Interactive Model

Developed by Waldinger, Aldrich and Ward (1990) applying a multidimensional approach, the interactive model explains the essential interacting factors in ongoing ethnic minority business operations. It explains that ethnic minority business strategies are steered by both the opportunity structure of the given economic environment (i.e. market conditions and access to business ownership) and the minority ethnic group’s characteristics (which depend on an entrepreneur’s predisposing traits and ability to mobilize resources). Noting the opacity of the opportunity structures (Oliveira, 2007), these are divided into the market conditions (ethnic products vs product for the mainstream) and the entrepreneur’s ability to achieve business ownership (in terms of market shortage, competition and legislation about business ownership).

The opportunity structure of the economic environment interacts with the entrepreneur’s group characteristics, encompassing the entrepreneur’s predisposition traits—such as motivations for self-employment (Lo, Teixeira and Truelove, 2002), entrepreneurial background prior to arrival in the host country and reasons for migrating and aspiration levels—and the entrepreneur’s ability to mobilize resources due to cultural ties, proximity to the minority ethnic group and access to a strong social ethnic network.

Social Embeddedness Theory

Granovetter (1985, 1992) posits that all economic behaviour is embedded, submerged and absorbed in networks and communities of interpersonal relationships and that economic action is affected by the actor’s dyadic relationships and by the structure of the overall network of relations, such that economic goals are accompanied by non-economic ones related to social context (Sarasvathy and Venkataraman, 2011). This section argues that imperatives of in-group behaviour reciprocity between an ethnic minority business and the minority ethnic group of affiliation illustrate the dual goals (Yamagishi, 2003).

McKeever, Anderson and Jack (2014) offer useful commentary on social embeddedness in entrepreneurship research. Identified broadly as the nature, depth and extent of an individual’s ties into an environment, community or society, and indicating a direct link to entrepreneurship (Anderson and Miller, 2003), embeddedness recognizes the opportunity to form a deeper understanding of how membership of social groups, such as minority ethnic groups, may facilitate or constrain agency (Waldinger, 1995; Portes and Sensenbrenner, 1993). But entrepreneurs need to negotiate a complex and dynamic process to benefit from their social embedding (Rath, 2010).

In the context of ethnic entrepreneurship, individual ethnic entrepreneurs partake in ethnically specific economic networks that help start and develop their business (Rath, 2006). Accordingly, the social embeddedness thesis (Polanyi, 1946; Phizacklea and Ram, 1996) proposes that ethnic entrepreneurs prefer to engage in business with others they know and trust through kinship ties, social networks and/or membership of a close-knit minority ethnic group. This preference is justified because entrepreneurs do not function in a social vacuum, rather they are entrenched in social networks characterized by trust, expectations and enforceable norms (Portes, 1995) that can be used to assist in meeting their economic objectives (Rath and Kloosterman, 2000), reducing transactional costs and possibly gaining access to valuable economic resources (Rothbart, 1993). Hence, independently of the factors that led to an ethnic minority business creation/start-up, its embedding in the minority ethnic group’s network sustains and explains its consolidation into a young business and, eventually, its growth.

Congruent with the interactive model, the social embeddedness approach requires understanding entrepreneurial behaviour and outcomes resulting from the interaction between the social and economic opportunity structures immigrants face on arrival in the new country, the attributes characterizing different minority ethnic groups, and the ethnic strategies ethnic minority businesses may or may not use in forging ahead (Light and Rosenstein, 1995; Waldinger, Aldrich and Ward, 1990).

Embeddedness can contribute to performance and growth based on the nature of the linkage to the local context, meaning privileged access to the benefits present in the structure (Lechner and Dowling, 2003), potentially leading to the achievement by the ethnic minority business of a preferred (and possibly protected) supplier status to their minority ethnic group. But access to the benefits comes at a cost, and embeddedness can also act as a constraint or even a retardant to entrepreneurship (Gedajlovic et al., 2013).

The extent to which entrepreneurs are socially embedded and how they are embedded, will affect their ability to draw on social and economic resources (Jack, 2005), impacting upon the nature of the entrepreneurial process and influencing the shape of business. Hence, social embeddedness depends on ethnic entrepreneurs’ commitment (Jamal, 2005), such that involvement in their minority ethnic group of affiliation—given by the number and diversity of the entrepreneurs’ personal linkages to that minority ethnic group—is a better indicator of ethnicity than mere demographic identification (Menzies et al., 2007; Chaganti and Greene, 2002).

Social embeddedness theory has been questioned on the grounds that it is unrealistic because it considers an unregulated and undifferentiated economy, which is not the case in real life (Rath, 2006). Arguably, ethnic minority businesses do not operate entirely on their own terms, and their ability to deploy their minority ethnic group’s social capital is subject to regulatory regimes (Ram and Jones, 2008). Ethnic entrepreneurs and their ethnic minority businesses are subject to own personal, distinctive informal social networks and to their minority ethnic group’s ethnic networks—comprising consumers, other ethnic minority businesses and institutions with a parochial cultural affinity, characterized by cooperation among its members, in contrast with simple interactional avoidance towards dissimilar others (Serino, Giovagnoli and Làdavas, 2009).

In the same way that ethnic networks have boundaries that determine access to the resources they enable, ranging from open access to impermeable to outsiders (Wimmer, 2008; Mummendey et al., 1999), the very creation of an ethnic minority business is often if not always subject to regulation by Government. The literature notes that while some ethnic minority businesses might partake in illegal operations related to black and grey markets—such as engaging in the employment of illegal immigrants (Jones, Ram and Edwards, 2006) and flouting official regulations (Jones and Ram, 2012; Ram, Jones and Edwards, 2007)—and to participation in shadow and underground economies working outside the formal/legal structures regulated by government (Ojo, Nwankwo and Gbadamosi, 2013), the norm is for mainstream regulations to apply to, and be equally respected by, mainstream businesses and ethnic minority businesses. The suggestions are that ethnic minority businesses should be seen as embedded both in their minority ethnic group’s social environment, as well as in the environment that determines their minority ethnic group.

One Model Doesn’t Fit All

The umbilical link between ethnic entrepreneurship and the minority ethnic group of affiliation of the ethnic entrepreneur is a recurring point of discussion in the ethnic entrepreneurship literature, as discussed in the previous chapter. This view stands because ethnic entrepreneurship is seen to ensue from the exclusion and discrimination to which newly arrived immigrants are subject to in securing attractive employment opportunities in the host country, a predicament that might be compensated or at least attenuated by the advantages emanating by affiliation with a substantial minority ethnic group. This is sometimes the case, of course, but exclusion and discrimination are neither exclusive to the motivations to engage in self-employment, nor unique to newly arrived immigrants in a host country or, indeed, to migrants.

Many countries, including Australia, Germany, Slovakia, UK and US, have created appeals—such as the New Enterprize Incentive Scheme (2017) program in Australia—targeting those with long-term unemployment prospects to overcome their predicament by engaging in self-employment (Bryson and White, 1996; Páleník, 2011; Huffingpost, 2013; Cook, 2015).

Clearly, not every ethnic entrepreneur is a product of actual or perceived inability to make a living by working for others, including co-ethnic employers in the new country. Self-employment may be an aspiration as a pathway to financial independence and enhanced social status, as well as the outcome of an expansionary strategy by an existing business in the country of provenance or elsewhere. Self-employment may also occur simultaneously with employment, perhaps as a supplementary source of income, or to take advantage of an unexpected business opportunity with an attractive payoff.

Immigrants arrive in a host country for many disparate reasons and assume different status, such as economic immigrants, a status commonly applicable to skilled workers and business people. Self-employment is the usual objective of the latter, although the businesses they create might be larger, better connected and better resourced than the typical ethnic minority business.

Overall, both the interactive and social embeddedness models ignore gender issues and, most important in the present context, they largely ignore host society influences on ethnic entrepreneurial activities (Light and Bhachu, 1993), namely the banking system and the complexity of the regulatory and policy framework (Oliveira, 2007). It was this that prompted the development of the mixed embeddedness model (Kloosterman and Rath, 2003), attempting to take the political regime into greater consideration, and breaking down the opportunity structure of ethnic strategies into three different categories: vacancy chain, post-industrial low skilled sector and post-industrial high skilled sector.

Mixed Embeddedness Theory

Interactive model perspectives of ethnic entrepreneurship are almost solely determined by the entrepreneurs and their ethnic minority business social embeddedness within the socio-economic environment surrounding a possibly protected co-ethnic market offered by their minority ethnic group. (Light, 1972). One explanation for this, drawn from the case of Chinese business immigrants in Vancouver in the 1980s, refers to the structural constraints and blocked mobility in the non-ethnic/open market, relegating ethnic entrepreneurs to the ethnic/closed market (Wong and Ng, 1998). An alternative, perhaps more comprehensive view is that, independent of their dependence on a minority ethnic group’s environment, ethnic entrepreneurs and their ethnic minority businesses are also embedded in an external business environment context (Kloosterman, van der Leun and Rath, 1999), notably comprising government regulated competitive markets open to business in general, hence targeting both minority and mainstream consumers.

While government regulation can be repressive and constraining as well as enabling, it usually applies to all businesses in a given jurisdiction. Business ownership by foreigners is not usually illegal, but it may be subject to special requirements and restrictions in the case of ethnic minority businesses, for example in terms of the products that can be imported and distributed, such as ethnic foodstuffs. That stringency may vary markedly across countries, and between regions within a country (Razin, 2002), ultimately reflected in the specific location of ethnic networks (Razin and Light, 1998). These are major and important aspects to consider in understanding ethnic minority business performance during the phases of opportunity discovery, start-up and consolidation into young ethnic minority businesses. Different opportunities may be more or less accessible to ethnic entrepreneurs due to the need to meet regulations or to benefit from special concessions (Rath, 2006; Engelen, 2001), rather than for reasons of exclusion (Hindle and Moroz, 2010).

Departing from the social embeddedness perspective (Portes and Sensenbrenner, 1993), Kloosterman (2010) refers to ethnic minority businesses as part of a larger political economy of the country of settlement to whose rules they must conform, such that their capacity to mobilize and deploy their minority ethnic group’s social capital must also be assessed in relation to the external structure of relevant markets and regulatory regimes. Consistent with the mixed embeddedness thesis, ethnic entrepreneurs need to be cognizant of their ethnic minority business’s potential exposure to a variety of environmental contexts, including the impact that laws, public institutions, and general regulatory practices might have on their entrepreneurship activity (Kloosterman and Rath, 2003).

The multi-level, mixed embeddedness thesis, therefore, recognizes the significant effects that government regulations and disparate socioeconomic factors may have in the process of discovery of business opportunities by ethnic entrepreneurs, leading to ethnic minority business start-up. Sensitive to the spectrum of contexts in which ethnic minority businesses operate, capturing the opportunities and constraints stemming from local institutional and market conditions, the mixed embeddedness thesis entails two major levels in the embedding of ethnic entrepreneurs:

1. Embedding in the environment of their co-ethnic minority group, recognizing and abiding by that group’s own ethos, gaining access both to social and ethnic networks, as well as to family and friends’ loans and labour, possibly at sub-market rates, which might convert into a decisive competitive advantage for the entrepreneur (Portes and Sensenbrenner, 1993). Availing themselves of the competitive advantage may be sufficient as a compelling argument for newly arrived migrants to affiliate themselves to a specific minority ethnic group and to resort to using self-employment as a means to rise above discrimination and exclusion by mainstream institutions, as well as overcoming ongoing multi-level structural disadvantages (Sepulveda, Syrett and Lyon, 2011),
2. Embedding in the environment determined by the structures of the mainstream economy and small business regulations common to all businesses in general, noting that these structures are themselves embedded in the opportunities afforded by the minority ethnic group (Lagendijk et al., 2011).

These two major levels of embedding support the view that the mixed embeddedness approach should contextualize immigrant entrepreneurial behaviour as moulded by the dynamic interaction among micro-level socio-cultural forces, meso-level economic-structural conditions and the macro-level political-institutional setting of the immigrant receiving society, all embedded within their larger geographical setting (Lo and Teixeira, 2015). As noted by Ortiz-Walters, Gavino and Williams (2015), the ethnic entrepreneur’s network size might be restricted by the nature of the outer-group membership and that this is a result of the mixed embedding because social relations are related to institutional agents, social hierarchies and the old boy’s networks, which “often systematically exclude the out-group represented by members who are diverse in race, ethnicity, religion, class, and gender” (p. 73),

Identified as the sine qua non of the mixed embeddedness model, the melding together of ethnic entrepreneur’s economic and social relationships within the general environment of the host country allows for a better framework for understanding ethnic entrepreneurship and ethnic minority businesses. But the usefulness of the model depends on three assumptions related to the accessibility, substantiality and actionability of the opportunities being examined. Adapted from Volery (2007, p. 35):

1. Opportunities must not be blocked by too high barriers of entry or government regulations;
2. An opportunity must be recognized through the eyes of a potential entrepreneur as one that can attract a positive and sufficient payoff; and
3. An entrepreneur must be able to seize an opportunity in a tangible way.

While it is unwarranted to understand the interactive (social embedding) model as a one-size-fits-all or even the lone model to explain all the possible antecedents of the decision to consider, embark into, consolidate, promote growth and/or discontinue entrepreneurial activity in the host country, it may be argued that the model provides the “as the rule” position with areas of objection, such as multi-level embedding, becoming the exception position. Clearly, context matters:

• Not all immigrants are perceived or perceive themselves as affiliated to an ethnic minority;
• Not all immigrants are equally challenged (if at all) by the mainstream culture and by its way of doing things;
• Immigrants’ socialization in the host country can be expected to evolve with time (see the discussion of Sydney’s Chinatown in the previous chapter);
• Not all immigrants emanate from countries represented by substantial minority ethnic groups in the host country, even if they settle in large metropolitan areas usually attractive to minority ethnic groups. Invisibility may indicate smaller end less powerful ethnic networks;
• Even if immigrants and their minority ethnic group of affiliation settle in large metropolitan areas, such as London, New York, Sydney or Toronto, different urban milieus in those areas can be expected to have characteristics either favourable or unfavourable to entrepreneurship prospects. What might matter is the milieu, not the city, because “the size of communities, varying widely from one milieu to another, has an impact on the self-employment rates” (Volery, 2007, p. 37; Razin and Langlois, 1996);
• There are many types of immigrants identified in the literature, including entrepreneurial and economic immigrants; in the case of these types of immigrants, most decisions leading to the creation of an enterprise may be taken before arrival in the host country;
• Not all immigrants settle in large metropolitan areas where a non-mainstream solution may be possible; existing theories have not been tested for cases where settlement is in non-immigrant cities or in small and medium cities, where ethnic networks may not be available;
• Sojourners are immigrants whose settlement is only temporary, and that status is known from the outset (www.thefreedictionary.com/sojourner). They are unlikely to behave like committed immigrants (Siu, 1952, p. 34).

Lo and Teixeira (2015) found that ethnic minority businesses in Kelowna (Canada) are less socially embedded than those in large cities given “the absence of institutionally complete communities or strong ethnic economies” (p. 631), allegedly because of less specific support by municipal governments (this is allegedly in line with the mixed embeddedness approach to immigrant entrepreneurship (Kloosterman and Rath, 2001), and because of a lack of a supporting minority ethnic group.

Bernard (2008) and Lo and Li (2011) found that immigrants settling in small cities generally experienced a higher degree of economic integration in the mainstream than their counterparts in large metropolitan centres (Lo and Teixeira, 2015), but evidence from the case of refugees in NSW offers contradictory evidence, with the resettlement of refugees from regional settlements into major cities (Virtue, 2017).

Mixed Embeddedness: The Norm and a Potential Barrier to Growth

The conclusion from the discussion of the social and mixed embeddedness approaches above is that these approaches are not mutually exclusive and, in practice, they offer few departures from the interactive model, depending on the importance afforded to Government regulation. The assumption is that ethnic entrepreneurs benefit from the support of their own social network and social capital, and are subject to the two major levels of embedding earlier discussed. One, as discussed, is the ethnic minority business’ social embedding in the environment of the ethnic-entrepreneur’s co-ethnic group, with its own ethos and with access to proprietary social and ethnic networks; the other refers to the minority ethnic group’s embedding in the unavoidable legal environmental structures of their country of settlement, including the laws, incentives, public institutions and general regulatory practices.

Figure 8.1 Exposure to Environmental Constraints in the Host Country, Ethnic Minority Business

Figure 8.1 is a representation of the different environmental constraints that ethnic minority business must face in assessing the structure of business opportunities discovered in the country of settlement involving the targeting of the minority ethnic group of affiliation, some other minority ethnic group or the mainstream. The figure shows an ethnic entrepreneur’s exposure to different environmental constraints in the host country, depending on which target market is selected. Ethnic entrepreneurs and their ethnic minority businesses are exposed to legal environment compliance, and dependent on support from the informal social network, both of which need to be taken into account to successfully negotiate the different environmental constraints pegged to different target markets and their environments, individually identified by the boxes on the right-hand side. Which environments need to be taken into account depends on, as well as determines, the opportunities considered by the entrepreneur in the discovery phase. Hence, the focus of the typical ethnic minority business on serving the entrepreneur’s minority ethnic group implies that the business is geared or engineered to comply with, and take advantage of, two distinct environments.¹ One is the entrepreneur’s informal social network. The other is the minority ethnic group’s environment, including its social and ethnic networks and affiliates.

It is apparent that any decision to undertake self-employment comes with the question “doing what”? The answer might emerge from discussions and shared experiences with similar co-ethnic others in a process that can help shape the nature and intensity of the ethnic entrepreneur’s motivation, as well as serve as early testing. But, of course, the structure of opportunities that underpin the discovery phase is necessarily challenging for aspiring ethnic entrepreneurs, including the selection and early testing of a perceived opportunity (Dodd and Keles, 2014).

Beyond the inherent difficulty in assessing the promise of a positive payoff, well informed aspiring ethnic entrepreneurs will need to decide on whether they have what it takes to take advantage of the discovered opportunities. In contrast with potential payoff, the feasibility of the various opportunities that are discovered can be assessed by attempting to match own capabilities (e.g. capital, availability of appropriate staff, availability of products) and competencies (e.g. language proficiency, sector knowledge, business skills) to the capabilities and competencies required to take advantage of each of those opportunities. Given the commonalities usually offered by co-ethnic markets, the likelihood of a good match between the attributes valued by the target market and those of the ethnic entrepreneurs and their ethnic minority businesses can be expected. Hence, ethnic entrepreneurs supported by their informal social networks would choose to target their own minority ethnic group of affiliation and, naturally, would be able to do so by deploying ethnic-sensitive strategies (Pires and Stanton, 2015).

Importantly, using the same rationale, any opportunities involving the targeting of other MEGs or the Mainstream would involve many more demands on the capabilities and competencies required from ethnic minority businesses. Targeting other minority ethnic groups or the mainstream will require adjustment by the ethnic entrepreneur to the different ethos of those markets, justifying the need to develop skills in ethic sensitivity to the new markets, indispensable to the provision of effective differentiated value propositions. Competing in other minority ethnic groups’ markets means that the ethnic minority business’ own minority ethnic group’s ethnic networks may not be very effective at the time that the ethnic entrepreneur will be facing ethnic minority businesses aligned to the targeted group which may be supported by that group’s ethnic networks.

Overall, the set of skills required from ethnic entrepreneurs will also be different and more extensive than if focused on their own minority ethnic group as the target market. The effectiveness of informal social networks may also decrease, and access to the support networks of the other minority ethnic groups or of the mainstream may be difficult to assess a priori, which questions the ability to compete with ethnic minority businesses aligned to those minority ethnic groups or the mainstream, possibly deterring the adoption of those opportunities. Deterrence would result because ethnic entrepreneurs would recognize the need for the skills and competencies they lacked, ultimately barring their ability to develop appropriate value propositions for those markets, hence to compete effectively. The question is whether all the above noted challenges also get in the way of ethnic minority business growth. Is the dependence by an ethnic minority business on the minority ethnic group of affiliation a barrier to its continued growth?

Considering Growth Capabilities and the Role of the Co-Ethnic Minority Group

The co-ethnic market is commonly characterized by low barriers to entry, intense competition, low margins, and low liquidity, therefore not designed for significant levels of growth (Butler and Greene, 1997). Yet the proclivity of ethnic minority business is to rely on their minority ethnic group’s market for initial business success, perhaps grounded on a protected market position. The common justification for this is that the minority ethnic group’s tastes may give preference to co-ethnic minority businesses, which can discourage competition by dissimilar others (Aldrich and Waldinger, 1990).

As noted in the previous chapter, in serving their minority ethnic group’s market successful ethnic minority businesses may gain access to markets related to other groups, and even be able to expand to the mainstream market. Opportunities for expansion may arise in markets that are underserved or have been abandoned, perhaps due to low economies of scale and/or unstable or uncertain demand, both of which preclude effective supply by co-ethnic minority businesses. Successful expansion might depend on competitive intensity, on capital and technological requirements and on the ability to adapt relevant social networks to each different market of expansion.

Expansion opportunities may be related to the type of service-products that are offered in different markets, such as the provision of exotic (from the mainstream perspective) goods. For example, ethnic minority businesses of various provenances offering all sorts of relaxation massages have become a recurring feature in shopping malls in many Australian cities. This shows that ethnic minority businesses may be able to expand their offers to a variety of markets, although this might depend on the nature of the business activity, on the type of service-products they offer and on the context of the particular market. A focus on co-ethnic products was found to have a positive effect on ethnic minority business growth, reinforcing the view that idiosyncratic resources should not be overlooked as drivers of ethnic entrepreneurship (Dodd and Keles, 2014).

Table 8.2 consists of a list of possible types of markets that an ethnic minority business might target for growth. The table basically differentiates between the minority ethnic group of affiliation and minority

ethnic groups with distinct provenance (for both cases, the table considers markets at one location, at different locations in the same country and at many locations in many countries). Types G–J refer to other markets, including the mainstream and the home country, by way of internationalization, multinationalization and/or globalization, as well as via e-commerce. Using the previous discussed rationale, it is clear that different types of ethnic minority businesses (by selected market) will be embedded in contrasting environments, each requiring an adapted set of capabilities and competencies, and facing heightened and possibly unique sets of challenges.

Bonacich (1973) proposed that ethnic minority businesses (Type A) can only prosper if they breakout from local co-ethnic market limitations, suggesting transformation into Type B by expansion to different locations (regional or national) where their minority ethnic group is present, or even Type G by targeting prosperous mainstream markets (Jones-Evans, Thompson and Kwong, 2011; McEvoy and Hafeez, 2007). The need to breakout from the co-ethnic group has been advocated by Basu (2010), Altinay (2008), Nwankwo (2005) and many other analysts.

Transnationalism is not an uncommon practice for ethnic minority businesses, slotting as Type C. Such is the case, for example, of Chinese entrepreneurs in Vancouver, Canada, who circulate themselves and their resources between Canada and Asia in the operation of their businesses (Wong and Ng, 1998). Other examples include a variety of ethnic minority businesses affiliated with the Portuguese minority ethnic group in Sydney and “a handful of highly successful firms”, whose profitability is not due to their break out from the low value business ghetto, … but to their successful transfer of substantial capital assets from previous business in Afghanistan, Iraq and Poland (Edwards et al., 2016, cited in Ram, Jones and Villares-Varela, 2017, p. 9).

In the case of ethnic minority businesses Type D and Type E, furthering their reach beyond the frontiers of their own minority ethnic group involves breaking into more challenging markets because of the management and social processes that are needed (Ram and Jones, 1998), exposure to unfamiliar environments, diminished support from co-ethnic minority group’s networks and a general need for innovation. While starting-up an ethnic minority business requires a move from discovery, selection and planning of opportunities with co-ethnic significant others, growth requires new ideas, new resources, new networks (Dodd and Keles, 2014) and, eventually, new service-products. That is, the strengths that justify successful performance in the co-ethnic market can become the weaknesses when attempting to break out from that market (Masurel et al., 2002).

Ethnic minority businesses Type I relate to cases where exploitation of the co-ethnic market may serve as an export platform from which these businesses may expand and grow. The extract from Aldrich and Waldinger (1990) is an excellent example of the process by focusing on the Cuban community in Miami, Florida:

In broader terms, opportunities for ethnic minority businesses type I are related to interactions of social capital with international opportunity development. While these opportunities may arise in ad hoc ways, there is evidence that “ethnic ties, in opposite to non-ethnic ties, are observed to influence internationalisation” (Prashantham, Dhanaraj and Kumar, 2015; Tian et al., 2018, p. 3). This is of particular relevance because social capital and emerging opportunity creation are not usually linked in the specialist literature, Zaefarian, Eng and Tasavori (2016) being a recent exception, albeit in a family business context.

Finally, in relation to ethnic minority businesses Type J, there is evidence that these businesses are late adopters of information and communications technology (ICT), although the prognosis is positive about closing the gap with earlier users of ICT (Dodd and Keles, 2014; Beckin-sale, Ram and Theodorakopoulos, 2011).

Figure 8.2 presents a summary of the various aspects influencing ethnic minority businesses’ growth that need to be understood.

The figure identifies five classes of influencers, each of which is supported by a table that summarizes the major issues of relevance, recognizing that an ethnic minority business’ growth is a function of the ethnic entrepreneur’s characteristics, of the business characteristics, of the informal networks, characteristics of the minority ethnic group and human relations (HR). The five classes of influencers are:

• Entrepreneurs characteristics—discussed in Table 8.3;
• Ethnic minority business characteristics—discussed in Table 8.4;
• Informal networks—discussed in Table 8.5;
• Minority ethnic group’s characteristics—discussed in Table 8.6; and
• HR strategy—discussed in Table 8.7.

Figure 8.2 Influencers on Ethnic Minority Business Growth Business growth (y) = f(Entrepreneur’s personal resources; the firm characteristics; networks; human resource strategy)

Even a superficial examination of the six tables provides overwhelming evidence of the complexity surrounding practical understanding of the challenges faced by ethnic entrepreneurs aiming at growing their ethnic minority businesses. Notwithstanding, reflection on the relevant issues needs to go further by recognizing that ethnic entrepreneurs are individuals who are subject to processes of acculturation and possible cultural shock upon arriving in the host country, before usually settling into some state of socialization equilibrium. Since the ethnic entrepreneur is often an ethnic minority business, and these businesses usually retain their small size (Butler and Greene, 1997), it is justified to argue that ethnic minority businesses are also subject to an acculturation process. This argument is further developed in the next section.

Ethnic Minority Business and the Acculturation Process

While an ethnic minority business may be initially created to explore an opportunity provided by unmet needs and wants within an ethnic entrepreneur’s minority ethnic group of affiliation, its successful performance may enhance not only the entrepreneur’s business acumen but also the ethnic minority business’s ability to take advantage of opportunities on offer within other minority ethnic groups’ markets, starting with those sharing the most ethnic-sensitive characteristics and co-locating or locating in relatively close proximity to the minority ethnic group of affiliation. This might be the case particularly where aspects of a minority ethnic group’s culture—such as language, race and language—are somewhat similar to those of other minority groups, but key factors might also be the ongoing shared handicap of market segregation/exclusion and the shared feeling of poor socialization relative to the mainstream.

If several minority ethnic groups share the same suburb, their affiliates can be expected to become acquainted, at least visually, sharing adjoining properties, streets and government services. In Australia, residents are expected to make their garbage bins available for collection by Council on particular days and will suffer together the consequences of blackouts, noise and other phenomena that can get people to start talking to each other, perhaps striking friendships over time, an eventuality that is only likely to augment when their children share the same public school, sports activities, and other similar group activities. It is also likely that co-locating minority ethnic groups share a variety of businesses as users, such as local restaurants, pharmacies, pool supplies stores, as well as the local supermarket.

Razin and Light (1998) provided evidence of spatial variations for a same minority ethnic group, and variations between different groups in the same economic milieu. The local influence depends not only on the local economy structure, but also on the characteristics of the local ethnic community, such as the specific location of ethnic networks. A further attribute is discrimination through the absorbing environment but also through the local community. Opportunities should therefore be analysed on a national, regional and local level (Boissevain et al., 1990; Volery, 2007, p. 35).

In the process of discovering and taking advantage of opportunities on offer within other minority ethnic groups’ markets, the ethnic minority business might also gain access to other minority groups’ ethnic resources, widening its ethnic network to become multi-ethnic, and perhaps achieving a preferred supplier status to more than its minority ethnic groups of affiliation.

By the same token, market diversification may also provide the opportunity for ethnic minority business to widen their cultural sensitivity skills in serving a variety of minority ethnic groups, as well as the mainstream, in a process that may culminate in the loss/exchange of the ethnic minority connotation for that of a mainstream supplier. Clearly, there are many mainstream businesses managed by minority entrepreneurs, although those businesses might not meet the common definitional requirements of an ethnic minority business.

Whether the status of preferred supplier to one or more minority ethnic groups may be kept over time depends on the ethnic minority business’ intent and ability to maintain and even enhance its bridges to those minority ethnic groups, while also establishing bridges of access to the markets of expansion. This is also the reason why a minority ethnic group’s ethnic network may include mainstream businesses in their set of preferred suppliers. Other mainstream businesses include grocery stores, pharmacies, restaurants, childcare services, travel agents and many other activities (Pires, 2001). As forwarded by Ram, Jones and Villares-Varela (2017), ethnic minority business research has overlooked high value activities such as professional services (Vallejo and Canizales, 2016). Breakout strategies from the ethnic economy include the study of ethnic firms in Italy, which are likely to become more culturally hybrid over time, reducing their dependence on ethnicity, opening up to mainstream markets and assimilating to Italian companies (Arrighetti, Bolzani and Lasgni, 2014).

The question is whether ethnic minority business acculturation follows the personal acculturation pattern followed by ethnic entrepreneurs on arrival in the new country. That is, if an ethnic entrepreneur becomes highly socialized to the mainstream and expands operations into the mainstream market, what happens to the ethnic minority business? This is a relevant question because “ethnic … communities have specific needs which only co-ethnics are capable of satisfying” (Waldinger, Aldrich and Ward, 1990; Volery, 2007, p. 34). Will ethnic minority businesses lose their ethnic connotation?

Ram, Jones and Villares-Varela (2017) highlights some of these aspects by pointing out how the field of migrant entrepreneurship has overlooked research on entrepreneurs in high value activities, such as professional services (Vallejo and Canizales, 2016), and the ways in which class positions are vital to understand the strategies of Latino entrepreneurs in the USA. Accounting for context in breakout strategies from the ethnic economy is a theme explored by Arrighetti, Bolzani and Lasgni (2014) in their study of migrant firms in Italy; they conclude that firms are likely to become more multicultural (or culturally hybrid) over time, moving beyond the over-reliance on ethnic markets and opening up to mainstream markets and assimilating to Italian companies. While these elaborations on the future are exciting and appealing, evidence is still lacking.

Growth and Demise

The environment confronting ethnic entrepreneurs and their ethnic minority businesses is fraught with difficulty since self-employment may be due to exclusion from job opportunities, justifying a proliferation of small ethnic minority businesses, intense competition and, allegedly, a high failure rate (Ekanem and Wyer, 2007; Aldrich and Waldinger, 1990). Needing to become an inexperienced and possibly unprepared entrepreneur as a means to escape market exclusion is quite distinct from wanting and being prepared to engage in business. Notwithstanding, even in the case of better prepared aspiring ethnic entrepreneurs, as reported by Clydesdale (2008), their proposed ethnic minority businesses either did not materialize or ended in failure. There are also accounts of ethnic minority businesses affiliated with the Latino community who have historically achieved extensive business start-up growth, even above that of mainstream entrepreneurs, although their record is considered poor in terms of business failure and demise (Ortiz-Walters, Gavino and Williams, 2015).

The difficulty in developing strong insights into ethnic minority business growth is inextricably linked to a lack of clarity about how to measure performance. Ethnic minority business performance is difficult to assess separate from criteria applicable to business in general, by means of indicators such as volume of sales, revenue and profitability. But even when these indicators are available, their real meaning and trustworthiness is questioned given numerous reports of underpayment for extremely long hours worked by co-ethnic employees and, particularly, family employees.

Furthermore, there is more to performance than tangible indicators. It may be argued that assuring family employment or enhancing one’s social status may be important key performance indicators, if those are the entrepreneur’s/ethnic minority business’ key business objectives. Gathering data on those indicators is difficult and often requires longitudinal research designs. Unfortunately there are few longitudinal studies of ethnic businesses (Benavides-Velasco, Quintana-García and Guzmán-Parra, 2013; Stewart, 2003).

Even if the challenges of identifying performance indicators are set aside, monitoring ethnic minority business growth is challenging due to a lack of clarity on when ethnic minority businesses lose their “ethnicity” connotation. Following Vandor and Franke (2016), Dietrich Matesschitz, Elon Musk and Sergey Brin share their history as migrants and their success as entrepreneurs who started ethnic minority businesses in host countries. Today they are recognized for their association as founders or co-founders of other businesses, respectively of Red Bull, Tesla and Google. Few would recognize these enterprises as ethnic minority businesses. Hence it is appropriate to ask when ethnic entrepreneurs lose their ethnic label.

Manifestations of growth experienced by ethnic minority businesses have been associated with cultural and social factors (Waldinger, Aldrich and Ward, 1990), some of which relate to the employment of family and co-ethnics, contrasting with suggestions that some of those factors can hinder ethnic minority business growth due to reluctance to delegate responsibilities to non-family employees, as in the case of South Asian ethnic minority businesses in Great Britain (Basu and Goswami, 1999). The takeaway here is that the employment of unskilled or untrained family members can be both an asset and an important handicap in securing the capabilities and competencies needed for ethnic minority businesses to pursue growth opportunities.

A further eventuality to consider in explaining the declining growth experience of an ethnic minority business is the cessation of the objectives that led to the creation of the ethnic minority business in the first place. Ability, need and opportunity were identified as major business start-up determinants in Sweden. That need-related issues appear more important than ability and opportunity supports Davidsson’s (1991) argument that needs satiation is a major reason why small firms such as ethnic minority businesses stop growing, or altogether cease their activity.

Overall, there are no clear, general guidelines that can be put forward with confidence involving ethnic minority business growth, except for growth derived from the delivery of more efficient, value-creating marketing activities to the minority ethnic group. Increases in group size and in the wealth of its affiliates can sponsor ethnic minority business growth, provided the enterprise develops the appropriate set of capabilities and competencies grounded on a reciprocally beneficial relationship with the group’s ethnic networks. In contrast, there is evidence that ethnic minority business lack of access to their minority ethnic groups, or their group’s loss of substantiality, is likely to explain declining sales, ethnic minority business demise and even loss of the business altogether (Komakech and Jackson, 2016).

Intertwined with the attempt to discern threats and opportunities in the growth efforts of ethnic minority businesses, and perhaps weighing even more in its outlook, is the need for change within the business in response to dynamic ethnic markets. Better-educated ethnic entrepreneurs can be expected to be more apt in negotiating expansion into more demanding higher quality markets but, as noted in the previous chapter, educational progress also explains a growing switch from self-employment to professional and white collar employment, as is the case of Indian and Chinese entrepreneurs in the UK (Jones, Mascarenhas-Keyes and Ram, 2012) or, indeed, the case of Chinatown in Sydney. While it may not be reasonable to assess cases such as these as ethnic business failure, they are cases of demise.

Conclusion

The discussion of the importance of minority ethnic groups for the discovery, start-up and consolidation of ethnic minority businesses in the previous chapter highlighted the crucial role of access by these businesses to a minority ethnic group’s ethnic networks. The main focus in this chapter was on ethnic minority business growth through expansion to alternative markets, distinct from the minority ethnic group of affiliation, whether minority, mainstream, international, transnational or even global.

Dependence on social and ethnic networks can be fundamental in the uptake of expansion opportunities. What this means is that the capabilities and competencies of an ethnic minority business are shaped by these networks, which can be the source of competitive advantage. Notwithstanding, the link between culture and social networks remains open to clarification (Klyver and Foley, 2012).

The major discovery in this chapter was that ethnic minority businesses are embedded in a variety of environments determined by the markets being targeted. The decision to extend operations to a different minority ethnic group’s market needs to be cognizant of potential changes in the access to ethnic networks. Furthermore, because effective performance in different environments implies that the ethnic minority business must have appropriate sets of skills and competencies for each market this can be a major inhibitor to the uptake of potential expansion opportunities to the different markets. That is, the strengths that justify successful performance in the co-ethnic market can become the weaknesses when attempting to break out from that market (Masurel et al., 2002). If growth is sought by engaging in different cultural environments, the advantage can turn into a disadvantage.