and behaviour of both ethnic male and female entrepreneurs in Amsterdam. The case studies considered here consist of three previous case study researches; the first one (Masurel et al., 2002) was conducted among three different ethnic groups, including Turkish, Indian/Pakistani and Moroccan male entrepreneurs, and the second one (BaycanLevent et al., 2002, 2003) was conducted among Turkish female entrepreneurs, while the third one (Masurel et al., 2003) was conducted among Turkish male entrepreneurs in Amsterdam between 1999 and 2002. This chapter is based on a comparative evaluation of the empirical results of our previous three case studies, while also addressing our two previous comparative evaluations about the results of these case studies to highlight the gender differences in ethnic entrepreneurship (Baycan-Levent et al., 2006) and break-out strategies of ethnic entrepreneurs (Baycan-Levent et al., 2005). Therefore, the present

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chapter can be seen as a general synthesis that brings the results of our previous case studies and evaluation studies together. The focus of our comparative evaluation is on business motivation, labour and capital conditions, and customer relationships, as well as gender and generation differences and break-out strategies in ethnic entrepreneurship. In the next sub-section (3.2) we will describe our previous case studies, while, in sub-section 3.3, we will offer the empirical results of these studies, comparing the most important characteristics of ethnic entrepreneurs and the features of ethnic enterprises. Although the Turkish group is overrepresented in these case studies, this group is rather illustrative of ethnic entrepreneurs in the Netherlands and is very recognizable in the Dutch urban sociodemographic landscape. For example, more than 10 per cent of the Turkish working population in Amsterdam consists of entrepreneurs, and they constitute about 20 per cent of all ethnic entrepreneurs in Amsterdam (Choenni, 1997). In relation to the total population, Turkish entrepreneurs account for the highest percentage of startups among all groups (including the native Dutch) in the Netherlands: 11.5 per cent of the Turkish working population started their own firm in 2000, versus 6.5 per cent of all other groups (www.kvk.nl). Although the Turkish immigrants show similar characteristics to other immigrants (from Morocco, Suriname and Antilles), their rate of entrepreneurship is much higher (Jansen et al., 2003). Therefore, we can say that our case study focus on Turkish entrepreneurs reflects the general environment of entrepreneurship in the city of Amsterdam. 3.2

Case studies

Case study 1: Turkish, Indian/Pakistani and Moroccan male entrepreneurs in Amsterdam This case study (by Masurel et al., 2002) is focused on differences in starting and continuing an individual business by three different ethnic groups in Amsterdam, including Turkish, Indian/Pakistani and Moroccan male entrepreneurs, by addressing the critical success conditions for their survival and performance. The empirical data of this research are based on in-depth personal interviews, held in the second half of 1999 among 40 ethnic entrepreneurs in Amsterdam. The sample contains 14 Turkish, 15 Indian/Pakistani and 11 Moroccan entrepreneurs who had expressed a willingness to participate in a personal interview. Case study 2: Turkish female entrepreneurs in Amsterdam The second case study (Baycan-Levent et al., 2002, 2003) investigates the phenomenon of ethnic female entrepreneurship by addressing Turkish female entrepreneurs in Amsterdam. The focus of the research is on the ethnic female profile and the dual character of ethnic female entrepreneurs that refers to the combined characteristics or indicators of ethnic entrepreneurship and female entrepreneurship. This case study research is based on in-depth personal interviews, held in the first half of 2002 among 34 Turkish female entrepreneurs in Amsterdam. Case study 3: Turkish male entrepreneurs in Amsterdam The third case study (Masurel et al., 2003) seeks to analyse the differences between first- and second-generation ethnic minority entrepreneurs in terms of entrepreneurial motivation. The empirical data of this research are based on in-depth personal interviews, held in the second half of 2001 among

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40 Turkish entrepreneurs in the hospitality sector in the Dutch cities of Amsterdam (28), Alkmaar (8) and Zaandam (4). However, the majority of the entrepreneurs are running their enterprises in Amsterdam. The particular sample consists of male entrepreneurs (except for one female entrepreneur). Therefore, it can be said that the third case study also reflects the attitudes and behaviours of male entrepreneurs as well as the first case study. 3.3 A comparative evaluation The three case studies summarized above show many similarities in the characteristics of ethnic entrepreneurs and the ethnic enterprises. However, an overall evaluation of these three case studies also draws attention to the differences between, especially, male and female entrepreneurs, first and second generations and different ethnic groups. In this sub-section we will compare the results of these three case studies by addressing in particular four important aspects, viz. personal characteristics, motivation and driving forces, labour and capital conditions, and customer relationships. Personal characteristics An examination of the profiles of ethnic entrepreneurs on the basis of the three case studies (see Table 21.1) in terms of personal characteristics shows that the majority of both ethnic male and female entrepreneurs fall into the age category of 31–40 for case study 1 and case study 2. However, female entrepreneurs are relatively younger than male entrepreneurs, with higher shares in both the age category 21–25 (15 per cent) and 31–40 (61.76 per cent). This can partly be explained by the fact that ethnic female entrepreneurship has emerged only very recently. As case study 3 has been focused on generation differences and was addressed to younger entrepreneurs, the age structure of this case study is not comparable with the other two studies. Educational level appears to be the most prominent and noticeable personal characteristic between, especially, ethnic male and female entrepreneurs when the empirical results of the three case study researches are examined (see Table 21.1). It is clearly seen that ethnic female entrepreneurs are relatively better educated than ethnic male entrepreneurs. While more than half of the ethnic male entrepreneurs (52 per cent) in case study 1 and the great majority (95 per cent) of the ethnic male entrepreneurs in case study 3 appear to have graduated from primary and secondary schools, the share of ethnic female entrepreneurs in this category is only 11.76 per cent. The majority of female entrepreneurs graduated from middle vocational schools (73.53 per cent). However, the share of higher educated male entrepreneurs (graduates from universities) in case study 1 is overwhelmingly higher than that of the ethnic female entrepreneurs in case study 2. These two extreme levels for ethnic male entrepreneurs in education (case study 1) can be explained by the differences among the three ethnic groups in the sample. As Masurel et al. (2002) indicated in their study, Indian/Pakistani people appear to have a relatively high involvement in ethnic business life, whereas Moroccans play only a minor role and Turkish people have an intermediate position. Motivation and driving forces The results of these three case studies draw attention to the common trends in motivation (see Table 21.1). When the reasons for becoming an entrepreneur are compared, to be one’s own boss stands out as the main motive in all

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three case studies, with scores of 70–80 per cent. However, when we examine the background of entrepreneurs, we can say that this outcome may have negative reasons, such as lack of education, lack of alternatives or unemployment. These negative reasons, or, in other words, push effects, seem plausible reasons, especially for male entrepreneurs, to become entrepreneurs in case study 1 and case study 3. The higher rate of unemployment among male entrepreneurs than among female entrepreneurs before starting appears as a distinctive feature in the differences in motivation between ethnic male and female entrepreneurs. Although employed and entrepreneur positions before starting are similar in all these groups, unemployment has appeared mainly as a male characteristic (case study 1 and 3). This situation shows that unemployment, particularly for male entrepreneurs, might have exerted a push effect towards entrepreneurship. Differently from male entrepreneurs, being your own boss as a reason for becoming an entrepreneur is determined by positive reasons or pull effects, such as education level and experience, for female entrepreneurs in case study 2. It can be said that the pull effects are more determinant in the choice of entrepreneurship by females than the push effects, such as unemployment, that do not exist in this case. Therefore, we can say that being one’s own boss as a reason does not only reflect the positive reasons or pull effects but also reflects negative reasons or push effects to become an entrepreneur. Labour and capital conditions The features of the enterprises show that the majority of the enterprises belong to the retail and service sector (see Table 21.1). The total share of retail and service sector is 75 per cent in case study 1 and 97.06 per cent in case study 2. As case study 3 addresses the hotelling sector, this orientation is 100 per cent for the service sector. The service sector for male and female enterprises (case study 1 and case study 2) comprises several activities, such as driving instruction, hairdressing, human resource management and temporary job agency, finance, insurance, tourism and real estate, laundry, press agency, repair, transport, hotels and restaurants. While 80 per cent of the female enterprises are in four sectors, viz. driving instruction, hairdressing, fashion retail, and human resource management and temporary job agency in case study 2, the majority, that is 69 per cent, of the male enterprises are in three sectors, viz. retail, hotel and restaurant and wholesale in case study 1. When the profiles of ethnic male and female enterprises are compared, the most important difference has occurred in the activities of the enterprises. The majority of female enterprises belong to the service sector, with a share of 76.47 per cent. On the other hand, the share of female enterprises in the manufacturing–wholesale sector is very small (2.94 per cent), when it is compared with the share of male enterprises in this sector (25 per cent) in case study 1. Therefore, it can be said that the orientation to the service sector is stronger for ethnic female entrepreneurs than for ethnic male entrepreneurs. The features of the enterprises show that these enterprises are generally small in terms of the number of employees. Unfortunately, there are no data about the number of employees in male enterprises for case study 1. However, the other two case studies (case studies 2 and 3) show that more than 80 per cent of the enterprises have fewer than five employees, while for female enterprises the share with no employees is also rather high, with half of them having no employees. Although there are no data about the number of employees for case study 1, all three case studies provide information about the composition of the employees. The

330 11.76 73.53 14.71

52.50 12.50 35.00

55.00 25.00 17.50 2.50

MOTIVATION AND DRIVING FORCES Position before starting Employed Entrepreneur Unemployed School

70.59 20.59 5.88 2.94

% 14.71 61.76

% 5.00 42.50

2002 34 ethnic female entrepreneurship

1999 40 motivation and driving force

PERSONAL CHARACTERISTICS Age < 25 years old 31–40 Education level Primary and secondary school Middle vocational Higher vocational and university

CASE STUDY II Turkish Female Entrepreneurs

CASE STUDY I Turkish, Indian/Pakistani, Moroccan Male Entrepreneurs

A comparison of characteristics of different ethnic minority entrepreneurs

Year of the research Sample Focus of the research

Table 21.1

50.00 27.50 10.00 12.50

95.00 — 5.00

% 57.50 —

2001 40 generation differences in motivation

CASE STUDY III Turkish Male Entrepreneurs

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LABOUR AND CAPITAL CONDITIONS Activities Manufacturing–wholesale Retail Service Number of employees No employees 1–5 employees > 6 employees Composition of employees* Employees from own ethnic group Employees from other groups Mixed Capital sources Own capital Family or friends

The reasons to be an entrepreneur To be own boss Unemployment

50.00 41.18 8.82

61.16 38.84 — 44.12 41.18

57.50 2.50 7.50 22.50 55.00

2.94 20.59 76.47 (35.29 in driving school sector)

70.59 —

no data no data no data

25.00 30.00 45.00

70.00 20.00

72.50 75.00

12.80 38.50

48.70

— 80.00 20.00

— — 100 (hotelling sector)

80.00 10.00

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(continued)

Note:

% 44.00 56.00

21.00 79.00

CASE STUDY II Turkish Female Entrepreneurs

%

CASE STUDY I Turkish, Indian/Pakistani, Moroccan Male Entrepreneurs

26.00 74.00

%

CASE STUDY III Turkish Male Entrepreneurs

* Composition of employees is based on the number of employees for case study 2 and the number of firms for case study 1 and case study 3.

CUSTOMER RELATIONSHIPS Composition of clients Clients from own ethnic group Clients from other groups

Table 21.1

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composition of employees is based on the number of employees from different groups for case study 2 and the number of firms which hire employees from different groups for case studies 1 and 3. While the majority of the employees in all three case studies stem from their own ethnic group, when the share of employees from only their own ethnic group and a mixed composition of the employees is taken into account, together this share can reach a level up to 60 per cent. However, an examination of the composition of employees in terms of the number of male enterprises which are hiring employees from their own ethnic group, and from other groups, shows us some interesting results. According to this information, more than 65 per cent of the male enterprises (a combination of employees from their own ethnic group and a mixed group in Table 21.1) tend to hire employees of their own ethnic group, whereas the share of employees from other groups is only around 10 per cent. In female enterprises these shares in terms of number of firms are 100 per cent for employees both from their own ethnic group and from other groups. When the number of employees is examined, 61.16 per cent of the employees are from their own ethnic group and 38.84 per cent are from other groups. This composition shows that all female enterprises tend to hire at least one employee from their own ethnic group; moreover, the majority of the employees are also from this group. Therefore, it can be said that female entrepreneurs are closer than the male entrepreneurs to their own ethnic group in terms of hiring employees. Another important feature, capital sources, of these enterprises also shows interesting results. The results of all three case studies show that more than half of the entrepreneurs combine their own capital with the capital support from family and friends. This financial support from family or friends can reach up to 75 per cent for Turkish male entrepreneurs who are active in the hotelling sector. Female entrepreneurs show a relatively balanced combination of capital sources and they tend to use their own capital rather than the capital obtained from family and friends. Customer relationships The ethnic dependency observed in the acquisition of capital and the composition of employees differ in the composition of clients. We observe a break or a transformation in the composition of clients. The results of case studies show that the majority of the clients are from other groups. The share of non-ethnic clients is almost 80 per cent for ethnic male enterprises (Table 21.1). This trend clearly shows that these enterprises are at a further stage of change in terms of orientation away from clients from ethnic origins and towards those from non-ethnic origins. However, this fact can partly be explained by the choice of economic activities. As the majority of the enterprises are in the service sector, the majority of the service sector in these case studies is made up of hotels and restaurants; they are more open to all clients without regard to ethnicity. On the other hand, this non-ethnic orientation seems less strong for ethnic female enterprises. Although the share of non-ethnic clients is more than 50 per cent, a higher ethnic dependency is observed in the ethnic female enterprises when compared to ethnic male enterprises that can be explained by a stronger niche strategy of female entrepreneurs. This can be also a result of a later entrance of female entrepreneurs to the market. However, this general trend in terms of composition of clients in all three case studies demonstrates a stage of change in orientation from own ethnic groups towards non-ethnic groups. Therefore, it can be said that ethnic entrepreneurs have become service providers, not only for their own ethnic group, but also for the other groups in the market. Nevertheless, this

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trend is strongly dependent on the sector and it is too early to call this a real transformation process for some sectors. The results of this comparison of three case studies draw attention to two general trends: (i) a rather high dependency on ethnic networks in terms of capital and labour sources, (ii) a transformation process in providing services which is moving away from ethnic and towards non-ethnic groups. Therefore, the results show that the ethnic entrepreneurs considered in this study are still rather far from breaking-out strategies. 4 Conclusion Ethnic entrepreneurs constitute a special group in urban economic life with their growing numbers and their contributions to economic diversity. They offer many opportunities for urban revitalization and the development of local economies with their job-creating potential. This potential not only reduces unemployment and helps to resolve the problematic employment situation of (especially) women and young people in the ethnic segment, but also reduces social exclusion and raises living standards in ethnic groups that are often among the disadvantaged in society. They offer economic and cultural diversity within the urban economy and they also create motivation for the ethnic entrepreneurial spirit by serving as a ‘role model’. The results of our comparative evaluation show that ethnic entrepreneurs have become service providers, not only for their own ethnic groups, but also for other population groups in the city. A transformation process in providing services moving away from ethnic and towards non-ethnic groups has gradually emerged. However, our comparative evaluation also shows that there is still a rather high dependency and a strong orientation to one’s own ethnic groups in terms of capital and labour force which make ethnic entrepreneurs vulnerable and may also create some barriers for break-out strategies in terms of new opportunities to expand the business and to open up to new and non-traditional markets. The results of our comparison show that this dependency is stronger for ethnic female entrepreneurs for male ones, whereas younggeneration entrepreneurs exhibit a more open attitude to non-traditional sectors. On the other hand, the results of our comparative study show that there are some genderbased differences in ethnic entrepreneurship similar to gender-based differences commonly observed in entrepreneurship. This similarity in trends demonstrates that gender as a driving factor has a higher importance than ethnicity in the characteristics and behavioural attitudes of ethnic entrepreneurs. However, these similar genderbased differences, especially in the orientation to the service sector or in the niche strategy, are more dominant for ethnic female entrepreneurs owing to the associated effect of ethnicity. The results of our comparative evaluation, in particular the ethnic dependency observed, draw attention to the principle of ‘trust’ within ethnic networks. Therefore, a focus on ‘trust’ for future research can offer us a more detailed picture of this ethnic dependency. The results of the case studies also draw attention to another transformation process for the young-generation entrepreneurs in terms of different motivation and orientation towards non-traditional sectors. Future research should also pay more attention to the young-generation entrepreneurs.

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References Basu, A. (1998), ‘An exploration of entrepreneurial activity among Asian small businesses in Britain’, Small Business Economics, 10, 313–26. Bates, T. (1997), ‘Financing small business creation: the case of Chinese and Korean immigrant entrepreneurs’, Journal of Business Venturing, 12, 109–24. Baycan-Levent, T., E. Masurel and P. Nijkamp (2002), ‘Entrepreneurial process and performance: a study on Turkish female entrepreneurs in Amsterdam’, paper presented at the 42nd ERSA Congress (European Regional Science Association), Dortmund, Germany, 27–31 August. Baycan-Levent, T., E. Masurel and P. Nijkamp (2003), ‘Diversity in entrepreneurship: ethnic and female roles in urban economic life’, International Journal of Social Economics, 30(11), 1131–61. Baycan-Levent, T., E. Masurel and P. Nijkamp (2005), ‘Break-out strategies of ethnic entrepreneurs’, in T. Vaz, E. Morgan and P. Nijkamp (eds), The New European Rurality: Strategies for Small Firms, Aldershot: Ashgate, pp. 143–56. Baycan-Levent, T., E. Masurel and P. Nijkamp (2006), ‘Gender differences in ethnic entrepreneurship’, International Journal of Entrepreneurship and Innovation Management, 6(3), 173–90. Brush, C.G. (1992), ‘Research on women business owners: past trends, a new perspective and future directions’, Entrepreneurship Theory and Practice, 17(4), 5–30. CEEDR (2000), Young Entrepreneurs, Women Entrepreneurs, Ethnic Minority Entrepreneurs and CoEntrepreneurs in the European Union and Central and Eastern Europe, Final Report to the European Commission, DG Enterprise, Centre for Enterprise and Economic Development Research (CEEDR) Middlesex University Business School, UK. Choenni, A. (1997), Veelsoortig Assortiment, Amsterdam: Het Spinhuis. Cowling, M. and M. Taylor (2001), ‘Entrepreneurial women and men: two different species’, Small Business Economics, 16, 167–75. Deakins, D., M. Majunder and A. Paddison (1997), ‘Developing success strategies for ethnic minorities in business: evidence from Scotland’, New Community, 23, 325–42. Delft, H. van, C. Gorter and P. Nijkamp (2000), ‘In search of ethnic entrepreneurship in the city’, Environmental Planning C, 18, 429–51. Dyer, L.M. and C.A. Ross (2000), ‘Ethnic enterprises and their clientele’, Journal of Small Business Management, 38(2), 48–66. Fagenson, E.A. (1993), ‘Personal value systems of men and women entrepreneurs versus managers’, Journal of Business Venturing, 8, 409–30. Fischer, E.M., A.R. Reuber and L.S. Dyke (1993), ‘A theoretical overview and extension of research on sex, gender, and entrepreneurship’, Journal of Business Venturing, 8(2), 151–68. Greenwood, M.J. (1994), ‘Potential channels of immigrants’ influence on the economy of the receiving country’, Papers in Regional Science, 73, 211–40. Jansen, M., J. De Kok, J. Van Spronsen and S. Willemsen (2003), Immigrant Entrepreneurship in the Netherlands, Research Report H200304, Zoetermeer: EIM. Kloosterman, R.C., J. van der Leun and J. Rath (1998), ‘Across the border: economic opportunities, social capital and informal businesses activities of immigrants’, Journal of Ethnic Migration Studies, 24, 367–76. Lee, Y., T. Cameroen, P. Schaeffer and C.G. Schmidt (1997), ‘Ethnic minority small business: a comparative analysis of restaurants in Denver’, Urban Geography, 18(7), 591–621. Light, I. and P. Bhachu (eds) (1993), Immigration and Entrepreneurship: Culture, Capital, and Ethnic Networks, New Brunswick, NJ: Transaction Books. Masurel, E., M. Yuzer and J. Holleman (2003), ‘Ethnic minority entrepreneurs: the generation effect, an analysis of motivational differences between first and second generations’, paper presented at the International Workshop on ‘Modern Entrepreneurship, Regional Development and Policy: Dynamic and Evolutionary Perspectives’, Amsterdam, The Netherlands, 23–24 May. Masurel, E., P. Nijkamp and G. Vindigni (2004), ‘Breeding places for ethnic entrepreneurs: a comparative marketing approach’, Entrepreneurship and Regional Development, 16(2), 77–86. Masurel, E., P. Nijkamp, M. Tastan and G. Vindigni (2002), ‘Motivations and performance conditions for ethnic entrepreneurship’, Growth & Change, 33(2), 238–60. Min, P.G. (1987), ‘Factors contributing to ethnic business: a comprehensive synthesis’, International Journal of Comparative Sociology, 28(3/4), 173–93. Nijkamp, P. (2003), ‘Entrepreneurship in a modern network economy’, Regional Studies, 37(4), 395–405. Ram, M. (1994), ‘Unravelling social networks in ethnic minority firms’, International Small Business Journal, 12(3), 42–59. Verheul, I., P. Risseeuw and G. Bartelse (2001), ‘Gender differences in strategy and human resource management’, Rotterdam Institute for Business Economic Studies.

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Waldinger, R., H. Aldrich and R. Ward (eds) (1990), Ethnic Entrepreneurs, Newbury Park, CA: Sage Publishers. Ward, R. and R. Jenkins (eds) (1984), Ethnic Communities in Business, Cambridge: Cambridge University Press. Wilson, K.L. and A. Portes (1980), ‘Immigrant enclaves: an analysis of the labour market experiences of Cubans in Miami’, American Journal of Sociology, 86, 295–319.

22 Temporal and geographical variations in ethnic minority business: thirty years of research in the United Kingdom Giles A. Barrett and David McEvoy

This is the story of a research group at Liverpool John Moores University, formerly Liverpool Polytechnic, which has been researching businesses owned by ethnic minorities for the last 30 years. The personnel involved have changed over the years, and this has sometimes influenced the theories and methodologies we have used. Our account therefore incorporates some biographical detail, but we look mainly at our research. Our focus has been on Britain’s South Asian firms, but we have also examined African–Caribbean enterprise in Britain, and South Asian enterprise in Canada. While some of our findings have remained consistent throughout, notably our emphasis on the disadvantaged urban situation of most ethnic minority firms, changing economic, political and social circumstances, and our encounters with other scholars, have enabled our discourse to evolve, and perhaps to progress. One recent interest, facilitated by the long view we are able to take, is the changing nature of minority firms over time. Britain’s South Asian communities are widely recognized for their heavy involvement in small businesses in manufacturing and in the service sector (Barrett, Jones and McEvoy, 1996; Ram and Jones, 1998). People of Indian, Pakistani and Bangladeshi origin are over-represented in self-employment compared with the white majority, and with other minority groups (Small Business Service, 2004, p. 12). The most numerous and visible of these businesses are those in retailing, catering and associated consumer services. The sheer number of these enterprises often lends itself to a narrative of growth and success. Our research group has been sceptical of this interpretation over a 30-year period. It has instead favoured a structural viewpoint, seeing the proliferation of South Asian enterprise in general, and of retail and consumer service firms in particular, as the outcome of a struggle against economic disadvantage and discrimination. Britain’s South Asians are part of the country’s imperial legacy. In the two decades after 1945, streams of migrants from the Caribbean, South Asia, Hong Kong and other quarters of the disappearing Empire were established. Most of the newcomers, as citizens of former or current British colonies, held British passports. These inflows were a response to national economic needs. Immigrants came to fill the vacant job niches in the British economy. In a period of economic growth and full employment, positions which were poorly paid, or involved long hours or unpleasant conditions, were unattractive to the indigenous population. Industries such as the foundries of the Midlands and the textile factories of Lancashire and Yorkshire relied on newcomers to maintain their competitiveness. Similarly, public services, such as hospitals and train and bus operators, came to value immigrant labour. This replacement labour phase did not, however, continue. New laws restricted primary immigration in 1962, 1968 and 1971 by changing passport entitlements. Nevertheless, family reunification was allowed to continue, so that the following 337

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decades saw possibly temporary migrant populations evolve into settled ethnic minority communities. Meanwhile the new labour force proved to be no solution to the competitive problems of British industry. Whole sectors slimmed down or disappeared, especially after the world recession of the 1970s. Unemployment increased substantially, particularly after the election of Margaret Thatcher’s Conservative government in 1979. Ethnic minorities, often concentrated in the most vulnerable jobs, suffered disproportionately. One major response to this crisis was a move into self-employment by South Asians. There had long been a small business presence in these communities. Before the Second World War, Punjabi Sikhs had been active as door-to-door salesmen in new suburbs where population growth had outrun shopping provision (Ballard and Ballard, 1977). During the 1950s, cafés and grocery stores catering for the tastes of the immigrant consumer had begun to emerge. Now a wider range of goods and services began to be offered, with South Asian retailers and restaurants becoming common in the inner urban areas where residential concentrations had developed. Over time this business presence extended into parts of the city, and into regions, where South Asian populations were sparse. As we shall see, however, the temporal sequence and geographical spread of this activity was highly differentiated. In 1972, David McEvoy joined the human geography staff at Liverpool Polytechnic. Already in post was Trevor Jones, who introduced him to the research topic of ethnic residential segregation. They studied McEvoy’s home city of Bradford, and nearby Huddersfield, where Jones had previously worked, to examine the inner urban zones where South Asian immigrants typically dwelt. McEvoy had conducted his graduate research on the geography of retailing (McEvoy, 1968a, 1968b, 1972) and it soon became clear that there was a possible connection between the highly segregated residential patterns under examination (Jones and McEvoy, 1978) and a growing South Asian retail and consumer service sector. The dominant mode of thought in retail geography was central place theory (Berry, 1967), and Jones and McEvoy speculated that the emergence of ethnic ghettos in Britain might be leading to the development of an ethnic minority retail hierarchy alongside a mainstream hierarchy of white-owned businesses. This led to their obtaining one of the few research assistantships available each year within the Polytechnic. Although the idea of differentiated business structures had already surfaced in geography in the United States (Berry, 1963; Pred, 1963; Rose, 1970) our plans were prepared without reference to this work. We also proceeded in total ignorance of seminal developments in other US disciplines (for example, Bonacich, 1973; Light, 1972). As our investigations developed, our original focus on central place theory evaporated in the face of the radical revolution in geographical thought, and through encounters with scholars from other disciplines. The research assistantship was award to John Cater, recently graduated in geography. For the next three years he accumulated information on the geographical pattern of South Asian population and business in Bradford. This produced our group’s first publications (Cater and Jones, 1978, 1979), which included maps and tables correlating these two distributions. Into our self-contained disciplinary world there now erupted an American sociological volcano in the form of Howard Aldrich, then of Cornell University. Aldrich had established a reputation with comparisons of African American and white businesses in the inner cities of Boston, Chicago and Washington, D.C. (Aldrich, 1973; Aldrich and Reiss, 1976). He had recently extended his investigations to South Asian retailers in

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London (Aldrich, 1980) and, while in Britain, discovered that we were engaged in related work. An intense collaboration ensued. While continuing to insist on the importance of business and population counts, we adopted Aldrich’s methodology for comparing minority and white enterprises in a study of Bradford, Leicester and the London Borough of Ealing. These were leading centres of South Asian immigration in the north, midlands and south of England. In each city, in 1978, we studied the five wards with the highest proportion of South Asians in the population We interviewed 580 South Asian and white owners or managers of retail businesses, divided approximately equally between the cities and ethnic groups. We first completed an enumeration of retail and service businesses, then we interviewed a random sample of the South Asian businesses, stratified by the number of South Asian firms in each ward. A white control sample was created. We obtained a rich set of data on the operating practices, labour force and clientèle of each establishment, and on the personal and family backgrounds of the business owners. We revisited each of the business sites at two-year intervals until 1984, confining our queries to whether the original business had survived, and to basic details of replacement businesses, such as the line of activity, and the ethnicity and background of the new owners. The resulting analyses emerged from a mainly fruitful tension between Aldrich’s application of statistical rigour, emerging from the US urban ecological tradition, and the increasingly radical political economy inclination of Jones. The latter was perhaps most successful in explaining the nature, scale and the very existence of the South Asian business sector, while – paradoxically – the nongeographer, Aldrich, provided greater insights into the geographer’s stock-in-trade, the spatial distribution of the firms we studied. Broadly, our survey revealed that South Asian retailers, in comparison to their white counterparts, were younger, worked even longer hours, were much better educated, used more family labour, were more likely to have raised business finance from family and friends and were more likely to want their children to take over the business (Aldrich et al., 1981, 1983). The follow-up visits revealed a higher South Asian survival rate from 1978 to 1984, 52 per cent against 39 per cent for whites, and that South Asian businesses numbers were increasing, while white numbers were declining (McEvoy and Aldrich, 1986). Proponents of a sanguine view of South Asian enterprise might have taken this evidence as proof of the entrepreneurial success of communities culturally endowed with resources, ambition and endeavour. Such views were widely held in the national press (for example, Smith, 1984; Sunday Telegraph, 1978). Some academics also emphasized the importance of community and family networks in creating economic success (Werbner, 1980, 1894, 1990). We, however, took a different view. We argued that business entry was often a response to unemployment or underemployment, themselves the result of racism, economic recession and employment in marginal industries and in disadvantaged regions and localities (Aldrich et al., 1981, 1983, 1984; Jones, 1981; Jones and McEvoy, 1986). We saw structural ‘push’ factors as more important than cultural ‘pull’ factors (Jones et al., 1992). Business involvement was an extension of the replacement labour phase of ethnic minority history. Typical South Asian retailers such as grocery shops and confectioners, tobacconists and newsagents (CTNs) were in declining sectors, which white entrepreneurs were becoming reluctant to enter. Having filled unwanted jobs, South Asians now filled unwanted business opportunities. The long hours of work and use of family labour were evidence of brutal necessity

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rather than entrepreneurial zeal. The superior educational qualifications of South Asian retailers reflected blocked opportunities in the mainstream labour market, not a cultural enterprise mission. Even the superior survival rate was problematised: when the overall survival rate was disaggregated by city and two-year time period, we discovered that South Asian figures were worse than those for whites in the weakest local economy (Bradford), and in all three cities at the low point of the business cycle. In better times whites could hand over difficult economic niches to South Asians, but when things were toughest they hung on, leaving South Asians, exposed in the business slots whites had already abandoned, to suffer the worst effects of recession (McEvoy and Aldrich, 1986; Barrett et al., 2002). Our views on the geographical distribution of South Asian firms proved less controversial than our account of their proliferation. This may have been partly the outcome of a tendency by non-geographers to regard questions about spatial patterns as less interesting than purely economic, political or sociological problems. It may also have been that the quantitative methodology we used proved too complex for many students of social issues. It is probably revealing that the subsequent work of the Liverpool group did not build on this aspect of the collaboration with Aldrich once his research turned to other aspects of entrepreneurship after 1990. Most of us also found it difficult! Nevertheless, the geographical findings are worth recalling (Aldrich et al., 1985, 1986, 1989). We first related the spatial distribution of businesses to the spatial distribution of the South Asian population at three scales: 300-metre squares, 500-metre squares and wards. At each scale, a positive correlation was discovered: 0.45 at the 300-metre scale; 0.61 at the 500-metre scale; and 0.90 at the ward level. The correlation increased as the units of analysis grew larger because the local variations disappeared in the average figures for wider areas. We saw these results as supporting an ecological succession interpretation of South Asian business geography. As whites moved out of inner city housing, South Asian residents moved in. As the South Asian population increased, it was followed by South Asian shopkeepers, replacing departing white retailers. We insisted, however, that this was not appropriately described as ‘white flight’. If white flight had been at work we argued that the rate at which whites left an area would increase as the proportion of South Asians increased. This was not the case. Instead, the pattern of transition was explained by white residents and businesses ceasing to move into areas which were becoming more South Asian. Ceasing to move into an area is not the same as leaving it. The white flight ‘explanation’ was still however in use in the twenty-first century in official reports into community relations in Bradford (Ouseley, 2001), and in government reports on urban riots (Home Office, 2001a, 2001b). We moved on from this bivariate analysis, with its implicit interpretation of population as market, to explicit consideration of patterns of patronage. Our survey included retailers’ estimates of the ethnicity of their customers. We used the proportion of a shop’s customers who were South Asian as the dependent variable (that is, as the phenomenon to be explained statistically) in a multiple regression analysis. The two main independent variables (the things doing the explaining) were the owner’s ethnicity (either South Asian or not) and the South Asian percentage of the population in the 500-metre square centred on the 100-metre square in which the business was located. The analysis was conducted three times. On the first occasion the dependent variable was the percentage of customers who were South Asian. In the other two analyses this percentage was subjected to

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Table 22.1 Regression analyses of the impact on customer composition of population composition and shopkeepers’ ethnicity Unstandardized (standardized) regression coefficients

% of residents Asian

Owners’ ethnicity (1white 0Asian)

Adjusted R2

0.36

0.58 (0.38)


0.29 (
0.41)

0.44


0.355

1.575 (0.35)


0.898 (
0.44)

0.43

0.086

1.406 (0.32)


0.988 (
0.48)

0.53

Constant term With untransformed dependent variable With logit transformation of dependent variable With logit transformation and more independent variables

the logit transformation; that is to say, it was expressed as the logarithm of the ratio of South Asian to white customers. Such a transformation emphasizes the relative importance of the South Asian and white populations, rather than their absolute magnitude. For example, in two areas with 25 per cent and 75 per cent of their populations South Asian, and the balance white, the ratios between the sizes of the two groups are 1:3 and 3: 1, respectively. This is a ninefold change in relative importance, compared with a threefold difference between the original South Asian proportions. In general, the logit transformation allows treating the extremes of the customer percentage scale more sensitively than is the case with untransformed data. The results of the three analyses are summarized in Table 22.1. There are broad similarities in the three assessments of the impact on customer ethnicity of owner’s ethnicity and area population composition. The adjusted R2 value in the table gives the proportion of the variation in customer composition which can be explained statistically by the independent variables. In the first two cases the proportions explained are very similar, 44 per cent and 43 per cent. In the third analysis, additional independent variables were incorporated into the calculations, pushing the level of explanation up to 53 per cent. The additional variables were type of retail business; interaction between type of business and ethnicity of owner; length of opening hours; presence of South Asian competitors; provision of special services to South Asians; and the city in which the shop was located. The individual impact of these additional variables can be found in Aldrich et al. (1985). The standardized regression coefficients in Table 22.1 indicate how far the independent variables contribute to the each model’s explanation of the variation in customer ethnicity between businesses. There is increasing divergence between the coefficient for area population composition and that for owner’s ethnicity as the analysis becomes more complex. With customer ethnicity untransformed the approximate equality of the two coefficients indicates that each of the explanatory variables contributes approximately equally to variations in the ethnicity of customers. In the second analysis, with customer ethnicity in logit form, owner’s ethnicity becomes more important than population composition. In the final

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model, with the logit transformation maintained, and the additional independent variables included, the regression coefficients suggest that owner’s ethnicity contributes about 50 per cent more than area population composition to the explanation of customer ethnicity. This suggested to us that, in these areas at least, South Asian businesses benefited from something of an ethnically protected market. This benefit amounted to a constant amount in the first of the three analyses. At any given level of South Asian population composition, a South Asian retailer would have a 29 per cent higher proportion of South Asian customers than a white retailer. In the more complex analyses the ethnic protection factor was stronger but variable. All in all we concluded that our South Asian businesses were more representative of an enclave or recluse economy than they were of the middleman minority status which had been applied to other entrepreneurial ethnic groups such as the Chinese and Japanese of inter-war California (Aldrich et al., 1984). We subsequently applied the logit form of analysis to the geographical pattern of temporal change in ethnicity of business ownership (Aldrich et al., 1989). This amounted to a rigorous testing, using longitudinal data, of processes we had previously inferred from the cross-sectional data for 1978, or had qualitatively eyeballed from simple tabulations of change. We will not further challenge our own explanatory powers, or the concentration of some of our readers, by detailing the data and calculations involved. Instead we outline the main features of the work. Using the 1978 survey, and the three follow-up investigations, we tested and confirmed three hypotheses: ●

● ●

Increases in the proportion of South Asian-owned businesses in an area occur because whites cease to buy into ethnically changing areas, not because they accelerate their rate of withdrawal. Business survival is more strongly affected by business profitability and area economic status than by neighbourhood ethnic change. Businesses acquired by South Asians will subsequently remain within the South Asian community.

Taken together, these findings supported the idea that ecological succession of population and businesses was creating significant ethnic enclaves in Britain. In these enclaves South Asian retailers and consumer service firms had substantially replaced their white predecessors. This ethnic transition did not, however, involve panic selling by whites; their withdrawal proceeded at a fairly slow but steady rate. In the autumn of 1988, Jones and McEvoy enjoyed a memorable four-week period in which news came through that three funding bids had been successful. One was an award from Britain’s Economic and Social Research Council (ESRC) to provide an ethnic minority component for its multi-university cross-disciplinary Small Business Initiative. Our brief was to re-examine the issues raised in our earlier three-city research, which had been funded by ESRC’s earlier incarnation as the Social Science Research Council (SSRC).1 The second was an award from the Canadian High Commission (embassy) in London to extend our British research to the three main centres of South Asian immigration in Canada. The third was from the Commission for Racial Equality, the national quango for identifying and rooting out ethnic discrimination. Our job was to examine barriers to the development of ethnic minority business in Bradford and to identify means for overcoming them.

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This meant a hectic programme of observational work and interviewing during 1989 and 1990. To assist us we recruited Pauline de Silva, who collected most of the information in Bradford, and Elaine Paulson-Box and Guy Abraham, who did most of the interviews in Vancouver and Montreal, respectively,2 and a whole team of people on the ESRC study, most notably Giles Barrett, who was subsequently to become a permanent member of the research group. In Bradford we interviewed again at almost 200 South Asian and white business sites we had studied between 1978 and 1984, and, secondly, conducted more qualitative discussions with a sample of 59 firms distinguished by one or more of suburban location, larger scale or diversification into non-retail activities. In Canada, we talked to about 70 South Asian retailers of goods or consumer services in each of Montreal, Toronto and Vancouver. We have referred only fleetingly to the Bradford study in our published output, though a report to the sponsor exists (Jones et al., 1989), and the qualitative data now await follow-up study assessing our ability to spot potential business winners. The Canadian work has generated more publications (Jones and McEvoy, 1992; Jones et al., 2000; McEvoy, 1999; McEvoy and Jones, 1993). It was, however, the ESRC survey, and the publications arising from it, which were to be the focus of much of our reflection in the next decade. To this work therefore our attention now turns. In early conference presentations we had been criticized for concentrating on disadvantaged inner city areas. It was implied that our pessimistic views were conditioned by our deliberate selection of the most difficult environments as study areas. Our defence, that most South Asian businesses were located in exactly such places, did not convince everybody. We therefore decided in our Small Business Intitiative contribution to examine a wider range of South Asian business settings. We followed the basic structure of the three-city study, and so studied 15 local authority wards. This time, however, we attempted to be representative of the range of ethnic environments across England and Wales,3 rather than seeking out places where South Asians were particularly prominent. First we divided the country into four regions, the north, the midlands, London and the outer south east, in order to capture a range of demographic and economic circumstances. The distinction between London and the rest of the south east was made specifically to distinguish the booming outer areas from presumed stability or decline in the urban core.4 In each of the regions we selected a ward representative of the sort of strongly South Asian areas we had previously examined. Then we chose three wards remote from any South Asian locality, and four wards which were predominantly white, but quite near to areas of South Asian population concentration. The reduced number of wards in the former group occurred because there is no ward in London which could be said to be remote from a South Asian area. Our rule of thumb for distinguishing remote areas from near areas was the possibility of easy daily commuting between home and business premises. The final ward in each region was identified as an area of ‘Afro-Caribbean’ population concentration. (British terminology had yet to stabilize on the present nomenclature, ‘African-Caribbean’). The reasoning behind this geographical framework related partly to the importance of community and culture in some explanations of South Asian business (Metcalf et al., 1996; Lyon and West, 1995; Werbner, 1980, 1984, 1990). There were, however, also practical business considerations. Firms in South Asian areas are best positioned to take any advantage that cultural immersion provides to the prosperity of an enterprise and the

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personal life of the owner. Co-ethnic customers, co-ethnic suppliers of goods and services, including finance and professional services, and co-ethnic employees are all conveniently to hand. Meanwhile owners can easily participate in religious and community life, and do so in a language of their own choice. To some extent these links can be maintained in nearby white areas; supplies and services are not too far away, and the owner and coethnic workers can easily commute, but co-ethnic custom may be more difficult to maintain as rival firms may be better positioned to tap the market based in the ethnic concentration. On the other hand, businesses in these nearby white areas will be better located with respect to the white markets which are demographically much larger than the South Asian market, and which often contain a more prosperous clientèle. South Asian businesses in white areas remote from South Asian quarters are likely to find maintaining all sorts of linkages with co-ethnic business partners and co-ethnic communal life much more difficult, but will often be without co-ethnic competition.5 While South Asians consist of a variety of national, religious and cultural groups (Aldrich et al., 1984, Metcalf et al., 1996) they perhaps have more in common with one another than they do with the United Kingdom’s other great stream of post-1945 replacement labour, that from the Caribbean. From earlier work, for example Reeves and Ward (1984), we knew that African–Caribbean firms were far less numerous than South Asian firms, even in relation to their somewhat smaller population base. We therefore studied African–Caribbean enterprises only in those areas where they were most numerous, that is, in wards with significant African–Caribbean populations. The inclusion of African–Caribbean businesses in our study added an important dimension to our study. Insofar as South Asian firms suffer from white racism, it is a disadvantage shared by African–Caribbean businesses. This may give them common characteristics, but, if culture is a component of economic success or failure, then they may differ in their sector, scale and operational characteristics (Barrett, 1999). We discovered important differences between ethnic minorities in level and scale of business development (Table 22.2). In their areas of greatest population concentration, African–Caribbeans accounted for only 11.2 per cent of all businesses, whereas South Asians comprised 41.5 per cent of firms in their equivalent areas. However, too much ought not to be made of this difference. Even in their areas where they are most numerous, African–Caribbeans do not constitute as high a proportion of the population as South Asians do in theirs, so we would expect their businesses to be correspondingly fewer. In the white areas we examined, the proportion of businesses which are South Asian differs by proximity to strongly South Asian area, 20.1 per cent in nearby areas, and only 2.6 per cent in more distant places. Table 22.2 also shows that diversity of businesses varied with their number. In remote white areas, most South Asian firms were the ubiquitous ‘Indian’ restaurants, although the owners were often Bangladeshi or Pakistani. Other South Asian entrepreneurs in these areas were confined to low order convenience retailing. In strongly South Asian areas, in contrast, although restaurants and convenience stores were well represented, there was a much richer mix of clothing stores and specialist suppliers of goods and services of particular interest to South Asian consumers. These included jewellers, travel agents and bookshops. In the white areas near to South Asian areas the business mix was generally intermediate between that in the other two sets of places. Note, however, that the proportion of CTN stores (confectioners, tobacconists and newsagents: a traditional

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Temporal and geographical variations in ethnic minority business Table 22.2 The sectoral distribution of ethnic minority business in England Percentage of minority businesses in named sector African–Caribbean

South Asian

All areas

South Asian areas

Nearby white areas

Distant white areas

23.5 2.9

23.6 11.3

21.8 4.9

28.1 25.2

20.0 13.3

1.5 16.2 19.1 23.5 2.9

16.1 18.2 14.5 11.1 3.5

21.5 21.1 14.7 11.7 1.6

5.0 13.7 9.4 10.8 7.9

6.7 0.0 60.0 0.0 0.0

African–Caribbean areas Food retailers Confectioners, tobacconists and newsagents (CTNs) Clothing retailers Other retailers Catering trade Other consumer services Wholesaling and manufacturing Other

10.3

1.7

2.6

0.0

0.0

Total Number of minority firms Named minority share of all local businesses

99.9 65.0 11.2

100.0 461.0 23.0

99.9 307.0 41.5

100.1 139.0 20.1

100.0 15.0 2.6

British combination of activities) was quite high, particularly in comparison with that in strongly South Asian areas. This may reflect relative demand in the two areas for Englishlanguage newspapers and magazines, and for British-style confectionery. The diversity of African–Caribbean firms was greater than their relatively low numbers might have implied. Food retailers were similar in proportion to the South Asian situation, but CTNs and clothing stores proved rare. More common were other retailers, especially music stores, and other consumer services, notably hairdressers. Both these specialities are related to particular Caribbean tastes. More detailed discussion of geographical variation in business types can be found in Barrett et al. (2001, 2002, 2003). Although our findings on business diversity were new, the picture we discerned on the scale and operating circumstances of South Asian firms proved to be similar to those we identified over a decade earlier. Hours of work were still very high, especially in convenience retailing, where the average white owner of a CTN worked 60.4 hours a week, but a typical South Asian competitor put in 77.5 hours. South Asians still relied heavily on family and other co-ethnic labour. They were still better educated than their white equivalents, 24 per cent holding a degree, compared with 7 per cent of whites, though both figures were four points higher than in our 1978 survey. They were still more reliant on finance from family and friends than whites, though they were also slightly more likely to have obtained a high proportion of their investment from a bank, despite experiencing more problems with this source than whites. Finally, South Asians were still much keener than whites to hand on their business to their children: 60 per cent compared to 29 per cent. (Jones et al., 1992, 1994a, 1994b; Barrett et al., 1996.)

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Having found South Asian business characteristics similar to those in our earlier work, we were reluctant to change our interpretation of business multiplication as arising from structural disadvantage. We did, however, attempt to demonstrate it in a different way, and to show how it varied according to the type of market served. In some earlier work we had analysed ethnic minority business development over time. For example, we wrote that the ‘enclave or ghetto economy may be succeeded by middleman orientation’ (Aldrich et al., 1984, p. 208). We drew parallels with Chinese and Japanese businesses in California, which Light (1972) had documented passing through these stages. Whereas enclave businesses relied predominantly on their own community for custom, ‘middleman minorities’ (Bonacich, 1973) found a wider market among other minorities or the majority population. In 1990, the transition from ‘ethnic niche’ to middleman markets was incorporated in a developmental sequence, preceded by a replacement labour stage in which minority businesses were very few, and succeeded by an economic assimilation stage when a minority, by now in second and subsequent generations, entered mainstream labour markets and business specialization waned (Waldinger et al.,1990). We next argued that ethnic orientation was not the only major dimension of the market. Another important factor was whether the market was local or non-local. If a business supplied only customers from its own locality, then its potential prosperity would be constrained by local wealth. If, however, a business supplies clients from a more extensive hinterland, then it is not limited by the local market. Our fieldwork had shown that South Asian firms sometimes cluster in large numbers, serving markets of considerable geographical extent. In Canada, Gerard Street East in Toronto, and Main Street in Vancouver, and in the UK Leicester’s Belgrave Road and Ealing’s Southall, were examples. These were places where shops tended to be larger than the typical corner store, and where specialist firms could tap the potential of clients willing to travel considerable distances, perhaps to compare the offerings of competing firms. At long last, we were beginning to reintroduce the central place notions with which our research had commenced. We cross-tabulated our geographical market dimension with ethnic orientation to produce a fourfold typology (Jones and McEvoy, 1992; Jones et al., 2000; Barrett et al., 1996; McEvoy, 1999). We operationalized this by splitting our respondents into groups according to whether they had more than 50 per cent of their custom from the South Asian communities, or not; and according to whether they obtained more than 50 per cent of their custom from within one mile (1.6 km), or not. In Canada we substituted a ten-minute drive as the criterion for serving a local market. The first grouping was the local ethnic market, for which we favoured the description ethnic enclosure, a type of place where business potential would be restricted both by localism and by the typical poverty of clustered minority populations. The second market space was the local nonethnic niche, which we equated with typical middleman activities. Here the enterprise has escaped the limitations of serving only the ethnic minority population, but it is still restricted to small-scale low-order activities by the neighbourhood effect. The third space was ethnic non-local; this incorporates those firms which continue to sell mainly to coethnics, but draw their custom from geographically wider markets. These businesses retain some advantages provided by ethnic networking, but avoid the restrictions of a local market. Finally, we identified the non-ethnic non-local market, where minority firms have entered the economic mainstream by selling to the open general market. This final

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category in our fourfold classification clearly connects with the concept of breakout, associated with Monder Ram (Ram and Hillin, 1994; Jones and Ram, 2003). To assess the value of the typology we needed to relate it to some measure of business success. As neither our 15-locality dataset nor the Canadian study were longitudinal, we decided to use our respondents’ qualitative self-assessment of their profitability. From the earlier three-city study, we knew that many small businesses are reluctant to confide turnover or profit information to outsiders. In the later investigations, therefore, we simply asked respondents whether profits in the previous year had been ‘satisfactory’, ‘better than satisfactory’ or ‘worse than satisfactory’. The results are shown in Table 22.3. Most respondents gave the neutral ‘satisfactory’ answer, regardless of their market space and of the country they were located in. To this extent our evidence is weakened, perhaps indicating that many businesses were not even willing to provide even a qualitative view on the success of their enterprise. Alternatively we might hypothesize that most firms are doing enough to survive, but not as well as the proprietor’s might have hoped. The remaining answers, however, point strongly in the direction of our prior reasoning. In both Britain and Canada, the local ethnic space produces the worst results, with almost 43 per cent of UK firms reporting ‘worse than satisfactory’ profits, and exactly a third of Canadian businesses responding likewise. In neither case was there a single ‘better than satisfactory’ response. The best market space for South Asians in each country was the non-local non-ethnic domain. In Canada, this space showed an excess of ‘better than satisfactory’ answers over those who were dissatisfied, and in UK there were as many of the former as the latter. None of the other spaces in either country can claim as much. In the two intermediate categories in Table 22.3, it seems that in Canada the non-local ethnic market is a more profitable environment than the local non-ethnic market. In Britain, however, the picture is not as clear; the ‘worse than satisfactory’ figures clearly suggest that, as in Canada, the non-local ethnic market is the place to be, but some of the local non-ethnic firms claim ‘better than satisfactory’ profits while none of their non-local ethnic comparators do so. Table 22.3

Satisfaction with profits by market space

South Asians in UK Local ethnic Local non-ethnic Non-local ethnic Non-local non-ethnic South Asians in Canada Local ethnic Local non-ethnic Non-local ethnic Non-local non-ethnic African–Caribbeans in UK

Percentage with profits ‘better than satisfactory’

Percentage with profits ‘satisfactory’

Percentage with profits ‘worse than satisfactory’

Number of cases

0.0 8.7 0.0 19.0

57.2 65.2 90.9 62.0

42.8 26.1 9.1 19.0

28 77 18 27

0.0 10.7 12.1 13.7 2.6

66.7 57.3 66.7 76.4 56.4

33.3 32.0 21.2 9.8 41.0

12 34 14 17 39

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The final row of Table 22.3 gives the results of our profitability question for African–Caribbean businesses in the Britain. We did not apply the market space analysis to these respondents, but they were all to be found in vicinities with a strong representation of their community in the local population, providing a strong possibility of local ethnic markets. The outcome is a set of answers remarkably similar to those for UK South Asians in the local ethnic market, which was the worst environment for firms of that ethnicity. We sadly infer that this community’s business involvement has rarely developed beyond the ethnic niche stage. In comparison some South Asians, albeit a minority, have broken out of restrictions imposed by locality and ethnicity. During the late 1990s, we made important new contacts in the form of the Dutch scholars, Jan Rath and Robert Kloosterman. They organized an international and interdisciplinary network of researchers on the theme: ‘Working on the fringes: immigrant businesses, economic integration and informal practices’. We were able to present our research on the UK to the most informed audiences we have ever encountered. Simultaneously we heard accounts of entrepreneurial minorities in other countries (Kloosterman and Rath, 2003). Most importantly, Rath and Kloosterman introduced us to their concept of mixed embeddedness (Kloosterman et al., 1999). This requires that, alongside examination of economic and cultural issues, ethnic minority enterprise be placed in its institutional context. Political and legal concepts are seen as a vital framework, which can completely change the number, types and significance of immigrant businesses in any economy. Relevant issues include constructions of nationality, policies on immigration and assimilation, credentialism in business registration, the regulation of urban land use, and attitudes to the enforcement of laws and regulations. Countries in which the economy and business are highly regulated, such as Germany and Austria, effectively discourage entrepreneurship among immigrants. Conversely, less regulated countries such as Britain, and above all the United States, allow minority business to multiply, though this does not happen for every migrant community. We now set out to identify the institutional context in Britain. In particular we looked at those institutional factors which were in flux, and therefore likely to impinge, positively or negatively, on business well-being. British governments since 1979 have strongly advocated an enterprise economy. There has therefore been a whole series of public initiatives designed to support small- and medium-sized enterprises (SMEs), some aimed at SMEs in general, but some focused on ethnic minority business in particular. Ram and Jones (1998) found that public intervention suffered from duplication, fragmentation and misapplication of resources. Measures were perceived to be poorly co-ordinated and confusing to their potential beneficiaries. Similar indications emerge from the work of Oc and Tiesdell (1998, 1999) on the parallel public policy field of urban regeneration in which policies are possibly even more numerous and confusing than their enterprise equivalents. The general feeling appears to be that ethnic minority firms, like small businesses the world over, have a strong ideology of self or community reliance. They are therefore antipathetic to receiving help from any outside source, particularly if it involves bureaucratic means of access and monitoring, as initiatives funded by the public purse inevitably do. Changes in land use planning regulations to facilitate out-of-town locations for ‘big box’ retailers have also had an adverse impact on many small-scale retail formats in which ethnic minorities are concentrated (Thomas et al., 2004). These effects have been

Temporal and geographical variations in ethnic minority business

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compounded by regulatory changes made by governments committed to the promotion of competition. These changes have favoured big business at the expense of their smaller competitors. One example is the abolition in 1994 of limitations on the opening hours of shops. Originally introduced in 1950 to prevent the exploitation of workers, these regulations effectively banned retailing on Sunday, required another half-day closure, and imposed daily closure by 8 p.m. Exceptions were allowed, such as the sale on Sundays of items with limited shelf life, including fresh vegetables and newspapers. This law had been weakly enforced but most large businesses respected it, while many smaller stores, especially those owned by South Asians in the grocery and CTN sectors, ignored it. This was possible because the law required proof that prohibited goods had been sold, not just that the premises had been open. When the law changed, chain stores began to extend their hours; some supermarkets adopted the legal maximum of 24 hours a day from Monday to Saturday, and six hours on Sunday. Where chains had branches below a threshold size they were able to open 24/7. South Asian firms which had previously benefited from protected, though illegal, time niches now found themselves open to the full blast of corporate competition (Barrett et al., 2001). In the CTN sector there is another pressure on the very existence of the niche. In 1994, newspaper wholesalers gave an undertaking to the competition authorities to reduce the restrictions they had hitherto placed on the supply of national newspapers to retailers. They undertook to reduce the threshold size of order which they would supply, and to permit retailers to supply neighbouring stores (sub-retailing) (OFT, 2002). This has substantially increased the number of outlets supplying newspapers, many of them supermarkets and filling stations. Between 1992 and 2000, the number of retailers selling newspapers increased by about 10 000, over 20 per cent. Meanwhile the number of CTN specialists fell by about 25 per cent (Mintel, 2001). Because of their strong representation in the sector, South Asians are in increasing difficulty. A further complication derives from the decision of Post Office Ltd, an arm’s-length enterprise owned by the government, to rationalize its network of urban post offices (Postcomm, 2004). It is planned to close up to 3000 outlets, out of about 17 000, over the period 2002 to 2005. Many of them combine their post office functions with other forms of convenience retailing, and viability is a matter of symbiosis of the different activities. The logic of the closure programme is an overprovision of post offices in urban areas, which is a threat to their viability. It is of course urban areas in which South Asian retailers are concentrated. A very important background factor is the government’s decision to move state pension and social security benefits, hitherto normally collected from a post office, to direct payment into bank accounts over the years 2003 to 2005. This removes a considerable proportion of business from many post offices, and reduces the number of visits on which non-post office goods might be purchased. We should acknowledge that the closure scheme is accompanied by a compensation package, and that many subpostmasters have volunteered to participate. It seems probable that such regulatory change will continue to adversely affect small businesses, including South Asian firms. For example, it may be easier for large stores to respond to cost increases occasioned by the introduction of a national minimum wage, in April 1999, than it is for family-scale shops. Scale economies are not easy to find when a single employee is a major fraction of the labour force, and may also be a relative or close friend. Without wishing to promote continued exploitation of poorly paid workers,

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one suspects that the impact of the national minimum wage has been negative for many small minority firms. Developments in the hotel trade and clothing manufacture are perhaps indicative of what may be occurring in retailing. In hotels, a buoyant industry, the most common response by management has involved cost reductions at the expense of workers’ fringe benefits (Brown and Crossman, 2000). In the clothing industry, which, like independent retailing, is in a very difficult competitive position, the response has often been closure, or a retreat to illegal operation (Ram et al., 2001; Arrowsmith et al., 2003). Even without these regulatory changes, competition from big business would have continued to impinge on small firms. For example, in food retailing, several forces are acting upon the independent food sector in which so many South Asians are active. The first is the continued spread and growth of superstores owned by the major national chains: these multiples have also been opening smaller format stores in more crowded urban centres where superstores cannot be fitted. Then there is the spread of food discounters (Wrigley, 1996). Chain convenience operators such as Alldays have also been growing. Finally, and overlapping with some of these other trends, there has been the widespread addition of food sales to the retail offer of petrol filling stations (Baron et al., 2001). By the beginning of the new millennium, both Jones and McEvoy had retired from fulltime employment.6 Both have continued as active researchers, however, McEvoy in association with Barrett, and Jones in a prolific partnership with Monder Ram, first at the University of Central England, and now at De Montfort University. Two papers therefore appeared attempting to identify an emerging decline in the number of South Asian businesses in Britain (McEvoy, 2002; Jones and Ram, 2003). Both described the challenging competitive and regulatory environments. Both quoted figures from the Labour Force Survey, appearing at various dates in the government publication Labour Market Trends; self-employment fell from about 20 per cent of the Indian labour force in the late 1980s, to about 14.5 per cent in 2000; among Pakistanis and Bangladeshis the shift was from about 22 per cent to around 18 per cent.7 Both suggested that a generational shift was at work, with British-born and British-educated members of the South Asian communities reluctant to follow their parents into onerous self-exploitation. Jones would have been justified in quoting his own prescient words, ‘it is unimaginable that Englisheducated Asian youths will forever be content to make a first class job of second class citizenship’ (Cater and Jones, 1978). The new generation sometimes enters a professional career, drawing on educational attainment, particularly among Indians. Sadly, however, the results for Pakistani and Bangladeshi men include extraordinarily high levels of unemployment and part-time employment, while women from these groups have very low levels of labour market participation (Barrett and McEvoy, 2005). Both papers noted some diversification in South Asian enterprise. For Ram and Jones, these included the buoyant areas of computer manufacture, web design, IT consultancy, business consultancy, mobile phone retailing and private health care. They noted, however, that these sectors were not likely to become numerically dominant in South Asian business, and also pointed out that many such activities suffer from investment difficulties, have highly volatile profitability, and work in the market shadow of large corporations. McEvoy was more directly pessimistic, pointing out the high incidence of taxi driving in the Pakistani community. By 1991, one in eight Pakistani males was already a taxi driver, compared with one in a hundred in the whole population (Cabinet Office, 2002,

Temporal and geographical variations in ethnic minority business

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p. 56). The most common form of taxi driving followed is private hire, whereby the taxi is booked through a telephone office, rather than hailed on the street. Arguably the ownerdrivers are engaged in a form of labour-only sub-contracting. The cabby is forced to take on the costs of illness and capital, together with the risks of slack business periods and illness, thus protecting the owner of the office and the radio service, which passes bookings to drivers, from many business difficulties. For the driver, ‘the potential of violence is added to the indeterminate number of customers and insecure daily income’ (Kalra, 2000, pp. 188–9). McEvoy’s paper was presented to a small audience at an academic conference, but it generated great interest in the mass media. The conference organizers had included the paper in its press releases, and journalists from the four national broadsheet newspapers interviewed the author, though none actually attended the presentation. All four papers gave the story prominent coverage (Daily Telegraph, 2002a; Daily Telegraph, 2002b; The Independent, 2002a; The Guardian, 2002; The Times, 2002a), and it was the subject of editorials in three of them (Daily Telegraph, 2002c; The Independent, 2002b; The Times, 2002b). Two national television networks included it in their main evening news bulletin.8 In the following days and weeks, the story was picked up by a large number of local newspapers and radio stations, and by some ethnic and trade publications.9 Some coverage was assisted by telephone interviews with the author, but most outlets relied on the press release or earlier reports. Most stories were selective, often focusing on generational change and corner retailers as the only issues. They were surprisingly but gratifyingly uncritical, except for a story published in the author’s home city which quoted the leader of a business support agency to the effect that the decline in corner shops was balanced by growth in the fast food sector (Midgley, 2002). Most reports sought to supplement the original findings with their own interviews with retailers. This provides qualitative case studies, which we hope to publish soon, to elaborate a paper originally based on broad statistical generalization. A final dimension of our work worth reporting on is the examination of long-term business change in different places. Our 1978–84 studies in Bradford, Leicester and Ealing suffer not only from their dated setting, but also from their short time horizon. Although that period was one of rapid fluctuations in economic prosperity, it was short enough for many other dimensions of society to have remained relatively stable. To date we have attempted two longitudinal studies over longer periods, one from 1989 to 1999 in the environs of Batley in West Yorkshire, and the other of Manchester’s ‘curry mile’ over a much longer span, 1966–2002. The Batley study (Barrett et al., 2002) studied change in two adjacent but contrasting wards in the West Yorkshire metropolitan district of Kirklees: Batley East, a deprived urban area; and Birkenshaw and Birstall, a predominantly white area of expanding suburbs. Batley East had a population which was 41 per cent South Asian at the 2001 census, about two-thirds Indian and one-third Pakistani, both groups being predominantly Muslim. In contrast, Birkenshaw and Birstall was almost 98 per cent white, and only 1.2 per cent of residents were South Asian.10 In terms of our earlier work, Batley East is a South Asian area, while Birkenshaw and Birstall is a nearby white area. As Table 22.4 shows, Batley East already had significant Asian businesses by 1989, with a strong presence in food and other branches of retailing (McGoldrick and Reeve, 1989).11 Notions of breakout might lead us to expect spread of retail firms from Batley East into

352 2.7 1.3

2 1

75

Total

100.0

33.3 24.0 26.7 12.0

Batley East 1989 %

25 18 20 9

Batley East 1989 n

17

0 0

10 3 3 1

Birkenshaw and Birstall 1989 n

100.0

0.0 0.0

58.9 17.6 17.6 5.9

Birkenshaw and Birstall 1989 %

Selected wards, 1989 and 1999: South Asian businesses

Retail food Retail non-food Services Manufacturing and construction Wholesale Missing data

Table 22.4

99

3 1

20 21 28 26

Batley East 1999 n

100.0

3.0 1.0

20.2 21.2 28.3 26.3

Batley East 1999 %

17

0 0

7 5 4 1

Birkenshaw and Birstall 1999 n

100.0

0.0 0.0

41.2 29.4 23.5 5.9

Birkenshaw and Birstall 1999 %

Temporal and geographical variations in ethnic minority business

353

the adjacent ward, but this has not occurred. The total number of South Asian retail and consumer service enterprises in Birkenshaw and Birstall has remained static at 16, with a decline of three in the archetypal food retail category. The main change shown in the table is instead a virtual tripling of the number of South Asian manufacturing firms in the strongly South Asian area. Almost all these firms are involved in bed manufacture. This industry has its origins in the local factory of a large national bed manufacturer. The South Asian pioneers in the sector had previously worked in this plant. Heavy use is made of co-ethnic labour, much of it surviving on low wages, and the manufacturing process is decidedly low-tech. Ostensibly this industry is a highly positive development, representing entry into the non-local non-ethnic market, since markets are nationwide. Caution is required, however, since deindustrialization continues to be a marked feature of the British economy; the Batley bed manufacturing sector may only survive because it has a bulky product, difficult to import cheaply, and because it still has access to a pool of exploitable workers for its labour-intensive processes. In Manchester we drew upon McEvoy’s graduate research to examine the transformation of an ordinary suburban shopping street in Rusholme (McEvoy, 1968a) into a celebrated ethnic destination, the ‘curry mile’. This process of change over a 36-year period is shown in Table 22.5; data for two intermediate years are given in Barrett and McEvoy (2006). The transition has both ethnic and functional dimensions. In ethnic terms a retail quarter in which less than 5 per cent of the businesses were South Asian is now almost 75 per cent South Asian. Moreover, few of the other firms now belong to native whites; there is also a cluster of Middle Eastern restaurants, and several other nationalities are represented. The restaurants serve a mainly white clientèle, with staff and students from two large nearby universities as a major element, although South Asian custom increases at weekends. In functional terms a broad mix of trades in 1966, nearly typical of the middle tiers of the local retail hierarchy, has become characterized by a large number of restaurants, over 80 per cent South Asian. In 2002, 56 retail goods stores survived, and 40 of these were South Asian, with jewellers, women’s clothing specialists, video cassette retailers, music stores, bookshops, travel agents and food shops all catering for the South Asian rather than the general market. In Rusholme, therefore, the market spaces served seem to be the two most promising environments identified in our earlier studies. On the one hand, clothing and jewellery retailers, and specialist consumer services, target a regional ethnic market. On the other hand, restaurants serve a predominantly non-ethnic market, which includes both whites and South Asians from beyond the locality. It remains moot, however, whether this constitutes a truly effective breakout. The main products on offer rely for their authenticity on close connection to South Asian culture; the labour force is mainly co-ethnic and poorly paid; and relationships with lawyers, landlords and other business actors often remain within the community. Moreover, as in other ethnic restaurant clusters, such as Birmingham’s Balti Quarter, customer expectation of low prices, which competitive pressures force restaurateurs to meet, is a key problem for restaurateurs (Annabel Jackson Associates, 1994; Ram et al., 2002). This is an important issue for policy makers seeking neighbourhood regeneration through the creation of ‘ethnoscapes’, as documented by Shaw et al., (2004), who studied Bangladeshi restaurants in London’s Brick Lane, and the South Asian fashion quarter at Green Street, a few miles away in the London Borough of Newham.

354 100.0

66.7 0.0 0.0 0.0 33.3 0.0 0.0

%

* Confectioners, tobacconists and newsagents.

6

Total

Note:

4 0 0 0 2 0 0

n

1966

91

11 5 10 14 43 0 8

n

%

100.1

12.1 5.5 11.0 15.4 47.3 0.0 8.8

2002

South Asians

Rusholme business counts, 1966–2002

Food stores CTNs* Clothing stores Other retail Restaurants and take-away foods Public houses Other consumer services

Table 22.5

117

26 7 19 27 5 5 28

n 22.2 6.0 16.2 23.1 4.3 4.3 23.9

%

100.0

1966

32

3 1 0 4 9 4 11

n

%

100.0

9.4 3.1 0.0 12.5 28.1 12.5 34.4

2002

Whites & others

123

30 7 19 27 7 5 28

n

%

100.1

24.4 5.7 15.4 22.0 5.7 4.1 22.8

1966

14 6 10 18 52 4 19

n

123

Total

%

100.0

11.4 4.9 8.1 14.6 42.3 3.3 15.4

2002

Temporal and geographical variations in ethnic minority business

355

Conclusion Much of the work we have reported cautions against the view that the multiplication of minority-owned businesses should be regarded as a sign of success. It is true that many individual enterprises do very well. In Bradford, we could cite Empire, now the country’s largest internet supplier of electrical and electronic consumer goods. In the same economically disadvantaged city, we also find Bombay Stores, a national magnet for purchasers of South Asian fabrics and clothing. Also based in Bradford, and spread over the prosperous parts of the surrounding region, is the Aagrah chain, a group of ten restaurants, which has targeted prosperous white markets for over 30 years. Such successes are by no means rare, but we would caution against the view that they are fully representative of South Asian enterprise in Britain. We believe that some celebrations of South Asian business success may be the outcome of winner’s bias, talking only to successful survivors. Our temporal and spatial investigations help to show that failure rates are often high, that the competitive environment is harsh, and that even survival in the medium to long term may be a result of efforts which many would find disproportionate to the rewards received. We once suggested that much South Asian business in the United Kingdom represented a ‘waste of capital, talent and energy’ (McEvoy et al., 1982). At best, we said, it was a survival mechanism for some, not a socially propulsive force for the whole community. The first of these claims may have been an exaggeration, the second a more reasonable interpretation. The divergent experiences of the Indian and Chinese communities, on the one hand, and the Pakistani and Bangladeshi communities, on the other, may be indicative. For the former groups, heavy small business involvement in the first generation seems to have been used as a base for higher education and professional careers in subsequent demographic cohorts. For the latter, however, the sacrifices of the entrepreneurial immigrant generation have yet to lead to high educational attainment or successful career development for many of their descendants; unemployment, or an unrewarding job such as waiting or taxi driving, is the fate of many. Notes 1. 2.

3.

4.

5. 6.

Renaming SSRC as ESRC was a political decision by Margaret Thatcher’s Conservative government, which appeared to believe that there was no sense in which the economic sphere could be seen as part of the social sphere. So much for social science! Paulson-Box was a lecturer from Liverpool Polytechnic’s School of Education with existing ties to Vancouver. Abraham was a member of the languages section of the Liverpool Business School and, as a Mauritian, a native speaker of French. Jones, assisted by Zenat Merali, did the interviews in Toronto. McEvoy had the arduous task of co-ordinating the work across the three cities, for which reason he saw fit to endure the luxury of the transcontinental train journey. We omitted Northern Ireland and Scotland from our investigation because background census material on population ethnicity is classified in different ways there, compared with England and Wales. In practice, our study was confined to England, despite the intense Welsh patriotism of the English-born Jones. (As with claimed Irishness in the United States, the model for Welshness seems to be the German concept of nationality by descent, rather than the French concept of nationality by citizenship.) London turned out to be more buoyant than we thought. Although we had not noticed it at the time, London’s population had begun to grow again in the second half of the 1980s, a trend which has continued to the present. Immigrants and ethnic minorities have been important contributors to this revival. (Hamnett, 2003, pp. 103–27). A South Asian restaurateur in a small country town in the Midlands told us that business was going well, but he lived in fear of a second Indian restaurant opening. Both Jones and McEvoy took advantage, at different times in the late 1990s, of generous early retirement terms, offered by the university to reduce its total of expensive staff on senior grades. The government has

356

7. 8. 9. 10. 11.

Handbook of research on ethnic minority entrepreneurship since blocked this tactic, which was placing an unnecessary strain on the viability of the national pension scheme for teachers. Note that the decline so far identified is relative, not absolute. Because minority populations of working age are still increasing, particularly among Pakistanis and Bangladeshis, the total number of firms represented by the percentages quoted is still going up. Andy Wharhol got it wrong on the time span of fame. McEvoy’s appearance on BBC news was a sound bite not even 15 seconds long, let alone 15 minutes. For a printed version of the BBC’s story, see (http://news.bbc.co.uk/1/hi/business/1744322.stm; last accessed 12 December 2004). The story even reached the Hindustan Times of New Delhi on 8 January 2002. Thanks to Professor Jennifer Latto for this sighting. Barrett has commented that most of the remaining 0.8 per cent are members of his, African–Caribbean, family. Birstall happens to be where Barrett was raised. The classification in this table is different from that used in earlier parts of this paper, and in particular in Table 22.2. This table draws on 1989 data used in the work of McGoldrick and Reeve (1989). The CTN category, previously identified separately, is included in the heading ‘retail food’.

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McEvoy, D. (1999), ‘Immigrant ethnic minorities in British and Canadian retailing’, in K. Jones (ed.), Case Studies of the Impact of International Retailing in Canada, Centre for the Study of Commercial Activity, Ryerson Polytechnic University, Toronto, pp. 27–32. McEvoy, D. (2002), ‘South Asian business in England: an emerging geography of decline?’, Annual Conference of the Royal Geographical Society (with the Institute of British Geographers), Queen’s University, Belfast. McEvoy, D. and H.E. Aldrich (1986), ‘Survival rates of Asian and white retailers’, International Journal of Small Business, 4, 28–37. McEvoy, D. and T.P. Jones (1993), ‘Relative economic welcomes: South Asian retailing in Britain and Canada’, in H. Rudolph and M. Morokvasic (eds), Bridging States and Markets, Berlin: Sigma, 141–62. McEvoy, D., T.P. Jones, J.C. Cater and H.E. Aldrich (1982), ‘Asian immigrant business in British cities’, British Association for the Advancemenement of Science, Liverpool. McGoldrick, C. and D.E. Reeve (1989), ‘Black business in Kirklees: a survey of Afro-Caribbean and South Asian businesses in the Kirklees Metropolitan District’, A report prepared for the Employment Development Unit, Kirklees Metropolitan Council. Metcalf, H., T. Modood and S. Virdee (1996), Asian Self-Employment. The Interaction of Culture and Economics in England, London: Policy Studies Institute. Midgley, I. (2002), ‘Are corner shops on the verge of extinction?’, Telegraph and Argus, Bradford, 9 January. Mintel (2001), ‘CTN retailing, sector structure’, Mintel International, 9 May. Oc, T. and S. Tiesdell (1998), ‘Training and business support for ethnic minority groups in city challenge areas’, Local Economy, 13, 71–7. Oc, T. and S. Tiesdell (1999), ‘Supporting ethnic minority business: a review of business support for ethnic minorities in city challenge areas’, Urban Studies, 36(10), 1723–46. OFT (Office of Fair Trading) (2002), ‘OFT review of undertakings given by newspaper wholesalers. A consultation paper’, Office of Fair Trading. Ouseley, H. (2001), ‘Community pride not prejudice, making diversity work in Bradford’, Bradford Vision, Bradford. Postcomm (2004), ‘Building a viable network. Postcomm’s fourth annual report on the network of post offices 2003–2004’, London, Postcomm. (www.psc.gov.uk). Pred, A. (1963), ‘Business thoroughfares as expressions of urban Negro culture’, Economic Geography, 39, 217–33. Ram, M. and G. Hillin (1994), ‘Achieving “break-out”: developing mainstream ethnic minority business’, Small Business Enterprise and Development, 1, 15–21. Ram, M. and T. Jones (1998), ‘Ethnic minorities in business’, Small Business Research Trust, Open University, Milton Keynes. Ram, M., P. Edwards, M. Gilman and J. Arrowsmith (2001), ‘The dynamics of informality: employment relations in small firms and the effects of regulatory change’, Work, Employment and Society, 15, 845–61. Ram, M., T. Jones, T. Abbas and B. Sanghera (2002), ‘Ethnic minority enterprise in its urban context: South Asian restaurants in Birmingham’, International Journal of Urban and Regional Research, 26(1), 24–40. Reeves, F. and R. Ward (1984), ‘West Indian business in Britain’, in R. Ward and R. Jenkins (eds), Ethnic Communities in Business, Cambridge: Cambridge University Press, pp. 125–46. Rose, H.M. (1970), ‘The structure of retail trade in a racially changing trade area’, Geographical Analysis, 2, 135–48. Shaw, S., S. Bagwell and J. Karmowska (2004), ‘Ethnoscapes as spectacle: reimaging multicultural districts as new destinations for leisure and tourism consumption’, Urban Studies, 41(10), 1983–2000. Small Business Service (2004), ‘A government action plan for small business. Making the UK the best place in the world to start and grow a business. The evidence base’, Department of Trade and Industry, London. Smith, G. (1984), ‘The Patels of Britain: from street-corner trader to millionaire’, Sunday Times, 20 February, 33–4. Sunday Telegraph (1978), ‘The bazaar on the corner’, Sunday Telegraph Magazine, 26 November, 82–99. The Guardian (2002), ‘Family-run Asian shops disappear. Competition hits corner stores’, The Guardian, 5 January. The Independent (2002a), ‘Asians turn their back on family-run corner shops’, The Independent, 5 January. The Independent (2002b), ‘Comment. Checking out’, The Independent, Weekend Review, 5 January. The Times (2002a), ‘Early closing as young Asians shut up shop’, The Times, London, 5 January. The Times (2002b), ‘Shop spoiled. The corner shop is no longer enough for Asian youth’, The Times, London, 5 January. Thomas, C.J., R.D.F. Bromley and A.R. Tallon (2004), ‘Retail parks revisited: a growing competitive threat to traditional shopping centres?’, Environment and Planning A, 36, 647–66. Waldinger, R., D. McEvoy and H. Aldrich (1990), ‘Spatial dimensions of opportunity structures’, in R. Waldinger, H. Aldrich, R. Ward and Associates (eds), Ethnic Entrepreneurs: Immigrant Business in Industrial Society, Newbury Park: Sage, pp. 106–30.

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Werbner, P. (1980), ‘From rags to riches. Manchester Pakistanis in the textile trade’, New Community, 8, 84–95. Werbner, P. (1984), ‘Business on trust: Pakistani entrepreneurship in the Manchester garment trade’, in R. Ward and R. Jenkins (eds), Ethnic Communities in Business, Cambridge: Cambridge University Press, pp. 166–88. Werbner, P. (1990), ‘Renewing an industrial past: British Pakistani entrepreneurship in Manchester’, Migration, 8, 17–41. Wrigley, N. (1996), ‘Sunk costs and corporate restructuring; British food retailing and the property crisis’, in N. Wrigley and M. Lowe (eds), Retailing, Consumption and Capital, Harlow: Longman, pp. 116–36.

23 Italians in Britain: ‘Britalian culture entrepreneurs’ revisited Robin Palmer

Introduction In the following I revisit an article of mine entitled ‘The rise of the Britalian culture entrepreneur’ (Palmer, 1984). As with other articles of that period that I wrote on Italian migration to Britain, the 1984 article was a spin-off from a Sussex masters and doctoral programme (Palmer, 1972, 1981) which entailed archival research and fieldwork in London and Italy between 1970 and 1974 (see also Palmer, 1977, 1980). When the 1984 article appeared I was already moving into new fields of research, and I have not written again on entrepreneurship, whether in the migrant or ethnic or any other contexts, but I have published or presented papers on other aspects of Italian migration to Britain (see, for example, Palmer, 1991, 2000) and I have returned to Abbazzia, the Italian hub of the migration network that served as a microcosm or ‘sample’ in my study. So I was as much surprised as gratified when Léo-Paul Dana, recalling my article from when he was a doctoral student 20 years ago, invited me to contribute to the present volume; and it was only after I accepted that I fully appreciated the challenge the commission represented . . . Under other circumstances I could have responded with a simple update of the data and the analysis of the original article, an even more longitudinal supplement to an already historical-oriented article. But that response would have required my continuation in the field of ethnic entrepreneurship in general, and those I termed ‘Britalians’ in particular (see below for a full explanation of this term); and that, as I have already mentioned, did not happen.1 Had I been able to update the study I would have encountered major changes. The 30 years since my study has been characterized by an entirely different kind of Italian migration than that which occurred in the 30 years leading up to my study; Medaglia’s recent research into other aspects of Italian life in London mentions in passing that ‘[in] the 1970s there was a period of return migration and 20% of the inward flow returned to Italy’ and ‘[t]he Italians who have come to Britain since the 1970s and 1980s are almost all either language students or belong to the professional classes’ (2001: 80–81). To extrapolate from that shift: the kinds of ambitious young men from poor rural communities that manipulated their Italian culture to become independent ‘self-made’ entrepreneurs that I discussed in the original 1984 study were either no longer coming to London in significant numbers or were returning to Italy. In the absence of new migration, the possibility of staffing by recruits from the country of origin and the creation of new ventures by co-ethnics of the younger generation (other than the migrants’ own children) was no longer possible; consolidation and diversification but also contraction of the Britalian entrepreneurial sector would have ensued. That statement is, of course, speculative; I do not have the data either to substantiate that scenario or to flesh it out in any detail comparable to that of my account of the situation up to 1974. 360

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What I do have is some related data on subsequent developments in the origins and base of my sample community, the Central Italian parish that I have called Abbazzia. It was collected on brief return visits in 1995 and again in 2001. These two re-visitations, in addition to the experience I have of the parish as it was in 1973, have provided me with insights into what followed the stagnation and reversal of Italian migration to Britain in the last 30 years. Interestingly, it is a continuation of the tradition of ‘culture entrepreneurship’ (see below) but transformed and in an entirely different context. Given the unevenness of my knowledge of the Britalian experience since the 1970s, this chapter has two distinct but complementary parts. The first part consists of a revisitation of the 1984 article, which was mainly an analysis of the long association between Britalians and entrepreneurship in London; it is essentially a revision but not in the light of new data. While much of the detail of the 1984 article is perforce omitted in this summary, some of the contextualization and connections that were not made sufficiently explicit in the earlier version are emphasized. The second part of the article not only updates the Italian side of the narrative through the microcosm of the Abbazzini (and especially Abbazzia as a site of new developments), but also places more emphasis on the Abbazzini microcosm than the 1984 article did, because knowledge of its origins and internal dynamics is crucial to understanding what happened subsequently. Conceptual issues In addition to being a revision and re-visitation in the senses just described, the chapter includes another, more scholarly understanding of ‘revisit’. It provides an opportunity to examine (in a limited way) whether the flood of new concepts flowing from the 1990s renaissance in migration and ethnic studies offers any fresh insights into my material (Cohen, 1997; Castles, 2002). Robin Cohen is one of the few contemporary theorists of migration and related phenomena who has acknowledged the pioneering work of my generation of anthropologists: ‘The perception that there were seminal changes in cultural interactions arising from migration was first adequately theorised by anthropologists’ (1997: 134). While my generation did not necessarily use the contemporary terminology, we anticipated transnationalism and the importance of culture, ethnicity, social change and multi-sited fieldwork in the study of migration (cf., for example, in the present context, Douglass, 1984; contributors to Watson, 1977).2 We may have called our subjects ‘emigrant communities’ (Watson, 1975, 1977: 4) rather than ‘transnational communities’ (Castles, 2002: 1159); the mechanism by which diasporas formed ‘chain migration’ (Price, 1963; Palmer, 1977) rather than ‘migration networks’ (Castles, 2002: 1152); but at least we were not neglecting ‘migration as a collective process based on the needs of families and communities’ which Castles cites as a major lacuna of migration research in the past (ibid.: 1147). And those of my generation who were interested in ethnic entrepreneurs also appear to have been ahead of the field. There were not a few of us.3 Recently it was observed that ‘[t]he revival of large-scale immigration has highlighted another feature of the twentieth century metropolis: the immigrant proclivity towards small-scale business enterprise as an alternative source of livelihood’ and the ‘well known’ case studies of the Koreans in Los Angeles (Light and Bonacich, 1988) and the Chinese in New York (Zhou, 1992) were acknowledged (Logan et al., 2003). But perhaps because we were anthropologists venturing into non-stereotypical territory rather than the ‘owners’ of these fields of research

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(sociologists and economists), and because most of us were working in Europe, the pioneers of empirical research in this field have been largely forgotten. This does not mean to say that I number myself with those who feel that the upsurge of interest in migration since 1990 and the new concepts and terminology that have resulted simply ‘reinvent the wheel’ (Portes, 2001: 19; Levitt et al., 2003: 565). I tend to agree with Robert Smith, who has pointed to the faulty logic of those who believe that nothing has changed but the terminology: ‘If transnational life existed in the past but was not seen as such, then the transnational lens does new analytical work by providing a way of seeing what was there that could not be seen before because of the lack of a lens to focus on it’ – and then there are the truly new kinds of ‘transnational life’ that are only emerging under conditions of contemporary globalization ‘which are more overtly amenable to the new transnational perspective’ (2003: 724). As Stephen Castles puts it, ‘the systemic role of migration in modern society can be seen as a constant . . . [but] its character changes in the context of economic and social shifts and developments in technology and culture’ (Castles, 2002: 1147). The principal driver of the change is globalization which ‘undermines many of the core features of the nation-state . . . [changing] the spatial organisation of the world from a “space of places” to a “space of flows” ’ (ibid.; Castells, 1996: ch. 6; see also Wimmer and Glick Schiller, 2003). Hence the new interest in transnational phenomena such as ‘diasporas’ (Cohen, 1977) and other accompaniments of migration and globalization such as ‘creolization’ or ‘hybrid identities’ (Cohen, 1977: 129–37).4 Then there are the more general theoretical developments and associated concepts emerging from the postmodern experience of flows rather than places. These include, besides ‘globalization’ itself, terms such as ‘discourse’, ‘narrative’, ‘contestation’ and ‘negotiation’ (Rapport and Overing, 2003). The academy itself has not been immune to the shift from ‘places’ to ‘flows’ as once-hermetic disciplinary boundaries collapse and interdisciplinary work accelerates conceptual development. As part of a critical, innovative but (so it now appears) essentially modernist and conceptually deprived generation (at once dissatisfied with the status quo but without the benefit of the contemporary lexicon of more useful concepts), I felt compelled to invent my own terminology and concepts in the interests of authenticity and in order to advance the analysis in my own field and subject. ‘Britalian’ was a product of the first intention, ‘culture entrepreneur’ a response to the second. As the two loom so large in both the title and the text of my 1984 article, they should be defined and explained before I proceed to the main task. In doing so I use both the original explanations (Palmer, 1984) and, following Smith (2003) cited above, the lens of subsequent experience and the new concepts. Why ‘Britalian’? ‘Britalian’ is a made-up word, an amalgam of ‘Briton’ and ‘Italian’ that served a similar function to ‘Italianate’, the term employed by anthropological predecessors in the field, Philip Garigue and Raymond Firth (1956), to encompass not only the Italian-born but also the less assimilated among their children and even grandchildren in this remarkably cohesive and inclusive minority. Why then replace ‘Italianate’? To me, it connoted things of Italian origin, not people, and I was reluctant to objectify my subjects more than absolutely necessary; I felt the social science approach tended to objectify through generalization quite enough without any terminological assistance from the analysts (Palmer, 1984: 241). Twenty years on, I am not entirely happy with either term, because most scholars simply

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use ‘Italian’ or ‘Polish’ or ‘Pakistani’ or whatever to describe the migrant ethnic group whether or not it includes those who are no longer citizens of the sending country. And then there is the strategic issue of not being recognized by search engines . . . However, because this chapter is a conversation with work that features the Britalian term prominently, it would be too confusing to drop it now. Another defence for retention of the term, which has more to do with conceptual than practical considerations, is that it draws attention to the hybrid identity of many in the Italian diaspora in London at that time, and was thus necessary and even, perhaps, ahead of its time (cf. Cohen, 1997: 129–37). Those most directly affected by the Britalian phenomenon besides the migrants themselves – their relatives and paesani (fellow-villagers) in Italy were very conscious of the ‘difference’ of especially the longer-term emigrants and their children. In Abbazzia they called them with deliberate irony ‘Inglesi’ using a certain inflection that I have indicated with inverted commas. A genuine English person was an Inglese vero e proprio – a true, proper English person, unlike their hybrid London-based kin and paesani whom they regarded as inauthentic, both as Italians (and especially paesani), and as Britons (Palmer, 1980, 1981: ch. 10). What is a ‘culture entrepreneur’? ‘Culture entrepreneur’ was another concoction that filled a need at the time. In the 1984 article I expressed the wish that the anthropologist who had contributed most creatively to both entrepreneurship and ethnicity up to then – Frederik Barth (1963, 1969) – had applied his sophisticated conceptual skills to the combining of the two concepts; but he had not, and so I came up with ‘culture entrepreneur’ to describe those who include their ‘ethnicity or culture – its distinctive products and orientation – as a vital part of [their] stock-in-trade’ (Barth, 1969: 90). Immigrants were especially predisposed to become culture entrepreneurs, I suggested, because, while the artefacts and approaches of a foreign culture are novel to actual and potential consumers in the host society, they are commonplace in the home culture: all the entrepreneur has to do is to transfer the items from where they are common to where they are scarce to enjoy all the benefits of the innovator without having to be truly innovative (in my experience, an extremely rare quality). It is thus a strategy that is not limited to a few gifted innovators, but may be practised by a wide range of people. If, further, one also agrees with Barth (as I did in the article) that the entrepreneur is not so much a whole person or even an entire role or status but that entrepreneurship is best conceptualized as an aspect of role (Barth, 1963: 5), then culture entrepreneurship defines not only large elements of full-time occupations but also aspects of the role of someone who is not even self-employed, such as a waiter. Conceptualized as such, culture entrepreneurship became a useful model for understanding the unique adaptation of a historically enduring and significant element of the Britalians. The classic example of culture entrepreneurship with an Italian connection would be the pizza, a filling but simple and inexpensive traditional dish that originally combined such readily available local items as dough, pureed tomatoes, mozzarella cheese and herbs such as origanum. From the mid-nineteenth century onwards, the pizza went wherever Neapolitans and Italians in general went, which was mainly to the Americas, and in great numbers (see below for further details). Now available globally, with every conceivable topping to satisfy the tastes of increasingly affluent customers and compete in an

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increasingly competitive fast-food market, the pizza is the example par excellence of culture entrepreneurship and how far it can go when combined with more conventional entrepreneurial characteristics, such as tailoring the product to the market and business innovation, such as the franchise. Mention of franchising recalls another example of culture entrepreneurship that ranks alongside the pizza in terms of global reach and success, but is not as readily identified as an example of culture entrepreneurship – McDonald’s. To be sure, Ronald McDonald was not a poor immigrant making a business out of some element of his native culture in some foreign metropole; his is rather the iconic American multinational company. But as James Watson and his collaborators point out in Golden Arches East (1997), the popularity of McDonald’s simple fare in East Asian countries with the most elaborate and delicious culinary traditions ever known, including their own traditional, freshly prepared street food, is only explainable in terms of culture: in this case local admiration for American culture and the status enhancement in their own eyes and in those of others enjoyed by the ‘sophisticates’, the ‘global citizens’ who consume the foreign fare (Watson, 1997). I did not include this example in the 1984 article because in the 1970s and early 1980s McDonald’s had not yet attained its global reach, and its relevance to the culture entrepreneurship model was not so obvious. But I recall now that even then catering entrepreneurs – not necessarily Americans – were already exploiting American themes in London alongside my subjects, the Italians, with a branch of the Hard Rock Cafés and up-market burger restaurants with décors that evoked the Great Depression in America; American cultural imperialism had already begun (cf. Ritzer, 1998). Just as twentieth-century American economic and cultural hegemony has provided the structural conditions for global culture entrepreneurs of all kinds of commodities, from burgers (and pizzas, now thoroughly Americanized) to sport shoes, so in earlier epochs successive political–economic and cultural phenomena originating in the Italic Peninsula (Roman, Vatican, Renaissance and Baroque hegemonies) supplied the principal positive incentive for generations of Italian migrant culture entrepreneurs to base careers on the less sophisticated but increasingly affluent periphery, in territories such as the British Isles. It might not be too far-fetched to characterize the process as an early form of ‘branding’ (Ind, 1997). Part I Britalian entrepreneurship and the role of ethnicity Each and every Italian diaspora is unique, of course, but there are broad trends (see Foerster, 1919; Palmer, 1981: part 2; Gabaccia, 2000). Emigration from Italy before the mid-nineteenth century involved mainly individuals or small groups of migrants travelling from North and Central Italy on a seasonal or other temporary as well as permanent basis to the more prosperous countries of Western Europe. Thereafter, and until the 1920s when restrictions abroad and at home limited emigration, it was sourced overwhelmingly in South Italy and directed mainly to the Americas; and it was on a phenomenal scale, temporarily depopulating whole regions of the South and Italianizing whole cities in South America (such as São Paolo) and quarters of cities and towns in the United States by force of numbers (Foerster, 1919). After 1945, the extra-European streams out of Italy revived, but with less emphasis on South America and more on new destinations, principally Canada and Australia (in addition to the United States, still an important destination). These new trends were rapidly overtaken from the mid-1950s by a strong revival of

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labour migration within Europe, now involving mainly South Italians. From the 1960s onwards, as Italy itself became a fully industrial society, urbanization increasingly replaced emigration, and today Italy is a net importer of immigrants from the Third World, including many asylum-seekers and illegal migrants (Grillo and Pratt, 2002). The Britalians as a special case The Britalian phenomenon was not atypical to begin with. In common with other European societies, Britain had been colonized by the Romans and subsequently, in a sense, by the Vatican through its monastic orders, and over an even longer period. Then there was the trading relationship in the high Middle Ages with the Italian city-states and the cultural transmissions that the Italian Renaissance and subsequent cultural phenomena such as the Baroque generated, including opportunities for artists, sculptors, architects, artisans, musicians, singers, actors, academics and tutors over the centuries. Spain, France and Germany before the Reformation, as well as the British Isles, had this kind of relationship with the Italic states. However, the more backward commercially and culturally the country, the more ‘Italians’ took an interest in it, especially if strategic resources, such as wool and tin were in abundance. Both of these criteria were met in pre-modern Britain, which made it a focus for successive ‘colonialisms’. These included the true colonialism of the Romans; the ‘theocolonialism’ of the Benedictine and other Italian-based monastic orders (until Henry  dissolved them); a forerunner of modern neo-colonialism involving especially the Genoese and the ‘Lombard’ bankers who financed the crown (and founded London’s financial district, ‘the City’); and a form of cultural colonization by the aforementioned artists, sculptors and the rest. With the rise of mercantilism in Britain during the Elizabethan period and after, British individuals and institutions increasingly had the means as well as the incentive to attract Italian entrepreneurs who traded in the prestige of their ethnicity as well as their skills. Italian cultural influence was longer and stronger in Britain than in other European countries.5 As the Italian city-states subsided into internecine conflicts and especially when these formerly imperialistic powers became colonized in their turn (by Spain and, later, Austria) new ‘push’ factors in Italy gave added impetus to Italian migration within Europe: even before it was directed overseas it began to acquire ‘mass’ as well as ‘élite’ characteristics (Marin, 1975). In the eighteenth and nineteenth centuries, a more proletarian, rural and desperate element – minor artisans and itinerant traders for the most part – congregated in London, mainly in Clerkenwell and Holborn. By 1893, a quarter of the 10 000 Italianborn in London were employed in these ways (Foerster, 1919: 204). They were considered a public nuisance and were one of the factors in the promulgation of the Aliens Act of 1905 (for details of their trades, see Palmer, 1981, 1984). The itinerants might have preferred to sell their labour, but there were few opportunities. As I observed in the 1984 article: ‘More than any other nationality the British worker has sought to maintain in native hands, and in those of the Irish, working class jobs that have been filled by immigrants in other countries – jobs in agriculture, mining, construction and manufacturing’ (Palmer, 1984: 93). The only vacancies for Italians and other foreigners were in asphalting and ice hauling – jobs too arduous to hold much appeal – and the public tertiary sector. This sector began to expand and develop rapidly after 1850. London was becoming the world’s greatest metropole, the hub of the British Empire, with a burgeoning hospitality industry. By 1901, the British census recorded about 2500 Italian-born involved

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in catering, mainly as waiters (Italian sources which also count the children of Italians, doubled that figure: see Marin, 1975: 49). Thus, even when Italian mass emigration had been under way for several decades, the Britalian numbers remained negligible, and they continued to be drawn from the North and centre rather than the South. The tenor of the migration also continued to be entrepreneurial, exploiting British stereotypes of Italian culture and the Italophilia of the upper classes and increasingly the new industrial bourgeoisie with its tendency to ape upper-class life-styles as well. The élite migrants were the most obviously culture entrepreneurial, to the extent that all their cachet derived from their ‘authenticity’ as highly skilled bearers of the Italian Great Tradition, whether in commerce or the arts. As for the small craftsmen and itinerants, they also trafficked in Italian artefacts, or in items that were associated with Italy by consumers of all classes simply because Britalians dealt in them, such as thermometers (Palmer, 1984: 96). Probably the most ‘Italian’ of the itinerant categories and the most successful at transforming themselves into a regular business people over time were the ice-cream traders; once this trade was linked to permanent premises, diversification into cafés and milk bars became possible, always with a strong ‘Italian’ identity. Culture entrepreneurship in employment The phenomenon of ethnicity-by-association, just described for the itinerants, also benefited the waiters. I have mentioned the scarcity of other economic opportunities for Italian migrants, and the increasing press of poverty in the home country and new restrictions on immigration in Britain; especially after 1905, the tertiary sector was in high demand among Italian migrants because there were so few other options. Besides, the waiter’s role, more than any other in catering, was the best way of both learning English and acquiring relevant skills while saving hard for a catering business of one’s own. Turning waiting into an ethnic monopoly was thus a good way of securing places for relatives and others from Italy and creating artificial scarcities, thus driving up wages. As late as the 1970s an Italian waiter could command double the wages of a Spaniard, regardless of qualifications and experience. Why the haste to become self-employed among the Britalians, even those who had secured regular employment? I think the motivator lay in the Northern and Central Italian peasant value system, where ‘quelli che lavora sotto gli altri’ (‘those who work under others’) constituted the lowest rural class: the landless peasants, the poorest of the poor. Acquiring sufficient land in the home community for economic independence was one way of becoming self-employed, but saving enough and finding suitable land on the open market were major challenges. The other strategy was to buy a business in London and this was for most Britalians the more viable option. Hubris and nemesis6 By the 1930s, with new immigration reduced long since to a trickle by the strictures of the Aliens Act, the Britalians of London especially had acquired a distinctly bourgeois profile. Many who had started out as craftsmen, itinerants and waiters had become ‘respectable business-people’ and either already had or were looking forward to having their Britishborn children continue to consolidate their rapidly improving socio-economic position. Theirs was a very different circumstance from contemporary Italian emigrant communities in the Americas, where mass migrants from the South were still crammed into tenements

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in the cities or camps and bunk-houses, doing the manual labour the natives and earlierentering immigrants (such as the Irish in the United States) derided (Gabaccia, 2000: chapters 3 and 4). Such entrepreneurial or middle-class elements as there were in the American diaspora still depended more on the custom of their co-nationals than on the receiving society, even criminal entrepreneurs such as initially the Black Hand and later the Cosa Nostra (Hannerz, 1974); anti-Italian prejudice and discrimination was still rife at this time. The London Britalians, meanwhile, more affluent, more sophisticated and less ‘ghetto-ized’ than probably any other Italian diaspora group at this time, were not generally subject to xenopohobia, so accustomed were Londoners to hosting ‘Italians’, even though Britalians did not generally assimilate and, at 30 000, were by now more conspicuous than ever before. Britalians were not so much resistant to assimilation – resistance implies pressure to assimilate, which was not then and has never been part of Britain’s immigration policies – as under no great pressure to assimilate, beyond the inevitable distancing that is a function of time in a new country, and the anglicization that their children inevitably underwent as soon as they started attending British schools. In addition, by the 1930s, they were incorporated as never before in a highly organized transnational community, the Italian diaspora. Following Unification in 1860, Italy was a neonate state striving to combine a more European and developed North with a Mediterranean and chronically underdeveloped South. At the same time, it had to cope with unprecedented emigration, mainly from the South, and a rapidly growing diaspora, mainly in the Americas. The first government of the unified state, made up of northern liberals, encouraged emigration and the remittances it generated as a development tool, but the lack of rural capital was viewed as more of a problem than over-population, so repatriation was also to be encouraged. In the contemporary idiom of Robert Smith (2003), the state took steps to help create a transnational public sphere and strengthen diasporic membership practices, all linked to domestic and foreign policies. These steps included pacifying local landowners, reassuring the receiving societies, enacting legislation and setting up institutions to manage the diaspora and its remittances, and working out a relationship with the Catholic Church that was already involved in the religious organization of the diaspora (ibid.). Following the replacement of the Liberals by the Fascists under Mussolini, the efforts to turn Italy and its diaspora into a single ‘imagined community’ (Anderson, 1991) were redoubled. The Italian Fascist state pursued its foreign policy through its consulates during the mid-1930s in a way that attempted to convert the diaspora into Italian agents (Smith, 2003). Nowhere was this intensification of established policy more enthusiastically applied than in Britain, despite the meagre size of this section of the diaspora; for this colonial super-power (as it was as the time) was decisive for the realization of Italian colonial ambitions in Africa. My interviews with older Britalians revealed how they were supported and cosseted by the Italian Embassy and Consulate (Palmer, 1981: ch. 3), and how the business community especially responded to the Siren song of Italian Fascist discourse. The junket, however, was short-lived: after Italy declared war on Britain in 1940, Italians were declared to be ‘enemy aliens’ and all male Italian-born immigrants between 16 and 70 were interned for the duration and their property confiscated, except for the 700 considered too fascistic to be securely interned in Britain, 470 of whom were drowned when the ship taking them to Canada, the Arandora Star, was torpedoed (Palmer, 1981: 129).

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After the war and their release from internment, most Britalians opted to remain in Britain, even though it was a very different environment for them. With Italy in ruins, there was little point in repatriating and, besides, the restaurateurs and other entrepreneurs had all their assets in the country; so as soon as they had secured the release of their premises from the Custodian of Enemy Property, they began the task of reconstruction, confronting the post-war ration-card austerity and a climate of unprecedented antiItalian feeling. To the roughly 30 000 pre-war migrants were immediately added about 1400 Italian prisoners-of war who opted to remain in Britain as Civilian Volunteers, and nearly 5000 Italian workers recruited under the European Voluntary Workers schemes, between 1947 and 1951 (Castles and Kosack, 1973: 79; Palmer, 1981: 130–32). Beyond these special schemes of the immediate post-war, individual industries such as mining and brickmaking, facing acute labour shortages generated by the entitlement spirit of ex-servicemen, tried to recruit labour from Italy, but only the brick industry was successful, bringing some 7000 South Italian men (who later brought wives from Italy and raised families, thereby multiplying the size of their community) to the Bedford area in the 1950s (Brown, 1970). Besides these mass-recruitment efforts, numerous businesses, large and small, primarily in the tertiary sector, continued to recruit Italian workers on contract, in accordance with the stipulations of the Aliens Act (Palmer, 1981: 134). All of these sources of new Britalians were relevant for the rapid increase of entrepreneurship in the post-war period, because, as before, migrants who began their careers in employment did not necessarily continue in such jobs. Those with entrepreneurial aspirations usually internally migrated to London and, if not already in ‘the catering’ as they called it, sought experience in that or another ethnic sector, such as terrazzo flooring. By all of these means, the Britalian minority swelled to an estimated 215 000 by 1973, with a particular focus on London (Problemi, 1974). Entrepreneurial alternatives The character of culture entrepreneurship among Britalians changed in the post-war period, becoming more diverse. In the 1984 article I discussed the highly innovative forms of culture entrepreneurship that responded to the major post-war shifts in spending power and taste, especially in metropolitan areas such as London (cf. Raban, 1974). Here the formal ristorante came under threat from the trattorie (the Italian equivalent of the Bistro) that proliferated both as single establishments and in chains from the late 1950s onwards. Besides their Italian roots, the ‘trats’ were also an outgrowth of the Milk Bar, that earlier Britalian form that grew out of the ice-cream trade and offered Italian-style coffee, ice cream and snacks in a manner reminiscent of the Italian ‘bar’ but without alcohol (in obeisance to British licensing laws). To many British youth of the immediate post-war seeking to differentiate themselves from their elders, the Milk Bar with its modern and Continental ambience was preferable to the traditional ‘tea room’ or ‘pub’ frequented by their elders. Not all aspirant entrepreneurs of the post-war revived the ancient strategy of the culture entrepreneur. Those who were interned, or were exposed to the climate of antiItalian feeling in the immediate aftermath of the war, experienced something like that which recent immigrants from Muslim countries to the United States have endured since 9/11. Those most exposed or most sensitive to the xenophobia responded with what I termed ‘culture-suppressed entrepreneurism’ in the 1984 article.

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Culture-suppressed entrepreneurism was most noticeable at either end of the Britalian entrepreneurial spectrum. Those with modest cafés and sandwich bars catering mainly to office and other workers provided the least exotic of Italian fare (such as spaghetti Bolognese) along with a great deal of standard British food (such as fish and chips), and frequently no Italian dishes and only instant or percolated coffee. Nor did these businesses necessarily have ‘Italian’ names or décor themes. At the other extreme was the case of arguably the most successful Britalian of his generation and the only one knighted by the Queen – Sir Charles Forte. He migrated to Scotland with his parents at the age of five in 1913, was interned, and began his independent entrepreneurial career in milk bars. Highly successful in this sector, he nevertheless re-oriented his business interests towards conventional hotel capitalism as soon as he was able to do so, taking over British-owned hotels and chains until his company, Trust Houses Forte, became one of the largest multinationals in its field (Davis, 1978). His entrepreneurial career had little to do with his ethnicity even though he never assimilated personally, and in his personal capacity devoted a great deal of time and effort to Britalian voluntary associations. Part II A Britalian microcosm: the Abbazzini The Abbazzini are broadly typical of the longer-standing migration networks connecting mainly northern and central Italy with London. In the 1984 article I only incorporated the Abbazzini towards the end, as an example of a group of Britalians who had to a large extent opted for culture-suppressed entrepreneurship. The Abbazzini were prone to this form of entrepreneurship because the bulk of those I encountered in 1973, at least, had migrated between 1945 and 1960, and so they were very much subject to the kinds of pressures I have just described. However, there were others, especially among the younger members, who opted for culture entrepreneurship as the social climate in Britain thawed and became more Italophile again from the mid-1950s onwards. There were many other dimensions of the migrant microcosm of the Abbazzini, as it existed in the 1970s, that were also not included in the 1984 article, mainly because of space constraints, but were covered in my doctoral thesis and publications (Palmer, 1977, 1980, 1981, 1991). In this closing part of the chapter I expand on Abbazzia and its emigrant diaspora as a prelude to discussing subsequent entrepreneurial developments in Abbazzia itself, the connection between these and the Britalian entrepreneurial tradition, and how the transnational community of the Abbazzini assisted in the process. An Appennine parish and its diaspora in 1973 In 1973, when I first surveyed it, the total transnational community of the Abbazzini consisted of 305 households in nine countries, of which the majority were in Britain (234), in London for the most part (219), leaving only 91 households at home, most of them middle-aged or elderly couples (Palmer, 1981: Appendix G6). The shift to transnationalism for the Abbazzini had begun gradually before the turn of the twentieth century in response to demographic pressure exacerbating poverty, and gathered ground in the midcentury, declining from the 1970s onwards as Italy industrialized (Palmer, 1977). The diaspora that resulted was, by 1973, so large (relative to its base), so powerful (largely through the success of its emigrant entrepreneurs) and so concentrated (because most of the emigrants were in London) that it threatened the autonomy and hence the status of the home community in Abbazzia (Palmer, 1977, 1980, 1981: ch. 10).

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The London-based Abbazzini I encountered both on leave in Abbazzia in the summer of 1973 and in London the following winter (the former by chance, the latter in a comprehensive survey) were extremely loyal to their parish of origin (Palmer, 1981: ch. 9; 1991). Whether or not they emphasized their national or regional ethnicity in their occupational or commercial lives, they went to great lengths to continue local cultural and social practices in Britain, including hunting, gathering fungi and the producing of wine, preserved meats and cheese in their cellars; and one of the motivations for self-employment, usually in a partnership, was so that they could take extended family breaks in Abbazzia during the summer school holidays at least every second year. They also had a Comitato or association in London, first just for the Abbazzini, later embracing the entire Comune (local administrative area), and through this they channelled major funding for public projects, such as the embellishment of the church at Abbazzia (Palmer, 1980, 1991). With its picturesque Appennine setting and distinguished history as the seat of a powerful Mediaeval Benedictine community (from which Abbazzia took its name), the paese was a source of pride as well as sentimental attachment to the London Abbazzini, the ‘Inglesi’ as they were known to their home-based paesani. This aspect was important in the way they presented themselves to fellow Britalians in the course of the many opportunities this highly interactive minority had to meet up with each other. But this agenda, when combined with the emigrants’ limited experience of everyday life in Abbazzia (since they had mostly migrated as young people and generally visited only in the holiday season) meant that the narrative of the London Abbazzini about the parish was very different from that of the locals. I have discussed elsewhere the socio-economic repercussions of the disjunction between narratives, which was aggravated by the hybridization and relative affluence of the Inglesi relative to the stay-at-homes (1977, 1980; 1981: ch. 10). In the 1970s it looked as if the contestation between Abbazzini at home and abroad would prevent the Inglesi from acquiring property and eventually retiring in the parish and thereby applying their entrepreneurial expertise, capital and influence to its development. Now that urbanization was carrying away those young people that had not gone abroad, Abbazzia, like so many depopulated mountain communities without winter sports potential in Europe, seemed to be heading for extinction, unless an alternative to the waning local peasant economy could be found (1977: 265–6). Abbazzia in 1995 Given this gloomy prognosis, I was amazed by the physical and other changes that I witnessed in 1995. Over the previous 25 years, the generations that were holding out against the would-be returnees had become aged or died, and their die-hard resistance was not transmitted to their children, most of whom were emigrants anyway. Now the parish was dotted with palatial holiday houses, including those of a new wave of Abbazzini based in the cities of northern and central Italy, where opportunities for employment and business had been growing so rapidly, since the 1960s, that they could now afford newly-built rural second homes (Ginsborg, 1990). The basic concrete bar and pensione where I had stayed in 1973 had been extended and upgraded. It was now a sophisticated ‘country lodge’ in a universal ‘alpine’ style with plantings of conifers to enhance that impression. The ugly, unpainted cement cladding had been removed from the church to reveal its fine dressedstone structure, and the main access road was tarred. More than modernity, charm and

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‘taste’ had come to Abbazzia. Beyond the settled area, the natural environment had also altered drastically. Before, there was a sharp contrast between the cultivated lands on the lower slopes of the valley and the forest plantations and indigenous woodlands of the provincial park on the higher slopes and mountaintop. Now the cleared fields were few and mainly supporting grass for fodder; everywhere else the natural vegetation had been returning, seemingly for many years. This was in part the sign of the depopulation I had feared would ensue: there were only four farmers left out of the 91 households I had counted in 1973. But it was also part of a conscious policy, the conversion of the local economy from agriculture to leisure. When the two sons of my former landlord, Walter and Fausto, grew up, they undertook what was by that time the virtual coming-of-age ritual of migrating to London. There they spent about ten years acquiring English, catering and business experience, strategic and affective links with the Abbazzini and other Britalian diaspora in Britain – and London-born Britalian wives. By 1995, they were back in Abbazzia, not only helping their father and mother with their booming country inn, but also developing a local hunting business. The inn had made a speciality of wild boar and other game-based cuisine that attracted droves of clients from the affluent cities of the nearby Po Valley, and the raw material was largely supplied through the hunting business managed by the sons. This explained the changes to the local environment: a presence of wild boars and cultivation are not mutually compatible; moreover boars and other game appreciate ‘cover’, so the new enterprise depended upon many small former peasant plots becoming united into a conservancy, something that could not have been achieved without the sons’ semihybridization into Inglesi – enhanced by their marriages – which gained them the credibility as well as the access to negotiate the shift in land-use among its now largely expatriate owners. Negotiating access to suitable plots for holiday or retirement villas in the settled area for those migrants whose inheritances were in the more remote hamlets was part of the deal. The shareholders seemed well satisfied with the new arrangement and, with two daughters-in-law to help with the catering, there was sufficient skilled staffing to drive the business, as well as seemingly unlimited demand. In place of the former mobilization of rural Italian values and Italian cultural artefacts to pander to and even create the British market for ‘the Italian’, rural-based Abbazzini were now manipulating nostalgia for the countryside among the new middle classes of the northern Italian cities that had grown so rapidly in numbers and affluence during the 1960s and 1970s. It was an entrepreneurship of culture, not in the ethnic sense, but in the sense of locality and status. Hunting confers considerable prestige in Italy, as it does everywhere in Europe (and among European descendants everywhere), and so does unusual dining in unusual locations. The Abbazzini had done well to tap into the increasing demand for both kinds of satisfactions and have them reinforce each other. And they had found the replacement economy their parish so badly needed if it was to survive into the future. Abbazzia in 2001 When I returned again in 2001 it was to find that the patriarch had died prematurely in the interim, and the younger son had returned to London (because his wife could no longer tolerate the isolation and loneliness of the semi-depopulated parish). Despite the reduction of the team by half, both the catering and the hunting aspects of the business were continuing

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(and the family had built a palatial house for themselves on the proceeds). Then there were the other difficulties. The increased regulation of the hunting industry was detrimentally affecting that side of the business, and Walter claimed that he continued with it more for pleasure than for profit.7 However, he still played a crucial role in the new local economy: his reputation as one the best hunters in the region attracted custom, and because boars cannot be bought, and his father and brother were no longer around, he alone was now responsible for keeping the inn’s cold room stocked with raw material for the family’s famous boar-based cuisine with the hunting season only two-and-a-half months’ long. These new setbacks were mitigated by a subsequent development that brought additional custom to the area. The Abbazzini’s extension of the natural environment into the former cultivated lands attracted not only game but also hikers. Well-marked trails, marketed by the provincial tourism board, now included the parish with the provincial park, and brought new patronage not only to the inn, but also to bars, cafes and B&Bs throughout the area. Cultural and status phenomena such as the ‘green’ movement and the quest for fitness were now combining with nostalgia for the countryside to take the local leisure revolution to another stage. None of these new entrepreneurial opportunities were restoring Abbazzia to the size it was in 1973, let alone before the mass exodus after 1945, but they are creating a replacement local economy that maintains some of the younger people in the parish, attracts former residents back for holidays, and draws hundreds of outsiders every weekend. It is a fate better than death. Conclusion Over hundreds of years, Britalian culture entrepreneurship has been inventing and reinventing itself, with the savvy to know when to express fully Italian ethnicity and when to play it down. Culture entrepreneurship as well as more anonymous enterprises have provided both temporary and permanent occupations for those who might otherwise have languished in poverty at home, transforming occupations such as that of the waiter, and making fortunes for those who anticipated changes in the market and responded in innovative ways. Latterly, experience in the transnational network – that continues long after the tide of Italian emigration has turned – can still benefit individuals and families and help to rescue doomed rural communities, as recent experience of the new leisure ventures in Abbazzia suggests. There is certainly more to be said about the contemporary transformations of Britalian entrepreneurship, especially in the light of the new concepts and models that have revitalized migration studies in sociology and social anthropology since 1990, but in the absence of major return fieldwork in London and Italy as well as further absorption in the literature, this is as far as a revisit (and revision) can go for the time being. In the meantime, the combination of an ethnic focus and an entrepreneurial focus that generated the culture entrepreneurship concept is eminently transferable to other contexts. It may well be that, just as generations of Britalians exploited British interest in ‘the Italian’, so there are already Somalian and Ethiopian traders in Italy, the modern counterparts of the Italian itinerants in early modern London, exploiting Italian nostalgia for Africa, where many of the parents, grandparents and great-grandparents of contemporary Italians lived and died furthering Italy’s short-lived colonial era. This experience may be sufficient, given current space–time compression, for the construction of a positive role, and business opportunities, for the first of perhaps generations of ‘Afritalians’.

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Notes 1. Working in South Africa with distance and the exchange rate against me, and plenty of accessible local research topics to distract me, I have not done London-based follow-up research, and so I have virtually no first hand information on the progress of Britalian entrepreneurship in London since the 1970s. 2. James Watson’s introduction to Between two cultures: Migrants and Minorities in Britain (1977) which collected ten articles by anthropologists studying different migrant nationalities, including himself and the present author, was prescient in many respects. He emphasized the importance of direct research ‘at both ends of the migration chain’ (p. 2, his emphasis), that is, a transnational approach treating community of origin and diaspora as a single network and analysing them in the same framework; he acknowledged ‘a process or ethnic redefinition . . . which entails the active recreation of a new cultural tradition that only has meaning in the British context’ (p. 3), in other words, cultural hybridization or creolization; and he delivered a spirited critique of both the older, one-sided sociological and assimilationist ‘race-relations approach’ to immigration in Britain (Banton, 1955; Patterson, 1963) and the newer but in its own way limited classbased alternative then being promoted by Stephen Castles and Godula Kosack (1973). 3. Cf., for example contributors to Ward and Jenkins (1984). 4. The anthropologist Ulf Hannerz has gone so far as to assert that distinct cultures are no more, having been replaced by ‘cultural flows in space’ (1993: 68), a world system of rapidly creolizing cultures (1992). 5. I have rehearsed the early history in varying degrees of detail elsewhere: see Palmer (1972, 1977, 1981, 1984). 6. To the ancient Greeks, hubris described mortals who assumed god-like powers; nemesis was the gods’ punishment for such presumption. 7. In order to get a licence to hunt wild boar in Italy you need to form a party of 40, at least half of whom should be present at each hunt; the liver of each boar killed has to be sent in good condition to a state veterinarian; and in return for a licence costing only about US$30 a season, each hunter has the right to keep the boar he has shot, regardless of whose land it might have been killed on. It is therefore impossible to profit from the sale of the trophy or its meat, but only from the support role of supplying dogs, guidance, accommodation, meals, drink and so on.

References Anderson, B. (1991), Imagined Communities: Reflections on the Growth and Spread of Nationalism, New York: Verso. Banton, Michael (1955), The Coloured Quarter, London: Jonathan Cape. Barth, Frederik (1963), The Role of the Entrepreneur in Social Change in Northern Norway, Bergen: Scandinavian University Books. Barth, Frederik (1969), Ethnic Groups and Boundaries: The Organisation of Cultural Difference, Oslo: Universitets for laget. Brown, John (1970), The Un-melting Pot: An English Town and its Immigrants, London: Macmillan. Castells, Manuel (1996), The Rise of the Network Society, Oxford: Blackwells. Castles, Stephen (2002), ‘Migration and community formation under conditions of globalization’, International Migration Review, 36(4), 1143–68. Castles, Stephen and Godula Kosack (1973), Immigrant Workers and Class Structure in Western Europe, London: Oxford University Press for the Institute of Race Relations. Cohen, Robin (1997), Global Diasporas: An Introduction, Seattle: University of Washington Press. Davis, William (1978), It’s No Sin to be Rich, London: Sphere. Douglass, William A. (1984), Emigration in a South Italian Town: An Anthropological History, New Brunswick: Rutgers University Press. Foerster, Robert F. (1919), The Italian Emigration of Our Times, Cambridge: Harvard University Press. Gabaccia, Donna R. (2000), Italy’s Many Diasporas, London: UCL Press. Garigue, Philip and Raymond Firth (1956), ‘Kinship organisation of Italianates in London’, in Raymond Firth (ed.), Two Studies of Kinship in London, London: Athlone Press. Ginsborg, Paul (1990), A History of Contemporary Italy, Harmondsworth: Penguin. Grillo, Ralph and Jeff Pratt (eds) (2002), The Politics of Recognizing Difference: Multiculturalism Italian-Style, London: Ashgate. Hannerz, Ulf (1974), ‘Ethnicity and opportunity in urban America’, in Abner Cohen (ed.), Urban Ethnicity, London: Tavistock. Hannerz, Ulf (1992), ‘The global Ecumene as a network of networks’, in Adam Kuper (ed.), Conceptualisng Society, London: Routledge. Ind, Nicholas (1997), The Corporate Brand, London: Macmillan. Levitt, Peggy, Josh de Wind and Stephen Vertovec (2003), ‘International perspectives on transnational migration: an introduction’, International Migration Review, 37(3), 565–76.

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Light, I. and E. Bonacich (1988), ‘Immigrant entrepreneurs: Koreans in Los Angeles, 1965–1982’, Berkeley: University of California Press. Logan, John R., Richard D. Alba and Brian J. Stults (2003), ‘Enclaves and entrepreneurs: assessing the payoff for immigrants and minorities’, International Migration Review, 37 (Summer), 344–88. Marin, Umberto (1975), Italiani in Gran Bretagna, Rome: Centro Studi Emigrazione. Medaglia, Asadeh (2001), Patriarchal Structures and Ethnicity in the Italian Community in Britain, Aldershot: Ashgate. Palmer, Robin C.G. (1972), ‘Immigrants ignored: an appraisal of the Italians in Britain’, MA dissertation,University of Sussex. Palmer, Robin C.G. (1977), ‘The Italians: patterns of migration to London’, in J.L. Watson (ed.), Between Two Cultures: Migrants and Minorities in Britain, Oxford: Basil Blackwell. Palmer, Robin C.G. (1980), ‘Processes of estrangement and disengagement in an Italian emigrant community’, New Community: Journal of the Commission for Racial Equality, 8(3), 277–87. Palmer, Robin C.G. (1981), ‘The Britalians: an anthropological investigation’, D Phil dissertation, University of Sussex. Palmer, Robin C.G. (1984), ‘The rise of the Britalian culture entrepreneur’, in R. Ward and R. Jenkins (eds), Ethnic Communities in Business: Strategies for Economic Survival, Cambridge: Cambridge University Press. Palmer, Robin C.G. (1991), ‘Migration, encapsulation and ethnicity: Italian villagers in London’, in A.D. Spiegel and P.A. Mcallister (eds), Tradition and Transition in Southern Africa, Johannesburg: Witwatersrand University Press. Palmer, Robin C.G. (2000), ‘A tale of two peripheries: a comparison between case studies of community-based natural resource management and income generation from tourism in Italy and South Africa’, Proceedings of the conference, Economic Development and Sustainabilitity: The Environment and Cultural Tourism as New Economic Opportunities (author’s trans.), Anacapri, Italy, 2–6 November. Patterson, Sheila (1963), Dark Strangers: A Sociological Study of a Recent West Indian Migrant Group in Brixton, South London, London: Tavistock. Portes, A. (2001), ‘The debates and significance of immigrant transnationalism’, Global Networks, 1(3), 181–94. Price, Charles A. (1963), Southern Europeans in Australia, Melbourne: Oxford University Press. Problemi del Lavoro Italiani all’Estero (1974), Rome: Ministry of Foreign Affairs. Raban, Jonathan (1974), Soft City, London: Fontana. Rapport, Nigel and Joanna Overing (2003), Social and Cultural Anthropology: The Key Concepts, London: Routledge. Ritzer, George (1998), The McDonaldization Thesis, London: Sage. Smith, Robert C. (2003), ‘Diasporic memberships in historical perspective: Comparative Insights from the Mexican, Italian and Polish Cases’, International Migration Review, 37(3), 724–60. Ward, Robin and Richard Jenkins (eds) (1984), Ethnic Communities in Business: Strategies for Economic Survival, Cambridge: Cambridge University Press. Watson, James L. (1975), Emigration and the Chinese Lineage: The Mans in Hong Kong and London, Berkeley: University of California Press. Watson, James L. (ed.) (1977), Between Two Cultures. Migrants and Minorities in Britain, Oxford: Basil Blackwell. Watson, James L. (1997), Golden Arches East, Stanford: Stanford University Press. Wimmer, Andreas and Nina Glick Schiller (2003), ‘Methodological nationalism, the social sciences and the study of migration: an essay in historical epistemology’, International Migration Review, 37(3), 576–601. Zhou, M. (1992), Chinatown: The Socioeconomic Potential of an Urban Enclave, Philadelphia: Temple University Press.

24 South Asian entrepreneurship in Britain: a critique of the ethnic enclave economy debate Pnina Werbner

Introduction The present chapter considers a particular debate in the scholarly literature on ethnicity in the US regarding ethnic entrepreneurship which has come to be known as the ‘ethnic enclave economy hypothesis’. According to this hypothesis, ethnic enterprises and their workers benefit from clustering. The current consensus seems to be that the hypothesis is both redundant and misguided. In denying this critique, the chapter draws on Lefebvre’s theorization of space and on industrial cluster and actor network theories to argue that the dominant interpretation of the notion of an enclave has been misconceived. Hence the need is to begin to theorize what ethnic enclave economies really are, beyond the spatial metaphor in which the hypothesis was first grounded, in order to interrogate generative processes of ethnic business formation. Industrial clusters and the dialectics of urban space Ethnic enterprises are often highly visible in cityscapes: Little Havana in Miami, Chinatown in New York City, Koreatown in Los Angeles, are characterized by high concentrations of ethnic businesses. As sites of consumption, the aesthetics of Chinese food serve a crucial economic role. Wong reports that ‘In the Chinatown area of New York City, 5,000 Chinese work in 250 restaurants within five blocks. Outside Chinatown, the number of Chinese restaurants in the greater New York area probably totals approximately 4,500’ (Wong, 1982: 38–9). Significantly for the argument to be presented below, these Chinese restaurants support a large number of Chinese vegetable farms in New Jersey and Long Island, as well as Chinese trucking companies, grocery stores, noodle factories, construction companies, interior decorators and import–export firms (ibid.: 39). The figures for Little Havana in Miami reveal a story of dramatic expansion. Between 1977 and 1982, a mere five-year period, the number of Cuban-owned firms in the Miami District increased from 7336 to 20 795 (Sanders and Nee, 1987: 749), a virtual tripling which was generated through internal capital formation and small business loan