An Explanation on Why Minority-Owned Businesses Exist and Have Increased
The first theory on why so many minority-owned businesses exist is discrimination within the labour market. Labour market discrimination maintains that women, immigrants and people of colour will go out and try to find jobs working for someone else but if they are unsuccessful, they have no choice but to open their own businesses. This discrimination can happen for several reasons: not being fluent in English because it is not their first language, their educational credentials and work experience from their home countries not being recognised by companies in the United States, and/or discrimination based on race or ethnicity. (Le, 2019)
Another theory points out cultural traits and ethnic and class resources. This theory emphasizes that minorities go into business for themselves to uphold their own values and cultural traditions such as, working hard, sacrifice, and delaying material gratification. Within this theory, minorities rely on themselves, family members, friends or others within their ethnic group for unpaid or cheap labour, startup funding and overall support. A common ethnicity or race helps develop a loyal customer base within that ethnic group. Also, starting a business fits into their idea of “The American Dream.” (Le, 2019)
Lastly, there is the theory of Structural Opportunities, which can be broken down into three sub-theories or models: The Middleman Minority, Ethnic Enclave and Economic Openings. This theory highlights opportunities becoming available from being in business as a minority. (Le, 2019)
The Middleman Minority model indicates that minorities respond better to working with other minorities. In this model, affluent White business owners would contract minority business owners as “middlemen” to help deal with their minority customers. (Le, 2019)
The Ethnic Enclave or community model argues that minorities should open businesses within their own ethnic communities because it helps develop those communities, produces more profits, builds that community’s influence, and betters the quality of life of people within those areas. An example of this is “Chinatown” in cities like New York. Also, working within their own communities reduces the amount of racial discrimination and hostility that business owners would face in more mainstream labour markets. (Le, 2019)
And finally, the Economic Openings model explains that as the United States’ economy changes, more opportunities become available for minorities. A push for technology, for instance. But while this may offer minorities a lower barrier to entry, it still involves the risks of any business opportunity (losses, failures, etc.). (Le, 2019)
Aside from the theories found above, analysts also mention several other reasons for an increase in minority-owned businesses in the United States over the last twenty years. These include:
A shift in the population: Currently, minorities make up 39 percent of the total population. This has been a major contributor to the shift in business ownership dynamics. Minority-owned business growth is on the rise, along with the growing diversity of America's overall population. Growth in the minority population in the United States increases minorities starting their own businesses.
Economic Growth Trend: Minority-owned businesses have been able to benefit from several trends in the economy. Black, Arab, Hispanic, Asian and other minority groups have been able to benefit from the nation’s recognition that small businesses are not only powering much of the country’s current economic growth but that they will most likely continue to become important elements of the United States economy in the future.
Affirmative Action/ “Set-Aside” Programs: These programs remain important to the success of minority-owned businesses today. In the year 2000, federal agencies spent more than $13 Billion purchasing goods and services from minority-owned businesses.
Other Programs: Aside from affirmative action and set aside programs, a number of local, state and federal programs and initiatives have been introduced to offer some kind of assistance to minority-owned businesses such as, grants, legal expertise, technical assistance, and loans to encourage minorities to start their own businesses.
Increased Networking: Not only has the number of minority-owned businesses grown, but so has the number of associations, organisations and groups that support and provide assistance and information to minority-owned businesses. These organisations have created safe spaces for minority business owners to network, collaborate and do business.
Corporate Acceptance: Observers note that minority business success can partially be attributed to corporate acceptance. Their buying habits have come to include minority-owned businesses in greater and greater numbers.
Community Support: On average, entrepreneurial ethnic minorities start businesses that benefit and meet the needs of their communities. When these businesses succeed, communities gain more autonomy and increase their financial health, laying the foundation for other businesses.
Higher Levels of Education and Business Experience: Increased access to education and business has made minority business owners stronger, better and more experienced than they used to be.
Expansion into Emerging Industries and Technology: Traditionally, minorities started in businesses retail and service industries such as, barber shops, beauty salons, grocery stores, restaurants and laundromats but more and more minority entrepreneurs are branching out into other areas like technology and manufacturing.
Access to Capital: The rise of alternative funding sources has made it easier for minority-owned businesses to access and secure funds. Also, agencies like the SBA have increased the number of loans available for minority-owned businesses to start and scale.
And lastly, urban revitalisation: In an effort to redevelop and rebrand cities and urban areas across the United States, local, state and federal agencies have shown an increased enthusiasm in providing greater assistance to business owners and others in order to make these locations more attractive, diverse, and innovative.
(Definitions.uslegal.com, 2019)
