Study: Isolation Hurts Many Minority Firms
Many minority-owned businesses in Los Angeles and Orange counties are isolated in ethnic and neighborhood enclaves, clustered in slow-growth sectors and lack critical resources to expand their market reach, a novel study released today has found.
The survey, administered in five languages, was conducted by the nonprofit Community Development Technologies Center with funding from the Merrill Lynch & Co. Foundation. Its goal: to assess the weaknesses and needs of a massive group of often-invisible entrepreneurs whose economic health is intricately linked to the region’s economy.
The types of businesses surveyed--all had fewer than 100 employees and most employed fewer than five--dominate minority neighborhoods, and their ability to grow is critical to neighborhood health. Yet even as mainstream retailers and other businesses increasingly target minority consumers, many minority entrepreneurs have been unable to break out of their own narrow ethnic niches, the survey found.
“These are changes our entire state is going through--changes in demographics, market reach and scope,” said Merrill Lynch Vice President and Community Development Manager Garrett Gin. “We thought it warranted better study.”
Many minority entrepreneurs fall below the radar of typical business surveys, which tend to be conducted in English and draw respondents from mainstream databases such as Dun & Bradstreet. Researchers from the L.A.-based Community Development Technologies Center, on the other hand, spent months consulting with ethnic chambers of commerce and specialized business assistance groups to cull a comprehensive listing.
Focus on Minority Entrepreneurs
By targeting 1,200 Latino and Chinese, Korean, Vietnamese, Japanese and African American entrepreneurs separately and in their language of choice, the survey also got beyond the myth of minority entrepreneurs as a unified group. The results revealed complex business communities with distinct needs.
“We did this . . . to get beyond boosterism,” said CD Tech President Denise Fairchild. “Everyone’s so impressed . . . that minority businesses are growing [in number] at rapid rates, but there’s very little information about who are these people, what do they contribute to the economy and, more importantly, what are their challenges?”
More than 75% of respondents had at least some college education. Two-thirds of businesses had operated for nine or more years. And half projected sales growth next year.
But the survey also found--with minor exceptions--an isolation that must be corrected for substantial growth to take place.
“While they’ve done well, particularly in the last three to five years, fundamentally the picture is one of a business community that is not mainstreamed yet,” Fairchild said. “They’re not getting into high-value, high-growth sectors. They’re not connected to mainstream business networks and chambers and they’re not utilizing the Internet or state-of-the-art technologies.”
All those factors, meanwhile, were critical to growth--both of revenue and in number of employees, the survey found. (The companies that grew the most had participated in professional associations, adapted to new technologies and expanded their market scope.)
The minority businesses overall had paid more than nonminority counterparts to start and operate a business. They were also underrepresented in the region’s rapid growth sectors: Only 3% operated entertainment-related companies, compared with 7.6% of non-minority firms. Fewer than 5% were in high-tech manufacturing sectors such as electronics and transportation, compared with 10% for non-minority businesses.
More striking still were the textured differences among communities.
Although African American entrepreneurs tended to be more experienced, more networked, more likely to own high-end service businesses and more technologically savvy, they were denied bank loans and other credit at more than three times the rate of Asian American entrepreneurs and significantly more than Latinos.
Korean American business owners were the only ones who overwhelmingly said they launched businesses as a last resort, because they felt it was the only way to make a decent living. And fully 49% want assistance with retirement planning or succession, indicating an impending exodus from entrepreneurship.
“A lot of the [Korean Americans] who own retail businesses don’t plan to pass them on to their children, so they really need help in that area,” said Caroline Kim, former marketing manager for the Los Angeles Community Development Bank and an advisor on the project. “Most of their children have gone on to college and graduate school.”
Differences Among Ethnic Groups
Japanese Americans and Chinese Americans have succeeded most in diversifying their customer base beyond an ethnic niche, the survey showed, whereas Vietnamese Americans have succeeded the least: Fully 49% said more than three-fourths of their business came from ethnic customers, and the entrepreneurs complained in focus groups of increasing competition from similar Vietnamese businesses crowded nearby.
The Korean American and Vietnamese American businesses were also the least technologically savvy--followed by Latinos--and the least likely to participate in professional associations or chambers of commerce.
More than one-fourth of all businesses in the Southland--and a third of those in Los Angeles County--were minority-owned in 1992, according to the most recent U.S. Census Bureau figures. Those numbers are expected to spike upward when 1997 data is released beginning this month.
The weaknesses highlighted by the survey must be addressed if predominantly minority neighborhoods are to flourish, economic development experts said: “When you get stuck within your own neighborhood there’s a plateau you reach very fast,” said Nitin Bhatt, executive director of USC’s Business Expansion Network.
CD Tech plans to convene meetings in the coming months with business assistance providers as well as financial institutions and technology companies to discuss ways to get services to businesses that are being overlooked.
Many respondents said they did not need capital or assistance, but small entrepreneurs must learn to broaden their reach for the sake of the region’s economic health, said Michael Banner, executive director of the Los Angeles Local Development Corp.
“When you have businesses that are expanding and growing, you’re going to have better communities,” said Banner, who also served as an advisor to the project and helped craft the survey. “If you go beyond this one location on this corner and realize you can have 10 of them . . . then you have 10 times as many employees and maybe you spawn 10 times as many new homeowners.
“These are the kinds of things that spur development in communities, and they become less marginalized.”
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A Survey of Ethnic Business
Among the results:
* African American firms are the most likely to be turned down for a bank loan or credit.
* Vietnamese American firms are most likely to get their business from ethnic customers.
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Profiling Ethnic Business
A survey by the Community Development Technologies Center and Merrill Lynch & Co. Foundation offers a look at minority-owned small companies in Los Angeles and Orange counties. Conducted in five languages, the survey provides data by ethnic group. Some of the findings:
*
Percentage who get 75% or more of their business from ethnic customers
African American: 31%
Latino: 36
Chinese American: 29
Korean American: 36
Japanese American: 20
Vietnamese American: 49
*
Percentage denied bank loans or other credit in last three years
African American: 28%
Latino: 19%
Chinese American: 7
Korean American: 6
Japanese American: 9
Vietnamese American: 2
*
Percentage who do not use the Internet
African American: 46%
Latino: 55
Chinese American: 46
Korean American: 78
Japanese American: 60
Vietnamese American: 77
*
Percentage who say they use state-of-the-art technology “not at all” or “not much”
African American: 17%
Latino: 37
Chinese American: 26
Korean American: 49
Japanese American: 22
Vietnamese American: 38
*
Percentage who identify marketing as their business-assistance need
African American: 32%
Latino: 30
Chinese American: 39
Korean American: 47
Japanese American: 14
Vietnamese American: 16
*
Percentage who participate in professional, trade or industry associations
African American: 48%
Latino: 24
Chinese American: 24
Korean American: 10
Japanese American: 41
Vietnamese American: 4
Source: Community Development Technologies Center
