Challenges Confronting Minority Owned Businesses in the United States? Globally?
Although the minorities in the U.S. and globally have experienced significant advancements in their rights, in educational opportunities and economic well-being, many minority-owned businesses still face significant challenges in competing in the marketplace on a national and global level. According to the U.S. Department of Commerce data (2014), the minority-owned companies contributed to the Nation’s economy with their $66 Billion in annual economic output and 342 thousand of employees in 2007. The minority-owned companies made only 14.3 per cent of total number of firms in the U.S. in 2007. In 2011, according to SBA, there were 5,989,000 minority-owned firms that made 21.3 per cent of all businesses in the United States.
In 2007, the average gross receipts of these companies are three times less as compared with non-minority firms. While the number of minority-owned firms is 6 times less than the number of non-minority companies, the number of companies with employees is ten times less in case of minority-owned businesses. It means that only 30% minority-owned firms as compared with 47% non-minority businesses have enough scale and market presence and generate enough earnings to hire employees. The rest of the business entities are run by individual entrepreneurs.
The size of business of minority-owned companies is significantly smaller as compared with non-minority firms with average receipts of firms with employees twice as lower. The gap between average gross receipts of minority-owned companies (both with and without employees) and non-minority businesses is even higher – three times with $0.8 million in average receipts and $2.4 million in receipts respectively.
The trend in amount of business operations and, respectively, receipts, is also reflected in the number of paid employees: the minority-owned companies are significantly smaller in size. While the average number of employees working for a non-minority business is 24, the average headcount for minority-owned company is almost twice as lower – 14 employees.
Minority business programs appeared as a compliance requirement in 1964, but actually the active movement began in early 1980s. All the new companies meet significant challenges in developing their businesses such as lack of working capital, competition, insufficient business networks, access to funding, etc.; but the minority-owned business sector faces even larger obstacles, preventing its fast growth in number of companies and turnover.
At the same time, in recent decades the minority business ownership has been on the rise. According to Minority Business Development Agency and U.S. Census Bureau, the number of minority-owned companies grew 27%, while the number of non-minority companies increased in number by 17 per cent. These data are outdated, but the next 2012 Survey of Business Owners data processing is still ongoing; the research results will be released later in 2015. Basing on available data, we can conclude that minority-owned business was developing faster than non-minority business between 2002 and 2007, in terms of number of entities, employee headcount and gross receipts.
The business activity of minority-owned firms can be assesses by analyzing the amount of contracts facilitated by the Minority Business Development Agency (MBDA). According to MBDA data, between 2013 and 2009 it helped minority-owned companies to obtain $12.8 million in contracts; $2.8 million (over 20 per cent) attributed to manufacturing companies. Minority-owned companies with employees are concentrated primarily in food, fabricated metal and apparel subsectors. The largest companies in terms of headcount are concentrated in plastics and rubber (46 employees per company in average) and transportation and equipment subsectors. But at the same time the largest receipts are generated by the companies operating in computer and electronics, food and fabricated metal industries. This trend reflects market demand. In last two subsectors the average employee headcount is above average. In a relatively new and progressively developing computer industry (leading by the amount of receipts) the average number of employees is about 20.
Minority-owned companies are more integrated in a global trade as compared with the rest of the businesses. 14% of all minority-owned manufacturing businesses generate revenues from exports. According to Minority Business Development Agency, minority-owned manufacturing companies are more likely to have international operations compared to non-minority manufacturers. It can reflect he cultural aspects of doing business, and also can be the evidence of dominance of non-minority companies at the local market.
Hispanic Americans own 45% of all minority-owned manufacturing companies and generate 34% of all earnings of all minority-owned manufacturers. This is just a reflection of a general demographic situation. According to Census U.S. (2012), Hispanic American made 46% of total number of people of all races and ethnical origins except white or 17% of the total U.S. population. The largest share of minority-owned businesses, basing on 2007 data, was concentrated in California. In 2011, in California there were 1.3 million of minority-owned businesses (35.6 per cent of all companies in the state).
One of the main trends of interest is increasing business ownership in African-American populations. High school and college graduation, homeownership rates and income level rose, household income increased, and poverty declined. All these factors created favorable climate for developing entrepreneurship in African-American populations.
Basing on most recent available data of U.S. Census on 2007, the total number of African American-owned firms in the U.S. amounted to 1.9 million (33% of all minority-owned companies). These companies contributed $136 billion in economic output and 910,000 jobs in 2007.
African American-owned companies with employees had 9 workers in average and $912,000 in annual receipts (as compared with all minority-owned companies – 14 employees in average and $801,121 in total receipts respectively). So, the Black-owned firms were in average smaller in size and in terms of business revenues.
Together with lower buying power, the African-American population has lower share of entrepreneurs and business owners as compared with the rest of population. With 26.4 million of Black adults in America, African-American businesses only produced $135 billion in annual receipts, while 10 million Asians generated $505 billion. This trend can be illustrated with the entrepreneurial parity. If the proportion between share of the African American adults in total population and the key indicators of African-American-owned businesses was in place, the positive impact on the U.S. economy would be higher. The number of Black-owned firms would be twice higher; the number of jobs offered by those firms would be almost 8 times higher, and the gross receipts would be 10 times higher.
In 2007, most of the African-American-owned enterprises operated in the following sectors: healthcare and social assistance (19%); administrative support, waste management and remediation (11%), transportation and warehousing (9%). Manufacturing constitute the minor share, making up 33% of total firms together with agriculture, utilities, information, finance, etc. So, the African-American-owned businesses are primarily oriented at services.
The growth rate of the African-American-owned businesses between 2002 and 2007 was very high, as compared with total minority-owned firms and non-minority companies. For example, if total number of non-minority firms grew by 9 per cent between 2002 and 2007, the number of African-American-owned businesses increased by 60 per cent. African-American businesses are less export-oriented than other minority-owned and non-minority firms: exports made 5.1 percent of total revenue for African American-owned exporting companies in 2012; the share of exporters is about 3 per cent as compared with 3.7% share in non-minority businesses, according to U.S. Census. The average growth number of African-American owned companies between 2002 and 2007 is 60%, but there were states where the number of Black-owned companies grew twice or even more than twice. These states are Georgia, North Dakota and Maine.
One percent of African American-owned companies were considered high revenue in 2007. These businesses are responsible for 57% of the total receipts and 61% of all working places created by African-American firms. African-American-owned businesses accounted for 28.2 percent of businesses in the District of Columbia, which was followed by Georgia, and Maryland. Among states, New York had the largest total absolute number of Black-owned companies (204,032). So, New York accumulated almost 11 per cent of the African-American-owned businesses in the U.S. Fast-growing and dynamic, African-American business ownership still has its potential for further growth in number, turnover and returns.