Minority-Owned Businesses

Minority-owned businesses are on the rise. Over the past twenty years the United States has seen steady growth in the number of businesses owned by minorities of all sorts. 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 more easily. 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 important factors in the success of many minority-owned businesses.

COUNTING MINORITY-OWNED BUSINESSES

Despite lingering racism and the uncertainty surrounding affirmative action, minority entrepreneurs have carved out significant business niches for themselves across the nation. The U.S. Census Bureau is charged with collecting data on Americans. The Census Bureau performs surveys of businesses as one of their many data collection efforts and the most recent surveys included data on the minority status of the business owners. To qualify as a minority-owned business, the Census Bureau explained, 51 percent or more of the stock or equity of the business must be owned by a person or persons of the minority group being measured. The following figures on minority-owned businesses in the United States, as of 2002, are from Census Bureau data and reports.

African-American-Owned Businesses

In 2002, there were 1.2 million firms owned by African-Americans in the U.S., employing more than 756,000 people. The 1.2 million black-owned firms generated nearly $89 billion in revenues and accounted for 5.2 percent of all U.S. nonfarm businesses.

When the data on African-American-owned businesses for 2002 are compared with the data from 1997, interesting trends appear. The number of black-owned firms has grown by 45.4 percent over the period, a rate that was substantially higher than the national average for all businesses (10.3 percent). However, the number of black-owned firms with paid employees has grown by only 1.5 percent, a rate of growth under the national average of 4.3 percent. This suggests that a lot of African-Americans have gone into business for themselves and are self-employed but that far fewer have created businesses that are in need of, or can support, employees. Only 7.9 percent of African-American-owned businesses in 2002 had paid employees other than the owner. For this measure, the average for all businesses was 24.1 percent.

The areas in which black business ownership is highest are in the retail trades and in health care and social assistance. Of the revenue generated by black-owned retail businesses, 54 percent was from businesses in the industry classified as "motor vehicle and parts dealers."

Hispanic-Owned Businesses

Hispanics owned 1.6 million nonfarm businesses in the United States in 2002. These businesses employed 1.5 million people and generated $222.0 billion in business revenues. These Hispanic-owned firms accounted for 6.8 percent of all nonfarm businesses in 2002. Of all Hispanic-owned businesses, 187.3 percent had no paid employees in 2002.

When the data on Hispanic-owned businesses for 2002 are compared with the data from 1997, a trend similar to that seen with black business ownership is seen. The number of Hispanic-owned businesses has grown at a faster rate than the rate for all business (31.1 percent versus 10.3 percent respectively) but the number of Hispanic-owned businesses with employees actually dropped between 1997 and 2002. In 1997 Hispanic-owned businesses with paid employees represented 4 percent of all firms with paid employees but in 2002 they were only 3.6 percent. So, again we see a case in which the number of self-employed Hispanics is growing but the number of Hispanic-owned businesses with paid employees fell by 5.8 percent between 1997 and 2002.

Hispanic-owned businesses are diversified but many, 29 percent, operated in construction and other services, such as personal services, and repair and maintenance. In fact, Hispanic-owned businesses owned 8.5 percent of all such businesses in the U.S. Retail and wholesale trade accounted for 35.9 percent of Hispanic-owned business revenue. Again, as with the African-American-owned businesses, a large part of the retail trade revenue (80 percent) was concentrated in the automobile industry, and motor vehicle and parts dealers.

Asian-Owned Businesses

The 2002 business ownership data show that there were 1.1 million Asian-owned non-farm businesses in the U.S., employing over 2.2 million persons and generating more than $326 billion in business revenues. Asian-owned firms accounted for 4.8 percent of all U.S. nonfarm businesses.

The number of Asian-owned businesses grew by 23.6 percent between 1997 and 2002. The number of Asian-owned businesses with paid employees also grew, 11.3 percent, a rate more than twice that of the national average for all businesses with paid employees (4.3 percent). Asian-owned businesses with paid employees account for almost a third (29 percent), a higher level than for either black-owned or Hispanic-owned businesses, and higher than the average for all businesses in the U.S. in 2002 (24.1).

The single industrial area in which the greatest number of Asian-owned businesses operate is wholesale trade. Retail trade and the services also rank high in terms of areas of concentration for Asian-owned firms.

Women-Owned Businesses

In 2002, there were 6.5 million firms owned by women in the U.S., employing 7.1 million people and generating $940.8 billion in business revenues. These women-owned firms accounted for nearly one-third (28.2 percent) of all nonfarm businesses. Of all women-owned business in 2002, 85.8 percent had no paid employees other than the owner.

When the data on women-owned businesses for 2002 are compared with the data from 1997, increases are seen across all categories. The number of women-owned firms has grown by 19.8 percent over the period, compared to the national average for all businesses (10.3 percent). Similarly, the number of women-owned firms with paid employees grew by only 8.3 percent between 1997 and 2002, a rate of growth nearly twice as great as the national average of 4.3 percent. Women-owned businesses are, thus, growing at a faster rate than all businesses.

Thirty-two percent of women-owned firms operated in health care and social assistance, and other services (such as personal services, and repair and maintenance), where they owned 43.7 percent of all such businesses in the U.S. Wholesale and retail trade accounted for 38.3 percent of women-owned business revenue.

Other Minority-Owned Businesses

The Census Bureau has not done detailed studies of the sort done for businesses owned by African-Americans, Hispanics, Asians, and Women so reliable data of the same sort are not currently available for other minority groups. The trends seen in all four of the studied categories show growth in the number of businesses in each group and this suggests that growth in minority-owned businesses of all sorts is occurring in the United States. In 1982 the Census Bureau reported a total of 750,000 minority-owned businesses and over the next 20 years that figure rose by more than 500 percent.

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, a shifting population demographic has been a major contributor to this shift in business ownership dynamics. Also contributing to the growth of minority-owned businesses has been affirmative action programs and general economic growth trends. 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 minority-owned businesses as a key factor in the successes that minority-owned enterprises have registered over the past two decades. Corporations and large firms are buying from minority businesses in greater and greater numbers.
• 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.
• Higher Levels of Education and Business Experience—Modern-day minority-owned businesses are significantly stronger than they used to be in several important respects, most of which have to do with being better, more experienced, and better financed entrepreneurs.
• 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 minority-owned businesses to secure funds for start-up 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.

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. Regulations in some government agencies were written specifically in an attempt to assist minorities requiring a specific percentage of participation by these minorities. The theory behind these laws was that when public 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 compensate disadvantage and secure reasonable opportunities to bid successfully. 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, "setasides" 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. Although once these policies were seen as a way to redress past discrimination, many now characterize affirmative action programs as reverse discrimination.

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. 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 behaviors in which they engaged in the past.

SOURCES OF ASSISTANCE

Minority entrepreneurs have several sources of assistance that they can pursue in building and expanding their businesses. The U.S. Small Business Administration is a source of many programs designed especially for minority entrepreneurs, programs designed to aid small businesses with everything from finding startup funding to bidding on government contracts and learning how to write a business plan. The SCORE program—which stands for service corps of retired executives—is another program overseen by the SBA and designed especially for small businesses, among them, minority-owned small businesses.

Several organizations have also been developed to help minorities in the world of business. They include:

National Black Chamber of Commerce (1350 Connecticut Ave. NW, Suite 405, Washington, DC 20036, phone 202-466-6888),

U.S. Pan Asian American Chamber of Commerce (1329 18th St. NW, Washington, DC 20036, phone 202-296-5221)

U.S. Hispanic Chamber of Commerce (2175 K Street, Suite 100, Washington, DC 20037, phone 202-842-1212),

National Indian Business Association (1730 Rhode Island Ave., NW, Suite 1008, Washington, DC 20036, phone 202-223-3766),

National Association of Minority Contractors (666 11 Street NW, Suite 520, Washington, DC 20001, phone 202-347-8259),

National Minority Supplier Development Council (1040 Avenue of the Americas, Second Floor, New York, NY 10018, phone 212-944-2430)

National Association of Women Business Owners (8405 Greensboro Drive, Suite 800, McLean VA, 22102, phone 800-556-2926).

BIBLIOGRAPHY

Griffin, Cynthia E. "Where's the Dollar? Funding for Minority Owned Business Enterprises." Entrepreneur. February 1999.

National Directory of Minority-Owned Business Firms. Twelfth Edition. Gale Group, 2002.

Romell, Rick. "Minority-Owned Businesses Growing Fast in Wisconsin." The Milwaukee Journal Sentinel. 29 August 2005.

U.S. Census Bureau. "2002 Survey of Business Owners." Available from http://www.census.gov/csd/sbo/. 16 May 2006.

U.S. Small Business Administration. "Minority Enterprise Development—Hotlist." Available from http://www.sba.gov/hotlist/minor.html. Retrieved on 8 June 2006.

                               Hillstrom, Northern Lights

                               updated by Magee, ECDI