MINORITY-OWNED BUSINESSES

Minority-owned businesses are among the most important elements in the unprecedented growth, in both number and stature, of small business enterprises in the United during the 1980s and 1990s. The African-American, Hispanic, Asian, and Native American communities all saw significant surges in small business start-ups and growth during this period. This success has been attributed both to generally positive economic trends and to advances in the realms of education and access to capital.

Most observers agree, however, that minority entrepreneurs—like women entrepreneurs of all races—still face challenges that their white male counterparts are able to avoid. Racism remains a sad reality in some communities, industries, and corporate environments. In addition, many minority entrepreneurs believe that affirmative action programs and "set-asides," which became a subject of considerable debate in the 1990s, remain an important factor in the success of many minority-owned businesses. They worry that if such programs are eliminated, countless minority-owned companies will be devastated.

Despite lingering racism and the uncertainty surrounding affirmative action, however, minority entrepreneurs have carved out significant business niches for themselves across the nation in both ethnic neighborhoods and majority-white communities. Indeed, members of Black, Hispanic, Asian, Native American, Arab, and other minority groups have pursued entrepreneurial dreams in record numbers, despite the challenges and pitfalls that lurk with any new small business venture. "A number of challenges confront the courageous souls who aspire to be in business for themselves," wrote Suzanne Caplan, author of A Piece of the Action. "The work is hard, the hours long, the pressures are great, and the rewards are sometimes elusive. When racism and sexism are added, an additional hurdle must be jumped. But even with these daunting obstacles, most [minority entrepreneurs] who have done it would do it again if they were asked. The desire to be creative and independent outweighs the prejudice and misconceptions."

GROWTH OF MINORITY-OWNED ENTERPRISES

In the 1980s and 1990s, various surveys showed a pronounced increase in the number of minority business enterprises. This rapid growth, suggested American Demographics, "is changing the profile of America's business owners." The magazine noted, for example, that the number of minority-owned businesses rose from less than 750,000 in 1982 to more than 1.2 million in 1987, nearly one-tenth of all of the nation's businesses. This marked an increase of 66 percent during a period when the total number of all American businesses grew by only 14 percent. "The mid-1980s were good years for minority business owners," wrote American Demographics contributor William O'Hara. "Every significant minority group experienced an increase in the number of businesses owned and in rates of business ownership. But some minority groups have much higher rates of business ownership than others, and the increases of the mid-1980s were not evenly shared."

Indeed, studies indicated that Asians experienced the biggest increase in small business success. The number of companies owned by Asians (including people of Japanese, Korean, Vietnamese, and Chinese descent) grew by 89 percent from 1982 to 1987. "The popular image of Asians as industrious immigrants is true," said O'Hara. "Asians own 57 businesses for every 1,000 people, by far the highest business ownership rate of the four major [ethnic groups in America].…The high rate of business ownership among Asians is due to several factors. First is their high level of educational attainment. In 1990, about 40 percent of adult Asian Americans had completed college, compared with only 23 percent of non-Hispanic whites. Asian Americans also have relatively high incomes, which provide them with more capital to launch small businesses."

Finally, American Demographics pointed out that many recent immigrants from Asian countries come to the United States specifically to establish themselves in the business world, either as part of a larger company or as an entrepreneur. American government statistics indicated that whereas nearly 40 percent of immigrants from Asia and the Pacific Islands were engaged in professional or executive career areas, only 17 percent of immigrants from other parts of the world claimed such occupations. In addition, statistics have indicated that Asians—in large part because of their education and financial resources—tend to own larger companies with more employees than do other minorities. Finally, O'Hara noted that some Asian subgroups, such as Koreans—which have enjoyed perhaps the highest level of entrepreneurial success of any ethnic group—have shown a "willingness to pool their resources to help other Koreans start or expand a business."

Hispanic-owned businesses have also enjoyed significant increases in numbers and stature over the past several years. The number of Hispanic-owned firms grew by 81 percent from 1982 to 1987, due in large part to the tremendous success that entrepreneurs of Cuban descent have enjoyed. For that same period, business growth was comparatively weak among black-owned businesses (38 percent). And in the early 1990s statistics indicated that African Americans owned fewer than five percent of U.S. businesses even though they comprise about 12 percent of the nation's population. Nonetheless, business experts and economists have noted that black and Hispanic entrepreneurs were among the biggest beneficiaries of America's sustained economic growth in the 1990s. Indeed, Hispanic Business magazine estimated that the number of Hispanic-owned businesses in the United States increased from about 420,000 in 1987 to approximately 585,000 in the mid-1990s. Black Enterprise magazine, meanwhile, pointed out that when it published its first list of the top 100 black-owned industrial businesses in 1973, their combined annual sales totaled $473 million; conversely, the total from its 1995 listing of black-owned businesses was more than $6.7 billion.

The last major ethnic group in the United States are Native Americans. "American Indians are the least likely of any major American racial and ethnic group to own their own businesses," stated O'Hara. He and other researchers note, however, that the relative scarcity of Native American small business owners can be traced in large part to the fact that many Indians live on remote, sparsely populated reservations in states that are themselves relatively lightly populated.

FACTORS IN MINORITY BUSINESS GROWTH

Analysts cite several reasons for the explosive growth in minority-owned businesses in the United States over the past two decades. Certainly, affirmative action programs and general economic trends have been significant influences. But observers also cite several other factors, including community support, increased networking, efforts to revitalize inner cities, increased levels of education and business experience, and improved access to capital.

* Community Support—Many entrepreneurial ethnic minorities benefit by instituting businesses within their communities that meet needs of that community. When these businesses succeed, the individual communities gain a greater measure of autonomy and financial health, thus laying the groundwork for additional businesses. Community banks have been among the most visible supporters of minority entrepreneurs seeking to revitalize moribund neighborhoods and business districts. Finally, many immigrant groups have done a laudable job of supporting entrepreneurs within their communities.
* Increased Networking—As the number of minority entrepreneurs has grown, so too has the number of organizations, associations, and other groups that have formed to provide assistance and information to minority-owned businesses. In addition, minority entrepreneurs have become adept at taking advantage of established business practices such as networking to assist them in opening their own firms. Networking—interactions among business people for the purpose of discussing mutual problems, solutions, and opportunities—is extremely important to minority business owners.
* Programs—In addition to federal set-aside programs, a variety of local, state, and federal agencies have extended help—whether in the form of legal expertise, grants, loans, or some other type of assistance—to encourage the establishment of minority-owned businesses.
* Corporate Acceptance—Observers point to increased corporate acceptance of minorityowned businesses as a key factor in the successes that minority-owned enterprises have registered over the past two decades. "Well-established companies are buying from minority businesses as never before," wrote Sharon Nolton in Nation's Business. "Corporations that are members of the National Minority Supplier Development Council now purchase more than $23 billion in goods and services annually from minority firms—compared with $86 million in 1972, when the council was chartered."
* Urban Revitalization—Many minority entrepreneurs have established themselves as business owners in urban areas at a time when several large cities have experienced heartening signs of rebirth. Moreover, state and federal agencies have shown increased willingness to provide greater assistance to business owners and others who are intent on reversing declines in urban areas, which typically contain large minority populations. "The breakthroughs being made in minority-business development could lead to solutions for breaking the cycles of poverty that so deeply affect minority communities," said Nolton.
* Higher Levels of Education and Business Experience—As one executive with the National Minority Supplier Development Council told Nation's Business, modern-day minority-owned businesses are significantly stronger than they used to be in several important respects:" They're stronger, they're better financed, they're owners are better prepared, they're better business people in general than were their predecessors. They're better positioned to take advantage of any opportunities that are out there." Other analysts agree, noting that business schools and entrepreneurship programs have seen increases in minority enrollment.
* Access to Financing—Minority-owned businesses have benefited from several economic trends. Perhaps most importantly, black, Hispanic, Arab, Asian and other minority businesspeople have benefited from the financial community's belated recognition that small businesses are powering much of the nation's current economic growth, and that small companies will likely become an even more important component of the U.S. economy in the coming years. Moreover, the emergence of alternative financing sources friendly to minority entrepreneurs has made it easier for minorityowned businesses to secure funds for startup costs or expansions. Finally, agencies such as the Small Business Administration (SBA) have increased the volume of loans to minorities (in fiscal year 1994, for example, the SBA increased the amount it loaned to minority business owners by nearly 60 percent over the previous year).
* Expansion Into Emerging Industries—Traditionally, minority business owners have been primarily involved in small-scale retailing and service industries such as restaurants, beauty parlors, dry cleaners, laundromats, grocery stores, etc. But increasing numbers of minority entrepreneurs have successfully ventured out into realms where minority owners had previously been less commonplace, such as manufacturing and high-technology industries. "Minority entrepreneurs are also targeting larger markets, increasing their chances of success," wrote Nolton. "Coupled with minority business owners' increased individual power is their greater sophistication in the use of group power and technology to accomplish economic goals."

AFFIRMATIVE ACTION AND "SET-ASIDE" PROGRAMS

Affirmative Action and "set-aside" programs—which were first instituted more than 20 years ago to help minority-owned businesses survive in an economic world that was all too often colored by racial prejudice—have become subjects of fierce, sometimes impassioned debate across much of the United States over the past several years.

Set-asides were first created in 1953, when the U.S. government passed a law that set aside five percent of all procurement contracts for small businesses owned by socially and economically disadvantaged people. The SBA has defined and redefined the term "socially and economically disadvantaged" many times since then by adding different groups and deleting others. The core group under the original law included Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities.

By the early 1970s, the U.S. government passed a series of regulations and laws designed to ensure that private contractors with lucrative government contracts set aside a small percentage of their work for assignment to subcontractors owned by individuals from "socially and economically disadvantaged" backgrounds. "The regulations in some government agencies were written specifically for minorities, and in some instances required a specific percentage of participation," wrote Caplan. "The theory behind these laws was that when public (tax) money was being spent, all citizens should have an equal right to compete for contracts, and that minority- and women-owned companies needed special assistance to secure a fair share of the opportunities." In ensuing years, it became clear that such programs were a tremendous boon to many minority-owned businesses.

By the 1980s and 1990s, though, critics of affirmative action and set-aside policies argued that minority-owned businesses were coming of age and could compete in the mainstream economy. In fact, they said, "set-asides" impede minority-owned businesses' chances of success, because companies came to depend on them to the detriment of seeking contracts through competition. Finally, some critics contended that such policies discriminated against white business owners. "Once seen as a redress for past discrimination, many now characterize affirmative action programs as reverse discrimination," summarized the Pittsburgh Business Times.

Many researchers and minority entrepreneurs reject these arguments, however. They point out that revenues of minority-owned businesses still fall short of those found in comparable white-owned firms. And as Rhonda Johnson noted, the combined revenues of Black Enterprise's top 100 industrial and service companies still does not match the revenue of one Fortune 100 company. Finally, many supporters of affirmative action programs contend that "public policy drives private behavior," and that any government decision to tear down programs designed to help minority-owned businesses would serve as a sort of tacit approval for companies to return to discriminatory behavior that they engaged in in the past.

SOURCES OF ASSISTANCE

Minority entrepreneurs have several sources of assistance that they can pursue in building and expanding their businesses. The Small Business Administration, for example, has provided billions of dollars in contracts, grants, and loans to minority businesses. In 1993 alone, the SBA guaranteed nearly 27,000 loans totaling more than $6.4 billion to small- and women-owned businesses. The number reached $7 billion in 1994 and $9 billion in 1995. In addition, the agency provides valuable information and assistance through programs like SCORE and its 8(a) contract program.

Several organizations have also been developed to help minorities in the world of business, including the National Black Chamber of Commerce, the U.S. Pan Asian American Chamber of Commerce, the U.S. Hispanic Chamber of Commerce, the National Indian Business Association, the National Association of Minority Contractors, the National Association of Black Women Entrepreneurs, and the National Minority Supplier Development Council.

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