Minority Business

By: Frances Henry

From: Currents Spring 1983 pp.29-33
© 1983 Urban Alliance on Race Relations

The study Visible Minority Business in Metropolitan Toronto, commissioned by the Ontario Human Rights Commission and the summary in the Winter 1983 issue of Currents by the author of the study, Dr. Darla Rhyne, has provoked considerable reaction. In continuing this important discussion, the following three articles clearly demonstrate the need to recognize and remedy the difficulties encountered by non white entrepreneurs which appear to be far more serious than the Ontario Human Rights Commission study suggests.

IN TORONTO: Further Comments

Rhyne's article, "Some Issues Facing Non-White Entrepreneurs in Toronto", raises more questions than it answers. The general findings are that entrepreneurs, including visible minority members, have had little difficulty in obtaining capital, although a few of the visible minority entrepreneurs thought that their applications were scrutinized more carefully and that they had to put up more collateral than persons from other ethnic groups. Similarly, problems associated with "suppliers, employees, customers and expanding the market"(1) were seen as common to all businesses and were not especially affected by race or racial discrimination.

These findings generally contradict the commonly held view, that visible minority business persons do experience far more difficulty in establishing and maintaining a business than do members of the majority population. The American evidence certainly supports the view, that access to capital is a maior problem for Black entrepreneurs and there is no reason to believe that such access is easier to obtain in Canada.

The controversial study has already elicited a highly critical editorial in Contrast(2), as well as an accompanying article in which other entrepreneurs interviewed by the newspaper maintained that minority business people face a considerable amount of racial discrimination. Reactions in other quarters have been equally critical. If the study is evaluated both methodologically and substantively, its problems can be put into perspective.

From a methodological perspective, the study relied on only 49 minority business people and only 12 entrepreneurs of British or European origins. (One immediately wonders why no Canadians were included, in the study!) This small sample was used despite the fact that as of 1973-74 there were at least 213 West Indian owned businesses in Toronto and the number of South Asian businesses has increased substantially in the last few years. And one need only count the number of Chinese restaurants in the city, even excluding other Chinese operated businesses, to get an idea of how many are in Toronto. It is quite obvious that the smalI numbers sampled in the study can not offer a representative picture of business activity in the city. Although the author cautions that the findings are "not generalizable beyond the experiences of those interviewed," one must ask why a study based on such an inadequate sample could have been released in the first place. Since the article does not tell us how these small numbers were chosen-e.g., was there at least an attempt at random selection-it makes interpreting the results even more difficult.

Secondly, the entrepreneurs interviewed were "well established proprietors of small and medium sized firms." This suggests that only those successful at least to the point of remaining in business were included in the sample. No information on their earlier business experiences are included, so that we do not know if they had problems earlier in their careers, but were successful in overcoming them. While these methodological problems seriously undermine the validity of the findings, other more substantive criticisms are equally relevant.

Rhyne chose variables from among the six "main aspects of business activity" as defined by A.H. Cole in a book entitled "The Business System". These six features of business activity may very well reflect the main concerns of mainstream or majority entrepreneurs, but for visible minority members who are for the most part immigrants to this society, other factors or issues may have even greater salience. Success or failure for minority people in business may well relate to many variables, other than those derived from the experiences of majority business people and used by Rhyne in this study.

Poole(1), in a study of West Indian entrepreneurs in Toronto found that the key element was the degree to which the potential entrepreneur was able to use and manipulate his or her kinship network. Poole's analysis. while it did not survey Chinese, Japanese or South Asians, did investigate all the West Indian owned businesses in Toronto in 1973-74. Their experience as immigrant entrepreneurs is probably very similar to the other visible minority groups included in Rhyne's small sample. Poole's analysis revealed a number of other significant factors which influence success or failure in business life. These included:

[ I ] West Indians were influenced or restricted by the currency regulations of their countries of origin which prevented the out flow of capital. This was particularly true of Jamaicans during the seventies when currency controls allowed only a modest $200 to be taken out of the country. Thus, access to capital may in certain cases be controlled by the country of origin.

[ 2 ] Some West Indian entrepreneurs were successful because they maintained two business outlets, one in the West Indies and one in Canada. Maintaining connections in the West Indies was particularly important for those in the retail food and record importing business, who must rely on local West Indian suppliers for their produce or records. Often, these local suppliers are kin. Thus, for immigrant entrepreneurs the problems with suppliers have to do with the effectiveness of their networks at home.

[ 3 ] The ability to acquire capital through the kin network, usually interest free or at very modest rates of interest, was instrumental to many in Poole's sample. Initial capitalization came from relatives and/or from the entrepreneur maintaining his or her job while the business was operated by relatives.

[ 4 ] Maintaining a business operation depended also on the use of unpaid spouses and other relatives for labour, as well as very long hours for the proprietors themselves. By using spouses, children and other relatives, the entrepreneur does not have to pay employees and the net profits of the business are used to maintain the family.

Poole concludes that, "access to capital, (although he means here through the kin network rather than the bank) and maintenance of networks especially kin-based ones, were of overriding importance in the success of a business; factors of a changing market, location, seasonality and knowledge of business practices were of less importance."(4) By relying on standard North American factors involved in business success such as those favoured by Cole, Rhyne's study neglects the very special circumstances that ethnic and immigrant people experience in becoming entrepreneurs.

Dr. Frances Henry is a Professor of Anthropoloy, York University.

Footnotes:

1. D. Rhyne. "Some Factors Facing Non-White Entreprenures in Toronto. Currents. Vol, 1, No. 1, 1983.

2. Contrast, January 28, 1983.

3. G. Poole, Development in the West Indies and Migration to Canada. Ph.D. Dissertation, Department of Anthropology, McGill University, 1979.

4. Ibid.

IN BRITAIN: Why So Few Black Businessmen?

This was the title of a British report(1) that examined the factors which inhibit the development of ethnic minority enterprises in Hackney, as well as in other parts of the Greater London area.

The major problem faced by black businesses, the study found, is that of capital
formation and access to finance. Frequently, lack of personal financial resources of any kind means that black businesses are almost totally dependent on the traditional credit-giving institutions. The research found that communication between the banks and black business people was poor, to the extent that 25 percent of those interviewed actually thought it was a matter of deliberate policy by the banks to impose restrictions on lending to black businesses.

The black businesspeople interviewed had a relatively high level of education. Despite this, the study indicated that one of the major factors for the respondents' entry into business, was "the considerable need felt to escape from the racial discrimination and frustration that they have experienced in their previous employment."

Another factor which emerged was that very few black businessmen had had any in depth management experience, and few had previously received expert business advice. Management training and specialist business advice geared to the needs of the minority entrepreneur were identified as priorities for future action. Many of the business people also found it difficult to secure adequate premises. There had been instances of racial intimidation and vandalism.

The Hackney report concludes, that if efforts were made to enable ethnic minority businesses to overcome the main obstacles to their economic development, such businesses would be in a position to make a more positive economic contribution to their local economies and to the wider national economy.

Another study done in the London Borough of Lambeth(2) confirmed these findings. This study indicated seven areas in which non-white minority enterprises faced particular difficulties. These were: obtaining finance for start-up and intermediate loans; obtaining premises; lack of managerial experience; lack of knowledge of the assistance available to small businesses; racial prejudice, abuse and harassment; vandalism/burglary and other security problems; and problems in dealing with the local municipal authority.

Footnotes:

1. W M. Kazuka, "Why so few Black Buisnessmen " Hackney Councle for racial Equality, 1981

2. F. Leo, "Ethnic Minorities and Small Firms" London Borough of Lambeth, 1981

IN THE U.S.A: Minority owned Businesses

Problems and Solutions

In an atempt to attract non-whites into the economic mainstream, the United States government has sought to promote the creation and expansion of minority-owned buisnesses(1).

This goal has been pursued largely by adding minority components to existing public programmes and creating the Minority Business Development Agency (MBDA). The programmes primarily have dealt with capital availability and technical assistance.

The Small Business Investment Corporation concept was extended to minorities, through Minority Enterprise Small Business Investment Corporations to obtain the necessary capital. These are essentially venture capital companies, funded by large companies to provide relatively small amounts of money to small businesses.

Limits on "majority" involvement in the ''minority'' firms and the risky nature of investment in small businesses, however, have rapidly depleted the ability to provide money through these firms.

Technical assistance has heen provided through contracts granted to local consultants. These consultants provide assistance in preparing applications for bank loans, designing control systems and bidding on government contracts.

Another programme is regional purchasing councils, in which representatives of large corporations seek to aid minority business people in obtaining orders from the corporations.

Although the original intent of these government programmes was to increase the number of minority enterprises, both in the areas where they live and in the ''larger community,'' studies have shown that minority owned businesses are being established within non-white communities rather than in the general community.

There are, of course, obvious reasons for the concentration of minority firms in these communities: past discrimination has limited the choice of location of older firms and many minority firms are retail and service firms which base their business on being able to provide for the special needs and desires of the minority group.

If the above is true, then the likelihood of developing successful minority businesses is closely linked to the growth in the non-white market. These businesses are being asked to compete in a market with a below-average share of the nation's income. For most firms, this means that the chances for success are not good.

The minority business programmes have also been seen as a way to solve the unemployment problem in non-white communities. Minority businesses are therefore asked to accept more risky locations in order to hire more non-white workers.

The political reality is that ''majority'' firms are likely to object to any government programmes, which subsidize competing non-white firms. They are more likely to support the financing of minority business develop ment, if these firms are not seen as a direct threat to their own market.

But encouraging non-white firms to compete in the overall market is the only long term avenue to guarantee success. Not only will the business have a better chance for success, the flow of profits to non-whites would help to reverse the flow of money out of their communities .

Many civil rights groups in the U.S. are turning to the private sector for self-reliance and economic development, because of the limited success of these special programmes and the growing government conservatism in economic and social matters. These groups are also seeking to have companies channel some of their profits into black communities through jobs and support of black-owned businesses.
While the shift in strategy has already resulted in some agreements with private firms, it is recognized that obtaining economic gains by dealing directly with business requires resources and sophistication in the process of negotiating and monitoring.

Footnotes:

1. Richard E. Zeller, "Minnority Economic Development and the Entrepreneur: Government Policies for the Location of Minority Businesses." Florida State University, 1981.

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