Working Draft – Do not quote without written permission from the author.
Immigrant and Ethnic Entrepreneurship
A U.S. Perspective
by
Eugene Fregetto
Clinical Associate Professor of Marketing
University of Illinois at Chicago
601 South Morgan Strett
Chicago, IL 60607
phone: 312-413-0446
Introduction
Is immigrant entrepreneurship still a phenomenon of immense importance as it was historically for major cities? The rate of self-employment about immigrants is generally higher than the rate among native born and immigrants tend to utilize entrepreneurship in identifiable industries and localities. (Light, 1988)
Everyone, regardless of race, color, or creed, seek economic prosperity. Yet we seek it differently. This paper reviews the current literature about the individual immigrant who, after entry to the U.S. and regardless of entry status, seeks self-employment over employment as a way of attaining economic security as a permanent resident in the U.S. or with the intention of returning to his or her native country with the increased wealth.
What Do We Know About the Ethnic Entrepreneur?
We know that ethnic entrepreneurs are concentrated in certain areas, certain markets, and certain industries, and we know that the ethnic entrepreneur’s propensity to own a firm varies by national origin. We attribute this phenomenon to the ethnic group’s cohesiveness and the group’s need to overcome hardship and frustrations experienced when trying to entry the host country’s mainstream economy in order to develop stronger economic and social ties within the host community.
What we know:
(1) We know ethnics comprise 11% of the U.S. populations (Use Census data)
(2) We know that all large metropolitan areas in the U.S. have a proliferation of ethnic-owned businesses.
(3) We know that self-employment differs significantly across ethnic groups in the U.S.
What we don’t know is the explanation for this phenomenon. However, we have developed several explanations and have still not agreed upon one universal explanation.
(1) Ethnic entrepreneurs are successful because they have community information networks, sources of credit within their communities, a build-in customer base for their goods and services, and an excess supply of cheap co-ethnic labor.
(2) Ethnic entrepreneurs came from the “middleman minority” who were historically most active in trading and helped to support and perpetuate business success.
(3) Ethnic entrepreneurs arose from ethnic enclaves comprising of a geographic concentration of the same ethnic group who developed interdependent networks of social and business relationships. These enclaves cushioned the integration of the immigrant into the host country. Enclaves take care of their own and provide the best opportunity for upward mobility for the immigrant. This ‘taking care of” or apprenticeship eventually leads to self-employment.
In general, the ethnic entrepreneur is successful because of a hostile host economy, the efforts of the immigrant to excel at social and economic activities, and their ability to take advantage of capacities developed by and within the immigrant’s ethnic community. In addition, we sense that all of these factors are really interactive rather that mutually exclusive explanations and that market conditions and opportunities along with social and ethnic networks must play an important part in an ethnic entrepreneur’s success.
Immigrant versus Ethnic Entrepreneurship Terminology
The terms immigrant entrepreneur and ethnic entrepreneur are used interchangeably in some cases, but the literature tends to use the terms to identify two mutually exclusive groups. However, much discussion still remains regarding the definition of each group. For instance, Light’s (1972) proposal to use immigrant entrepreneur to distinguish between the first generation immigrant entrepreneur and the second generation ethnic entrepreneur. While Chaganti & Greene (2002) define the ethnic entrepreneur as a function of the strength of their identification with an ethnic enclave.
The difficulty to distinguish between the immigrant entrepreneur and the ethnic entrepreneur is caused by both our measures of business activity and researchers definitions. We do not count the number of business start-ups by immigrants and then by ethnics, and we know that many start-up entrepreneurial businesses may not be formally registered during the early years. Also, it is not generally required to reveal your immigration status when formalizing a business – at least as part of public records.
Secondly, researchers have used the term immigrant entrepreneur and ethinc entrepreneur to identify two separate groups or they will use ethnic to refer to both groups and assume that immigrants are a function of ethnic or they use ethnic to refer to a group which have a common ethnic surname regardless of immigration status or as one of having or maintaining close ties to their ethnic community. How can we measure the closeness of their ties? These researchers develop a “measure” of ties to the ethnic community suggesting that an ethnic, even though they still carry the ethnic family name and can still be genetically, will under some condition cease to be an ethnic entrepreneur and to complicate the definition further, Fairlie (1996) has identified the Sojourner entrepreneur as an immigrant who comes to this country to accumulate wealth rapidly and have the intention of returning to their native country.
Diagram #1 offers a conceptualization of the immigrant and ethnic entrepreneur within the spectrum of U.S. entrepreneurs and the diagram introduces the concept of minority entrepreneur which is really inclusive of all categories.
Diagram #1 – Spectrum of U.S. Entrepreneurs
Minority entrepreneur is an aggregation of all ethnic entrepreneurs as well as indigenous entrepreneurs. As an aggregate, the term is not useful when studying the differences among the different ethnic groups. The issue of African American self-employment is being treated separately and in-depth by two authors because unlike other ethnic groups, African Americans have a long history and has been subject to more intense and enduring discrimination that other ethnic groups. From slavery, the Civil War, and Civil Rights legislation, the history of Black American self-employment has been lost until the efforts of two recent authors to uncover this history: Robert W. Fairlie in his book Ethnic and Racial Entrepreneurship (1996) and John Sibley Butler in his book, Entrepreneurship and Self-Help Among Black Americans (1991).
Both authors have revisited the prevailing paradigms about entrepreneurship and ethnic entrepreneurship to help us understand the significant contributions as well as the entrepreneurship spirit that resides in the African American yet remained buried under the more dominant social and historical events of our country. The issues raised and paradigms developed by Fairlie and Butler opened another vista for exploration and discovery in the study of entrepreneurship and that is the ethnic and racial issues. Although, their work provides us with an important hypothesis regarding entrepreneurial behavior under the presence of racial discrimination. Their work suggests that the entrepreneurs from different ethnic groups have reacted differently due to explicit and implicit forms of discrimination. In general, we generally accept the hypothesis that one reason for ethnic entrepreneurship is due to discrimination in the labor market. However, Fairlie and Butler suggests that ethnic groups react differently to similar forms of discrimination or that the discrimination is somewhat different. So based on their work, Diagram 1a is a more accurate portrayal of ethnic entrepreneur bsed on researchers Chaganti & Green (2002) we add community affiliation..
Diagram #1 – Spectrum of U.S. Entrepreneurs
In this general and static framework, the different types of entrepreneurs can be distinguished and have distinct traits by country of origin, strength of cultural affiliation, whether they are first generation, e.g., new immigrant, or 2nd and 3rd generation, the degree to which their ethnic enclaves have more or less resources that other ethnic enclaves or than native Americans, and by their business strategies whether they have come here as sojourners just to get money and then return to their own country or whether they utilize their wealth and international and family networks; whether they fill the void of businesses vacated by natives and finally gender.
General Framework for the Study and Classification of Ethnic Entrepreneurship
CountryOf Origin & Legal Status / Cultural
Affiliation
(1) / Generation
& Cumulative Entrepreneurial
Experience / Enclave
Resources / Business Strategies / Gender & Personal
Attributes
Sojourner
Entrepreneur
Immigrant Entrepreneur
Ethnic Entrepreneur
African American Entrepreneur
Native or American Entrepreneur
(1) The immigrant’s country of origin can be easily identified by the passport or visa. However the immigrant’s culture presents a much greater challenge. An example of the cultural variation in the work is the continent of Africa where there are approximately 850 separate and distinct cultures (Ferraro, Gary P. The Cultural Dimension of International Business, Prentice Hall, 4th edtion, 2002, p24)
Entrepreneurship
So where are we in the interest and study of entrepreneurship today? In the 1950s, the entrepreneur was a desirable path to economic security if Whyte’s book, The Organizational Man, reflects the sentiments of the times:
The fact that a majority of seniors headed for business shy from the idea of being entrepreneurs is only in part due to fear of economic risk. Seniors can put the choice in moral terms also, the portrait of the entrepreneur as a young man detailed in postwar fiction preaches a sermon that senior are predisposed to accept. What price bitch goddess Success? The entrepreneur, as many see him, is a selfish type motivated by greed, and he is, furthermore, unhappy. . . . Far from being afraid of taking chances, he is simply looking for the best place to take them in. Small business is small because of nepotism and the roll-top desk outlook, the argument goes; big business, by contrast, has borrowed the tolls of science and made them pay off. (Whyte, William H., Jr., The Organization Man, Doubleday Anchor Books, Garden City, New York, 1957, p76).
Corporate America was the answer. Then came the social changes of the 60s and 70s, but we still didn’t focus the entrepreneur still depending on Corporate America and certainly didn’t care about different types of entrepreneurs, ethnic, immigrant or minority as a misfit anyway. During the 60s and 70s we were concerned about social equity rather than business equity. However, we then arrived at the late 70s and early 80s and several events converged to perk our interest in entrepreneurship. Stagflation, high unemployment and high inflation, combined with the loss of manufacturing jobs especially in central cities and no easy answer insight as to how the economy can recover. At that time President Regan had the answer: All of us would hurt a little bit. However another answer was found. David Birch study about job creation that he published in the late 1970s. He had the answer to job creation: small business. His original study found that 80% (check figure) of all new jobs came from businesses employing less than 200 people. And equally important was that his study could be verified, at least empirically, due to the enormous growth of technology firms with the growth of the personal computers and small entrepreneurial businesses were seen as an important part to our economic situation. However another event during the 70s caused us to also consider entrepreneurship and small business as part of the answer to our social equity concerns: federal minority business policy.
So during the late 70s and early 80s entrepreneurship was “put on the map,” and we entered the 80s with two basic types of entrepreneurs: non-minority and minority entrepreneurs with the minority classification encompassing all ethnic entrepreneurs. And I use the term ethnic rather than immigrant because it is assumed that an minority-owned business would be owned by an American citizen otherwise it would be classified as a foreign-owned business and be subject to the Buy American preference. For sake of clarity, I will call the non-minority firm the American Entrepreneur. No one has answered the question of when an immigrant, ethnic, or minority entrepreneurs becomes an American Entrepreneur.
Role of Ethnic Entrepreneurs
There is an emerging consensus among social scientists that ethnic entrepreneurship is a critical element in the current restructuring of Western industrial economies. It has been shown to play an important role in structuring and development of economies at the community level (Waldinger et al., 1990; Razin and Langlois, 1996; Light, 1998). However, the debate over the importance and impact of immigrant enterprises remain largely inconclusive (Lo et al.,2000). In general, researchers with interest in ethnic enterprise agree that “ethnic entrepreneurship is associated with a complex mix of problems and benefits.” (Walton-Roberts and Hiebert, 1997, p121). [quote from Teixeira, Carlos, “Community Resources and Opportunities in Ethnic Economies: A Case Study of Portuguese and Black Entrepreneurs in Toronto,” Urban Studies, October 2001, v38I11, p2055.}
Need to focus on the economic environment in which the immigrant entrepreneurs function and an interactive approach which looks at eh congruence between the demands of the economic environment and the informal resources of the ethnic population. (Light, 1988-89, Vol. 4, Number 13, ISSR Working Paper)
A premise of entrepreneurship theory states that new ethnic business ventures initially direct their activities to other members of the ethnic group, and growth of the ventures is facilitated by the tendency of the ethnic groups to live geographically concentrated in ethnic enclaves. (Galbraith and Stiles www.babson.edu/entrep/fer/V/VA/html/v-a.htm.)
The economic landscape of advanced economies is still dominated by a small number of giant firms and in some lines of business, notably car manufacturing, cross-border mergers are increasing the average size of firm even further. However, the economic viability and importance of the small firm, of self-employment, remains due to the following factors: (Kloosterman & Rath, 2001)
· Cheap computing power
· Fragmented markets as consumers look for more individual (e.g. fashion) or group-specific (e.g. ethnic music) products and thereby erodes the advantages of large economies of scale.