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Study: Isolation Hurts Many Minority Firms


Many minority-owned businesses in Los Angeles and Orange counties are isolated in ethnic and neighborhood enclaves, clustered in slow-growth sectors and lack critical resources to expand their market reach, a novel study released today has found.

The survey, administered in five languages, was conducted by the nonprofit Community Development Technologies Center with funding from the Merrill Lynch & Co. Foundation. Its goal: to assess the weaknesses and needs of a massive group of often-invisible entrepreneurs whose economic health is intricately linked to the region's economy.

The types of businesses surveyed--all had fewer than 100 employees and most employed fewer than five--dominate minority neighborhoods, and their ability to grow is critical to neighborhood health. Yet even as mainstream retailers and other businesses increasingly target minority consumers, many minority entrepreneurs have been unable to break out of their own narrow ethnic niches, the survey found.

"These are changes our entire state is going through--changes in demographics, market reach and scope," said Merrill Lynch Vice President and Community Development Manager Garrett Gin. "We thought it warranted better study."

Many minority entrepreneurs fall below the radar of typical business surveys, which tend to be conducted in English and draw respondents from mainstream databases such as Dun & Bradstreet. Researchers from the L.A.-based Community Development Technologies Center, on the other hand, spent months consulting with ethnic chambers of commerce and specialized business assistance groups to cull a comprehensive listing.

Focus on Minority Entrepreneurs

By targeting 1,200 Latino and Chinese, Korean, Vietnamese, Japanese and African American entrepreneurs separately and in their language of choice, the survey also got beyond the myth of minority entrepreneurs as a unified group. The results revealed complex business communities with distinct needs.

"We did this . . . to get beyond boosterism," said CD Tech President Denise Fairchild. "Everyone's so impressed . . . that minority businesses are growing [in number] at rapid rates, but there's very little information about who are these people, what do they contribute to the economy and, more importantly, what are their challenges?"

More than 75% of respondents had at least some college education. Two-thirds of businesses had operated for nine or more years. And half projected sales growth next year.

But the survey also found--with minor exceptions--an isolation that must be corrected for substantial growth to take place.

"While they've done well, particularly in the last three to five years, fundamentally the picture is one of a business community that is not mainstreamed yet," Fairchild said. "They're not getting into high-value, high-growth sectors. They're not connected to mainstream business networks and chambers and they're not utilizing the Internet or state-of-the-art technologies."

All those factors, meanwhile, were critical to growth--both of revenue and in number of employees, the survey found. (The companies that grew the most had participated in professional associations, adapted to new technologies and expanded their market scope.)

The minority businesses overall had paid more than nonminority counterparts to start and operate a business. They were also underrepresented in the region's rapid growth sectors: Only 3% operated entertainment-related companies, compared with 7.6% of non-minority firms. Fewer than 5% were in high-tech manufacturing sectors such as electronics and transportation, compared with 10% for non-minority businesses.

More striking still were the textured differences among communities.

Although African American entrepreneurs tended to be more experienced, more networked, more likely to own high-end service businesses and more technologically savvy, they were denied bank loans and other credit at more than three times the rate of Asian American entrepreneurs and significantly more than Latinos.

Korean American business owners were the only ones who overwhelmingly said they launched businesses as a last resort, because they felt it was the only way to make a decent living. And fully 49% want assistance with retirement planning or succession, indicating an impending exodus from entrepreneurship.

"A lot of the [Korean Americans] who own retail businesses don't plan to pass them on to their children, so they really need help in that area," said Caroline Kim, former marketing manager for the Los Angeles Community Development Bank and an advisor on the project. "Most of their children have gone on to college and graduate school."

Differences Among Ethnic Groups

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