MINORITY-OWNED BUSINESSES



Businesses owned by women and minorities in the United States represent a significant and rising percentage of all business enterprises. Estimates from the Census Bureau's Economic Census, which is conducted every five years, reckoned women's and minorities' share of U.S. businesses in 1992 at 41 percent of the national total. Nonwhite business ownership, including firms owned by persons of black, Hispanic, Asian, and Native American descent, characterized more than 11 percent of all sole proprietorships, partnerships, and subchapter S corporations. Standard C corporations, which include publicly traded companies, were not included in these estimates because their ownership tends to be more dispersed. These 2.15 million minority-owned businesses together recorded 1992 sales in excess of $200 billion, or approximately 3 percent of U.S. gross domestic product at that time. The average minority business employed seven people.

Local evidence from areas with large minority populations, such as southern California, where in some counties the count of Hispanic businesses reportedly doubled between 1992 and 1997, suggested that the number and value of minority businesses continues to rise briskly. Early estimates from the 1997 Economic Census suggested that the number of minority businesses was growing at better than twice the rate of white-owned businesses, indicating a 67 percent jump in minority businesses for the five-year period. Based on these estimates, by 1997 there were approximately 3.6 million minority-owned businesses, or close to 15 percent of all businesses, with Asian- and Hispanic-owned enterprises growing the fastest. Revenues at these companies are fast approaching $500 billion and total employment is close to 4 million workers.

A BRIEF HISTORY OF EARLY MINORITY-OWNED
BUSINESS

Minorities have owned businesses in the United States since colonial times. In the early 1700s, for example, historical records show that several blacks owned their own businesses. Historian Carl Bridenbaugh, in his book Cities in the Wilderness, wrote that in early 18th century Charles Town (now Charleston, South Carolina), "there were many black artisans, like Jack, the ship carpenter, and Prince, 'well known… as a Plaisterer [sic] and Bricklayer by trade.' "He also cited Philadelphia and New York as cities that had many black business owners.

Of course, they were not appreciated by their white competitors. As Bridenbaugh wrote, "Philadelphians also objected to blacks who underbid them in servile work. Although harsh legislation in every town restricted his movements, especially at night, the Negro was of too great use and value to be dispensed with as a source of cheap labor."

Similarly, Lorenzo Greene mentioned several black business owners in his book The Negro in Colonial New England. For instance, he cited Jim Riggs, of Framingham, Massachusetts, a jobber and basket maker, who also fought in the U.S. Revolutionary War (1775-1783). Squire Nep, a Connecticut resident, owned his own barbershop. These men were the exceptions to the rule, though. Minority business owners were not numerous, but they did exist.

Cases abound of blacks who ran successful businesses in the South after the Civil War (1861-1865). In virtually every large Southern city, blacks were butchers, barbers, and artisans. They ran successful restaurants and hotels. For example, Jehu Jones ran one of Charleston's most successful hotels. In 1883, Solomon Humphries, a prosperous grocer in Macon, Georgia, was worth about $20,000—and he had more credit than anyone in town. Thomy Lafon, of New Orleans, accumulated real estate estimated to be worth almost half a million dollars.

RECENT TRENDS AND DEMOGRAPHICS

In 1998 nonwhite and Hispanic minorities constituted 28 percent—some 76 million people—of the U.S. population. By a slim margin, blacks are the largest U.S. minority group, accounting for somewhere between 12 and 13 percent of the population. Hispanic people, including some individuals who may also be considered black, Asian, or white, account for 11-11.5 percent; and persons of Asian, Pacific Island, and Native American heritage represent 3.4-3.8 percent.

Geographically, more than half of U.S. minority businesses are concentrated in just four states: California, Florida, New York, and Texas. Other places with strong minority business presence, measured as a percentage of total firms, include Hawaii, the District of Columbia, New Mexico, Maryland, Louisiana, and New Jersey.

HISPANIC-OWNED BUSINESSES.

Hispanic entrepreneurs have statistically been the most prodigious minority business owners in the United States, with an estimated 1.6 million businesses as of 1997. Hispanic businesses in 1997 made up 43 percent of all minority enterprises, and this proportion was up by more than 3 percentage points since 1992. The vast majority of Hispanic-owned firms are held by individuals with Mexican, Cuban, or Central American backgrounds. Revenues at U.S. Hispanic businesses reached nearly $77 billion in 1992, almost tripling since 1987, and this amount more than doubled again by 1997, at $187 billion. Some of the largest economic sectors for Hispanic businesses included retailing and wholesaling, construction, health services, and business services.

BLACK-OWNED BUSINESSES.

Black-owned firms have been multiplying as well. The number of black owned businesses rose by nearly 50 percent from 1987 to 1992, and by another 50 percent from 1992 to 1997. By 1997 there were approximately 906,500 black-owned businesses in the United States. These firms represented 27.5 percent of all minority businesses, a slight percentage drop from previous years as the number of Hispanic and Asian businesses has expanded even more rapidly. According to government figures, in 1997 African American businesses (excluding C corporations) brought in revenues approaching $60 billion, twice that of just five years earlier. The black business magazine Black Enterprise, which tracks a few hundred of the country's largest black-owned or controlled businesses, estimated that the top 25 black-owned businesses (those with 51 percent or more ownership by black persons) had sales of $4.85 billion as of 1997. Many of these medium to large companies, the smallest of which made $80 million a year, are not included in Census Bureau figures for minority businesses because they are C corporations. Sectors with strong black business participation include retailing and wholesaling, health services, construction, business services, personal and professional services, and real estate.

ASIAN- AND NATIVE AMERICAN-OWNED BUSINESSES.

As of 1997 some 1.1 million U.S. businesses were owned by people of Asian, Pacific Island, and Native American descent. This represented a 61 percent increase from 1992 levels. Based on 1992 statistics, Chinese Americans owned 22 percent of these businesses; Korean Americans, 15 percent; Native Americans, 13 percent; Indian (Asian) Americans, 13 percent; Japanese Americans, 10 percent; Filipino Americans, 10 percent; and Vietnamese Americans, 8 percent. Business ownership among Asian and Native Americans is extraordinarily high when compared with these groups' population figures. The numbers suggest that 1 out of every 10 Asian and Native American persons in the United States owns a business, a proportion similar to that in the white nonHispanic population. This compares with approximately 1 in 20 among Hispanics and with 1 in 40 among blacks. In 1997 Asian and Native American businesses reported revenues of more than $275 billion. The largest economic sectors for Asian- and Native American-owned enterprises include retailing and wholesaling, health services, real estate, business services, and lodging facilities.

GROWING OPPORTUNITIES

As the figures show, the number of start-up businesses among minorities increased dramatically in the last part of the 20th century; there is every sign the trend will continue in the 21st century. This phenomenal growth is due in part to the widespread economic changes that began to occur in the United States in the 1980s. Companies began major restructuring projects that displaced large numbers of workers. Since small business growth often occurs in times of economic slowdown, there was a natural tendency among displaced workers to open their own enterprises. Their timing was good, as many government agencies at the local, state, and federal levels expanded their attempts to encourage the establishment of minority-owned businesses.

Many members of minority groups established themselves as business owners in urban areas. That was due largely to historical demographic patterns. For the most part, each succeeding group of immigrants that entered the United States (e.g., Irish, Chinese, Italian, Polish) has settled in large urban areas. Many times they did so simply because that was where job opportunities existed, but cities also have been centers of ethnic enclaves where new immigrants could interact with relatives, friends, and others who hailed from the same place of origin. So, entrepreneurial members of these communities opened service businesses of all types to satisfy the consumer demands of the local ethnic groups. Certain categories of business became attractive for minority entrepreneurs. Among the most common business opportunities available to minorities were bowling alleys, contract construction, dry cleaning, furniture stores, real estate brokerages, savings and loan associations, and supermarkets.

Despite opportunities in these and other fields, limitations existed that affected minorities attempting to start their own businesses. One of the most significant problems concerned financing, particularly prior to the 1960s. Until that time, banks were not anxious to loan minorities money. However, the civil rights movement that began in the 1960s theoretically made it easier for minorities to obtain financing. Unfortunately, there was not always enough money to go around. The federal government intervened to alleviate that problem.

GOVERNMENT INTERVENTION

Government agencies became more helpful to minority business owners after the civil rights movement began. President Nixon established the Office of Minority Business Enterprises (OMBE) in 1969 as part of his initiative to spearhead minority capitalism. The agency's purpose was to provide management and technical assistance, information, and advocacy in the private sector for minority business development. OMBE has since been renamed the Minority Business Development Agency, and has become part of the U.S. Department of Commerce. Its six regional offices disperse technical advice and information to a network of over 100 local business development centers around the country.

The Small Business Administration (SBA) also stepped up efforts to help minority business owners obtain needed financing. The agency initiated two types of programs—loan assistance and preferential procurement of federal contracts, called "set-asides." Many state and local governments set up similar preferential procurement contracts to assist minority contractors.

Set-asides were created in 1953, when the U.S. government passed a law that set aside 5 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, adding different groups and deleting others. The core group under the original law included African Americans, Hispanics, Native Americans, Asian Pacific Americans, and other minorities. In 1982 the SBA added Asian Indians. Six years later, it added Sri Lankans. By 1989 the SBA included Tongans and Indonesians. The agency deleted Hasidic Jews in 1980 and took Iranians off its list when they could not prove long-term bias against them. Decisions such as these led to arguments against the effectiveness and fairness of "set-aside" programs. Exacerbating the arguments, the courts did not always view "set-asides" as legal.

ARGUMENTS OVER SET-ASIDES

Large cities like Atlanta, Baltimore, Detroit, and Philadelphia established their own "set-aside" programs. Many minority business owners argued that such programs were necessary if they were to survive. Others disagreed.

In the early 1990s, a judge in San Diego, California, ruled that these programs were unconstitutional. San Diego had an equal opportunity contracting program that mandated that 20 percent of city-funded construction projects had to be awarded to companies owned by ethnic minorities. Without such mandates, some people argued, the minority-owned companies could not stay in business. In 1993, a U.S. district judge struck down the ordinance. That upset many minority business owners, but others were relieved. They argued that "set-asides" were not helpful to minorities.

John Robinson, who was president and CEO of the New York-based National Minority Business Council, suggested that minority-owned companies that wanted to become successful should ignore "setasides." They would be better off, he said, entering mainstream business competition. As proof, he cited a black-owned company, TLC Beatrice International, which at the time had annual sales of more than $1.5 billion (the company later downsized substantially with divestitures in the late 1990s). Proponents of "set-asides" argued that companies as large as TLC Beatrice did not need such programs. However, they said, smaller businesses such as construction companies and supply distributors did. Forward thinking business experts disagreed.

Opponents of "set-asides" argued that minorityowned business operators in the late 20th century could no longer rely on "mom-and pop" operations to sustain themselves. They 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. The success of many minority entrepreneurs supported that argument.

LOANS AND OTHER AID

There is no doubt that the federal government's increased involvement in minority business proved valuable. By 1984, the government had provided $9.5 billion in contracts, grants, and loans to minority businesses. That figure may sound impressive, but it does not offer help to as many companies as the government would like. The SBA, in particular, has made several efforts in the 1990s to improve its service to minority-owned businesses. Between 1992 and 1998, the percentage of SBA loans to minority concerns rose from 15 percent to 24 percent. In the late 1990s, the SBA redoubled its efforts to reach out to minority businesses that need funding, particularly those owned by African Americans and Hispanics.

Other organizations upon which minorities can rely for assistance include the NAACP's Community Development Resource Centers, the U.S. Hispanic Chamber of Commerce, the U.S. Pan Asian American Chamber of Commerce, and the National Black Chamber of Commerce (NBCC). The latter organization was influential in getting the Indianapolis Power and Light Company and PSI Energy, Inc., both of Indianapolis, Indiana, to reexamine their policies regarding minority contractors. At the NBCC's urging, PSI stated that it would like to deliver 4 percent of its business, worth $32 million annually, to minorityand women-owned firms. Help like this is invaluable to minority-owned businesses. More importantly, it bodes well for the future, as more and more minorities establish their own businesses.

MINORITY BUSINESS OWNERS SEIZE
OTHER OPPORTUNITIES

More and more minorities are starting to take advantage of government programs, private sector assistance, and 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. It can take place within a company, an industry, or a group with common characteristics, e.g., race, sex, or religion. One example of a thriving network exists in Cleveland, where the growing Council of Smaller Enterprises of Cleveland comprises over 1,800 members. Organizations such as this are invaluable to minority business owners.

Many companies taking advantage of the assistance available to them have grown quietly into large and respectable firms. One prime example is TRESP Associates Incorporated, a management information systems firm located in Alexandria, Virginia. Owner Lillian Handy started the company from her home. Her only financing was a credit card. She relied on SBA loans through the 8a program to underwrite her business in the early years of the company's business. Only nine years after she started the company, it outgrew the 8a program. The company had 260 employees by 1994 with revenues of $15 million. Ms. Handy projected contracts worth $50 million by 1999.

By the late 1990s there was also heightened interest in minority businesses among venture capital firms and investment funds, some of which were targeting minority enterprises exclusively.

NEW GROWTH STRATEGIES

Some minority business advocates are encouraged by new developments such as the Internet. In contrast to traditional businesses, Internet businesses often require less start-up money, reducing entrepreneurs' dependence on potentially biased lenders. Some believe that electronic commerce also renders business transactions more color blind, improving minority-owned businesses' sales prospects—not to mention that there are yet large untapped markets for Internet-based services.

Another key growth area is in exporting, an activity in which minority businesses tend to be underrepresented. The SBA and the International Trade Administration's export assistance services have begun programs to encourage minority business participation in cross-border trade.

SEE ALSO : Women in Business

[ Arthur G. Sharp ]

FURTHER READING:

Bridenbaugh, Carl. Cities in the Wilderness: Urban Life in America, 1625-1742. New York: Capricorn Books, 1964.

"The Color of Money." Business Week, 26 April 1999.

Crockett, Roger 0. "Invisible—And Loving It." Business Week, 5 October 1998.

Gallop, Gerda D. "The State of Small Black Business." Black Enterprise, November 1998.

Greene, Lorenzo Johnston. The Negro in Colonial New England. New York: Atheneum, 1969.

Minority Business Entrepreneur, bimonthly. Available from www.mbemag.com .

"Minority-Owned Businesses Growing, But Their Global Markets Remain Untapped." Jet, 29 March 1999.

National Black Chamber of Commerce. National Black Chamber of Commerce. Washington, 1999. Available from www.nationalbcc.org .

U.S. Hispanic Chamber of Commerce. United States Hispanic Chamber of Commerce. Washington, 1999. Available from www.ushcc.com .

U.S. Pan Asian American Chamber of Commerce. Welcome to USPAACC. Washington, 1999. Available from www.uspaacc.org .

U.S. Small Business Administration. Office of Advocacy. Minorities in Business. Washington, 1999. Available from www.sba.gov .

Wadley, Jared 0. "Growth in Hispanic-Owned Businesses Is Strong in California." Press-Enterprise, 3 November 1998.



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