Scottish Government

Professor David Deakins, Dr Mohammed Ishaq, Professor David Smallbone*, Geoff Whittam and Janette Wyper
Paisley Enterprise Research Centre, University of Paisley and *Small Business Research Centre, Kingston University
ISBN 0 7559 2573 4

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This report provides the main findings from a national scoping study on minority ethnic businesses ( MEBs) in Scotland. The study was commissioned by the Scottish Executive. The study incorporates secondary data analysis from the 2001 Census, quantitative baseline data analysis, qualitative in-depth interviews with MEB owners and extensive consultation with a range of key informants from stakeholders to provide the main findings.

Main Findings

• The secondary Census data analysis indicated that MEB owners account for just over 3 per cent of all self-employed in the nation. It is estimated that there are over 4,400 MEB registered enterprises in Scotland. The highest rates of self-employment are in the Pakistani, Chinese, Indian and Bangladeshi communities respectively. The relative proportion of the numbers of MEBs in Scotland is expected to increase due to the younger demographic profile of the minority ethnic population.
• Glasgow contains the greatest concentration of minority ethnic enterprises with MEBs accounting for 10.6 per cent of the self-employed. It is estimated that there are over 1600 VAT registered MEBs in Glasgow alone. High rates of self-employment also exist in Edinburgh, particularly in the Pakistani community, with MEB owners accounting for over five per cent of the total numbers of self-employed for the city. Dundee is also important where MEBs account for over 7 per cent of the self-employed for the city.
• The Central Belt is significant for minority ethnic enterprise with this area containing over 45 per cent of all the minority ethnic self-employed in Scotland. In the remaining rural areas, of the Highlands and Islands and the South of Scotland, MEBs are much smaller in number and more dispersed, although there are still some high rates of self-employment.
• The quantitative database analysis, comparing MEBs in Scotland to a white control group and equivalent MEBs in England, found a concentration of Scottish MEB owners in traditional sectors of retailing and catering. The analysis also indicated a lower propensity of MEB owners in Scotland to obtain management qualifications and formal training (compared to MEBs in England). However, the analysis found that MEBs in Scotland were not disadvantaged in terms of their actual growth performance.
• The database analysis found larger differences between minority ethnic groups in their success in raising external finance at start-up than between MEBs as a group and white-owned firms. Chinese-owned firms who showed the highest propensity to access finance from mainstream sources and to access external advice at the start-up stage. MEB owners were significantly more likely to draw on finance from family and friends at start-up than white-owned firms. Finance from informal sources appeared particularly important in the case of Pakistani-owned firms. In seeking and accessing formal finance, MEB owners had lower success rates than white-owned firms. In seeking and accessing advice and support, MEBs were less likely to do so than white-owned firms, although there were differences between minority ethnic groups.
• The in-depth interviews revealed great contrasts between the experience of MEB owners in different locations, in different sectors and in different markets. MEB owners in declining sectors and in declining markets have adopted coping strategies that draw upon innovation in service and product provision and adding value, there is also evidence of successful diversification and breaking into new markets, but a common theme is high drive and ambition of MEB owners who were able to achieve business development and growth even in traditional sectors and in the face of increased competition.
• In accessing formal finance, the qualitative findings indicate a dependence by MEB owners on personal and informal community sources for finance. This finding is further affected by a marked reluctance to approach institutional providers, even with 2nd generation owners. Although variable, MEB owners tend to be well-educated and some have been willing to engage in additional training, although there is some evidence that this could be enhanced. They are adaptable to the demands of new technology and willing to innovate. Although the quantitative baseline analysis indicates limited management qualifications and training, the interviews reveal that when training is available, then MEB owners will take this up.
• The role of social capital and resources acquired from close knit networks, was complementary to that of informal capital, although it may act as a barrier to the ambitions of younger and 2nd generation MEB entrepreneurs. Related to this finding, is the lack of awareness and, more important, basic knowledge of the level and type of services provided by the mainstream agencies.
• The interviews also indicated additional issues of diversification, crime, security, insurance and racism, further highlighting and reinforcing the diversity of MEB experience in different sectors and localities in Scotland. In some localities, such issues are an acute everyday and common occurrence, in some cases, such barriers have been overcome by remarkable resilience in the face of adversity in trading conditions, in other cases, there has been a more stoic acceptance that such difficulties are part of the normal and expected patterns of establishing a successful business.

Research Questions

The national scoping study aims included coverage of the following research questions:

R1: To provide information on the distinctive issues and the distinctive importance of MEBs in Scotland
R2: To investigate the nature and distinctiveness of issues faced by MEB owners in different sectors and in different localities in Scotland.
R3: To provide insight into the characteristics and experiences of MEBs in Scotland (particularly those that are Pakistani, Indian or Chinese-owned), paying particular attention to any distinctive features, compared with those of their counterparts in the UK.

Research Methods

The national scoping study utilises a combination of quantitative and qualitative research methods defined over two main stages. The first stage has involved analysis of secondary data, quantitative analysis of baseline data and a programme of qualitative face-to-face interviews with MEB owners. The second stage involved informed consultation with community leaders and key informants as stakeholders in minority ethnic enterprises in Scotland.

The secondary data utilises analysis of the 2001 Census The baseline dataset was held on 81 MEBs, located in Scotland. This is part of a larger dataset held of 855 MEBs in the UK for six minority ethnic groups. The dataset was constructed from a two-stage set of telephone interviews conducted with MEB owners during 2000 and in 2001. Therefore the dataset is contemporaneous with the 2001 Census. 41 face-to-face interviews were conducted from a 'target' database, which contained representative geographic coverage and sectoral coverage, inclusive of both emergent as well as traditional sectors. A semi-structured but flexible interview guide was used, with all the researchers employed on the project having previous experience of conducting qualitative research with MEB owners. In some cases, interviews have been conducted in the respondents' first language and subsequently translated.

Conclusions

In importance of the numbers of MEBs, it is noted that there are likely to be over 4,500 MEBs contributing an estimated £500 million to £700 million towards Scotland's GDP. In diversity, MEBs contribute to range of sectors and locational areas although there are still concentrations in traditional sectors. In location, the highest concentrations are Glasgow and Edinburgh, however, MEBs also contribute to diversity in other locations, especially areas of the Central Belt. In rural areas as well, such as the Highlands, the role of minority ethnic enterprises help to diversify and enrich local rural economies, particularly given the demographic context for rural areas, which generally provide a more marked ageing population structure than other areas of Scotland.

There is comparatively low access to formal sources of finance. There is a marked reluctance by MEB owners to approach banks and institutional providers of formal sources of finance, although there is little reporting of any dissatisfaction with the commercial banks. Take-up of targeted financial schemes was also low, for example with micro-credit or loan funds that might have MEB owners as users. It is suggested that it is an issue that may be compounded by the lack of engagement by MEB owners with mainstream support (and other agencies) that could act as a referral mechanism for such sources of finance. There appeared to be a lack of intermediaries between agencies, the banks and minority ethnic communities that would provide a means of building the trust that is required to establish relationships with the commercial banks.

The nature of succession planning is a further issue. Many MEBs are family businesses and where these are in traditional sectors there may be a reluctance of the 2nd generation to continue in the family business. In addition, in some cases, there are different attitudes of the 2nd generation even where they wish to continue with the family business. Although there will be similar issues in family businesses generally, the nature of such issues will be different with MEBs and may require specialised advice and support.

A further issue is the marginalisation of MEBs in some localities, trapped in hostile trading conditions that exist in difficult environments, often facing crime and racism. The geographical distribution of MEBs is very uneven. Likewise so is the pattern of MEB experience and trading conditions. MEBs in rural areas are virtually invisible in terms of assistance and profiling. Their needs are different, they do not have the advantage of strong networks and strong social or informal sources of capital, therefore, they may be more self-reliant and may require specific assistance.

A number of areas for further research arise from this study including: quantitative data collection on the importance and pattern of MEB owners in local economies, further qualitative and longitudinal research to capture the dynamic aspects of business development with MEB owners in different sectors. Further research could investigate the nature of inter-generational ambitions and succession planning, the relationship between formal and informal sources of both finance and advice whether they are substitutes or complementary, is a key area for further investigation. There is a need for further research to examine ways of achieving in supplier diversity and as a source of competitiveness for the Scottish economy.

Recommendations

Minority ethnic diversity is important for contributing to the competitiveness of individual businesses and economies in various ways. It is suggested that diversity can be seen as a source of creativity and innovation and that policies can be developed to help promote such diversity.

It is suggested that the key issue for the Scottish Executive and the Enterprise Networks is the development of initiatives that improve communication and engagement with MEBs, partly through initiatives that provide incentives, such as targeted procurement policies and through the need to develop links with community leaders or with organisations that represent MEB owners. An increase in the take-up of formal training should follow from increased engagement. The feasibility of establishing a representative formal body for MEBs in Scotland such as a Minority Ethnic Business Forum or Institute should be explored. Any initiatives to raise profile will need to be embedded in local minority ethnic communities to provide the bridges to build trust. The study also notes the importance of the legal context, for support agencies, from the Race Relations (Amendment) Act 2000. For example, such organisations will need to be aware of how this Act extends protection against racial discrimination by public authorities and places a new enforceable general duty on public authorities to promote equality and eliminate discrimination, including in the delivery of support.

Support for MEBs in marginal trading conditions probably needs co-ordinated and targeted assistance from a range of organisations to ensure that trading conditions improve and assistance is provided to achieve breakout of such markets and environments. However, the concern of MEB owners in such environments could provide an opportunity for a policy initiative targeted against crime and racism, this would provide an incentive for MEB owners to engage with providers of public sector support and advice. An examination of policies designed to improve local trading environments through holistic approaches could be examined from elsewhere in the UK.

In rural localities, new MEBs provide additional variety, diversity and creativity in the local environment that can attract additional wealth into such areas through increased tourism and trade. It is argued that it should be a part of the policy of agencies in such areas to attract greater numbers of MEBs. As well as contributing to local rural economies through the natural diversity of MEB business ownership, the ethnic diversity of cuisine and culture should be an element of a tourism strategy, encouraging development of MEBs in these sectors to promote diversity, providing a mechanism to engage MEBs in mainstream support, whilst recognising their distinctive needs.

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