Academic journal article Journal of Small Business Management

Ethnic Enterprises and Their Clientele

Academic journal article Journal of Small Business Management

Ethnic Enterprises and Their Clientele

Article excerpt

The goal of this article is to examine the relationships between ethnic-minority businesses and their co-ethnic customers. Semi-structured interviews with 33 black owner/managers were conducted, followed by a qualitative analysis of their comments. Out of these interviews emerged a theoretical framework which highlights three dimensions: (1) the coincident roles of business owner/manager and co-ethnic individual; (2) the easy flow of communication among co-ethnics; and (3) the symbolic aspects of ethnicity. These dimensions are causes of the ambivalent relations that exist between many businesses and their co-ethnic clients. Operating in the ethnic enclave and having a large proportion of co-ethnic clients accentuates ambivalence. Propositions are developed for future testing.

This article explores the ongoing relationships between ethnic minority businesses and their co-ethnic clients. In the eyes of business owners, what is the role of ethnicity in their dealings with customers? The majority of studies on ethnic entrepreneurship focus on business start-ups, explaining why and how members of various ethnic groups create new businesses (Aldrich and Waldinger 1990; Juteau and Pare 1996; Light 1980; Waldinger,Aldrich, and Ward 1990). Neglected, however, are other aspects of business activity such as management and growth, strategy, and social issues. A better understanding of the social networks within which entrepreneurs continue to develop their operations is required (Donckels and Lambrecht 1997; Greene 1997). We need to recognize that entrepreneurs are interdependent social actors who must "build relationships in which other actors cooperate" (Seltsikas and Lybereas 1996, page 33).

The goal of this research is to explore the significance of the ethnic-minority group in relations among business operators and their clients, in particular, their ethnic clients. We use Feagin and Feagin's (1996) definition of the ethnic group as a group that is socially distinguished (by others or by itself) by characteristics of cultural or national origin. We subscribe to the view that "ethnicity remains essentially subjective, a collective sense of social belonging and ultimate loyalty related to parentage and a belief in common origins" (RomanucciRoss and DeVos 1996, pg. 350). Ultimately, we wish to build a theoretical framework which explains the factors and strategies used by ethnic firms in their relationships with clients.

Greene (1997) argues that the ethnic community may be a source of such intangible assets as values, knowledge, and networks upon which entrepreneurs may draw. Bonds of solidarity within the ethnic community provide resources for business operators as they establish and develop their firms. In her case study of a Pakistani community in the United States, Greene found that ethnic ties were a source of sustainable competitive advantage which encouraged the emergence and growth of new business ventures. By extension, these intangible bonds might show themselves in the loyalty of co-ethnic customers to the ethnic enterprise. Fukuyama (1995) also notes that trust within communities aids the development of secure business relationships and positive economic outcomes. To the extent that ethnic ties are a basis of trust between business and client, we should be able to detect benefits to individual businesses derived from a shared ethnicity with their clients--ethnicity might contribute positively to a firm's relatio nships with clients.

The competitive advantage that derives from ethnic ties would, of course, be tempered by the strength of these ties. Marketing researchers have found that consumers vary in the strength with which they identify with their ethnic groups, and this affects their shopping patterns. Donthu and Cherian (1994), for example, found that those Hispanic-Americans who said that they identified strongly with their ethnic group were more likely than weakly-identified Hispanics to patronize Hispanic service vendors. Here, strong ethnic bonds create advantages for co-ethnic businesses.

On the other hand, there may be reasons why consumers might want to look outside their own community for service. McDaniel, Gates, and Lamb (1992) mention the desire for anonymity as a reason to look for services outside one's own community. Theirs was not a study of ethnic groups, but examined loyalty to a community hospital among patients who live in rural areas. One of the reasons why people rejected the local hospital to go to a nearby city hospital, the authors surmised, is the "desire for anonymity and confidentiality" which might not have been possible for people seeking medical care at their local hospital. If we may generalize from this finding, it is likely that in some conditions, strong ethnic ties might lead consumers to avoid co-ethnic businesses in situations where confidentiality is an issue.

Ethnic enclave theories may also be relevant to understanding relations between business operators and their clients. For example, ethnic firms may concentrate on goods and services that serve the unique needs of co-ethnic clients; businesses in such enclaves face little competition from firms of the majority culture who are ignorant of and uninterested in these ethnic needs (summarized in Waldinger, Aldrich, and Ward 1990).We may ask how client relationships are managed within the ethnic enclave. Peterson and Roquebert (1993) describe operators in a Cuban-American business enclave who attributed their success, in part, to providing personalized service to co-ethnic clients. These operators spoke Spanish and served Cuban coffee and pastries--demonstrating their insider knowledge of Latin needs.

Does the enclave, then, facilitate the development of client loyalty? It is not clear that it always does. In his interviews with Asian entrepreneurs in Britain, Ram (1994) claimed that respondents were less than enthusiastic about their business activities and choices within the ethnic enclave. Their comments reflected passive acceptance of their status in an inhospitable environment, rather than appreciation for competitive advantages derived from ethnic social networks. Further, strong links with family members and other members of the owner's ethnic group play a contradictory role in the pursuit of business activities. Along with the helpful resources community networks provide may come problems that interfere with good business practice. Ram does not expand on this point at any length, but we may ask what are the opportunities and constraints inherent in ethnic enclaves, and how do they play out in vendor/client relationships? Finally, not all ethnic owner/managers operate in enclaves--some run business es that cater to all consumers, independent of ethnicity. Does ethnicity make a difference in client relations? Do ethnic owner/managers have different expectations and different strategies for developing the loyalty of co-ethnic clients as opposed to clients-in-general? Is being inside or outside the enclave a conscious, strategic choice? Do ethnic owner/managers start inside, then make decisions to grow beyond the enclave? If so, why?

In sum, there are a number of issues suggested by the literature that deserve exploration, including ethnic solidarity (Donthu and Cherian 1994; Greene 1997); trust (Fukuyama 1995); concerns about confidentiality (McDaniel, Gates, and Lamb 1992); and the existence of enclaves (Peterson and Roquebert 1993; Ram 1994). However, no coherent theoretical framework has yet emerged. The purpose of this study was to fill this gap--to collect empirical data in a theory-building attempt to explain successful relationships between ethnic firms and their co-ethnic clientele.

Method Participants

The participants in this study were black business owners operating in a large Canadian city. To obtain this sample, we started with a short list of potential respondents provided by a business association that attracts many black business owners, as well as a list of advertisers in a black community newspaper. From these initial lists, we used snowball sampling to expand the sample to 33 owners. They had all started the enterprise themselves and had been in operation from two years to 45 years (median=8 years). Nine of the participants (27 percent) were women. Most were immigrants from the English-speaking Caribbean who had arrived as adolescents or young adults; four were native-born Canadians whose parents were immigrants from the English-speaking Caribbean; three were immigrants from Haiti; and one was from the United States. In all cases, the immigrants were well-established in the community and were reasonably well-known to each other. Many belonged to the same business clubs and were featured in cultu ral media. In the city where this study took place, blacks number roughly 3.3 percent of the total city population (Torczyner 1997). Thus, while they were immigrants from different countries, they often demonstrated ethnic solidarity resulting from their common minority position. Our initial assumption, therefore, was that this group of 33 business operators could be treated as a relatively homogenous cultural group.

The enterprises were small businesses, with sales ranging from less than 50 thousand dollars (Canadian) to over three million. The majority of the businesses hired between five and 15 employees; the smallest firms (n=3) employed only one person, and the largest firm had 40 employees. Just under half of the participants (15) were in service industries, including such services as personal care, machine repair, and recreational activities. Seven enterprises manufactured products such as clothing, machine parts, and convenience food. Seven participants operated businesses such as wholesale/retail outlets, cosmetics, recreational supplies, and hardware. The remaining four participants ran businesses in construction, communication, and transportation.

Ten of the participants offered products or services that categorized them as "ethnic enclave firms," selling food products, reading materials, and the like that catered to the particular needs of clients in the black community. The industries represented in this part of our sample were very similar to the industries which Hisrich and Brush (1986) and Sonfield (1986) identified as including a large percentage of blacks. We were satisfied that the amount of sample variability in industry-type, firm age, and "ethnicity" of products/services would be helpful in finding potential patterns in the data.

A qualitative approach was deemed to be most appropriate to understanding the meaning attached to ethnicity in vendor/client relationships (Miles and Huberman 1994; Strauss 1987). We wanted rich descriptions of the types of interactions owners had with their customers as they marketed themselves, their products, and their services. To this end, in-depth interviews were conducted with all owner/managers. Our interview contained a few broad questions and several specific probes, designed to encourage a free-ranging discussion of the respondents' experiences. Interviews lasted about an hour, though a few were considerably longer. Respondents provided a description of their primary business activities and related the events associated with the start-up of the venture. They described their experiences with employees, clients, business associates, and the ethnic community at large.

The two interviewers were black, and it is believed that this facilitated a frank and open discussion of the respondents' relationships with the black community. In a few cases, respondents voiced suspicions that the interviewers might be potential competitors scanning the market. By emphasizing that this was an academic project, we tried to allay these concerns, and we found that even the most hesitant respondents became quite expansive as the interview progressed. In two cases, it appeared that participants were reacting to our role as professors and were answering questions as if they were being tested. Here, assurances of our complete lack of knowledge about their line of work helped to dissipate this awkwardness. After promises of confidentiality had been given, all of the respondents save one allowed us to tape-record the interview. In the majority of cases, the interview was carried out in the business place, permitting an observation of the premises.

Qualitative Analysis

After the interviews, the tapes and field-notes were transcribed and subjected to computer-aided ethnographical analysis (Weitzman and Miles 1995). In this article, we focus on the respondents' comments about clients. We were particularly interested in coding those comments about interactions with clients that were related to ethnicity. Both researchers read the entire interview transcript and compared notes about the range of remarks and the similarities and differences among them. The patterns that emerged were coded, and definitions were constructed for the codes. The codes were then checked by an independent rater for reliability. Of the 102 text segments pertaining to client interactions, a randomly selected 65 were tested for inter-rater reliability. After further refinements to the coding scheme, there were five disagreements about classification, so consistency was estimated at 92 percent--well within the range of acceptability.

Results and Discussion Co-Ethnic Clientele

One-third (12) of the participants said that 40 percent or more of their clients were black. This percentage was judged to be high, given the low black population in the city. Another one-third (12) had very few (less than five percent) or no black clients. The others were categorized as having a "moderate" percentage of black customers. One respondent did not provide information about the ethnic mix of the clientele. All but four members of our sample provided evaluative information about their relationships with co-ethnic clients.

The most striking finding was the ambivalence of the respondents' remarks about their co-ethnic customers. The positive comments about ethnic networks in general, and their clientele in particular, were balanced by frequent criticisms of co-ethnic clients. It is noteworthy that these divergent comments did not come from two separate sub-groups (those who were positive and those who were negative about their customers). Of the 29 respondents who discussed the issue, three had only positive things to say, and ten had only negative reactions (see Table 1). The majority of the respondents (16), however, made both complimentary and critical comments about their customers. This ambivalence emerged as the dominant attitude of these ethnic business operators. As our data set grew, a theoretical framework began to emerge which, we believe, can account for this ambivalence.

The major categories of positive remarks comprised: (1) enthusiasm about the loyalty of co-ethnic clients; (2) belief that these clients should receive special preference over other clients; (3) feelings of friendship and rapport with co-ethnic customers; (4) comments that clients bring others to the business through referrals; and (5) belief that the firm symbolizes success for the entire ethnic group.

The categories of negative remarks included: (1) disappointment at the disloyalty of co-ethnic clients; (2) resentment of demands for special treatment; (3) belief that clients resent the owners' financial success; (4) dismay over damaging rumors; (5) belief that clients have a poor image of ethnic business operators and firms; and (6) the preference that the firm not be seen as "ethnic" at all.

The following discussion focuses on each of these categories, providing illustrative quotes (in italics) and exploring patterns and likely explanations for the respondents' reactions. Based on the emergent patterns, a theoretical framework of co-ethnic client relationships is then presented.

Positive Relations with Co-Ethnic Clients

Co-ethnic clients are loyal. Several respondents were pleased about the loyalty of their customers. Loyalty may be construed as loyalty to a brand, loyalty to a store, or even loyalty to the business people of a community. One manufacturer noted that some retailers buy his brand of product in response to demands from their customers: Some guys, they don't want to buy, but they are forced to buy it because people go there and ask for it. Loyalty to the business was also mentioned: I sell products only to blacks, so a lot of the companies [who] say that blacks don't support black businesses, I can't say that. If that was the case I wouldn't be in business. One owner commented that some blacks patronize a number of different stores in the community in an attempt to support as many as possible.

Some of the firms actively court members of the ethnic group. A provider of school supplies targets school principals from their ethnic group:

I went to Whitby School cause we had a black principal there [ldots] and I got the contract there too. Now I have Montebello School also--I just made a deal with them. [My competition] went to Montebello last week and they did a good show, and the people at Montebello School say to me, "Listen, they were very impressive, but we prefer to take you[ldots]"

The implication was that the black principal of Montebello School remained loyal to our respondent because of their shared ethnicity.

Not surprisingly, all of the eight participants who commented positively on loyalty had a moderate to high percentage of co-ethnic clients; five of the eight had "ethnic enclave" products or services, that is, products/services specifically targeted at the ethnic group. The very fact that many of their clients were black may have reasonably prompted the perception that co-ethnic clients were loyal.

Co-ethnic clients deserve special preferences. A few of the participants maintained that they go out of their way to treat their co-ethnic clients well. Two respondents discussed the limited ability of their ethnic clients to pay for the service offered. Knowing that their customers may have financial difficulties, they make such concessions as allowing clients to pay by installments or to make delayed payments for services rendered.

Two owners pointed out that ethnic clients deserve some preferential treatment because they often get poor treatment from mainstream firms. One, who owned a performing arts school, spoke of some clients who had attended a competing white-owned school for thirteen years. The white owner never allowed their work to be showcased, though the clients had worked hard at developing their craft and had even helped the owner in fund-raising activities. When these performers switched to the ethnic-owned school, the owner gave them attention and encouragement, and one of these new clients won second prize in an inter-provincial competition. This owner commented: Our people have to wake up. [Their success] was an eye-opener for them. Defending preferential treatment of co-ethnics, one respondent with a retail business noted:

What's wrong with pampering an ethnic customer? I mean, you don't give away your store. But what's wrong when a black customer comes in and expects a little extra? See, his father and mother didn't have it, that extra, come-from-behind-the-counter service. [ldots] I don't see anything wrong with it. [ldots] I see it as a positive thing. They'll say: "Look, help me out here[ldots] not to let the system beat me down some more."

Three of the four owners who made comments in this category had 10 percent or fewer ethnic clients, and these were the ones who made the strongest statements about giving preferred treatment to co-ethnic clients. It could be that the relatively low number of co-ethnic clients stimulates their generosity.

Business owners have good rapport with co-ethnic clients. Many black business owners described feeling rapport with their co-ethnic customers. One who owned a machine-repair business noted that he finds it easier to chat with clients native to the Caribbean (as he is): They're from a background similar to yours, you know. Another retailer, who sells ethnic products, commented: Some of [my clients] don't even care about the price that they pay. They just come[ldots]Sometimes I could make them laugh. We have become friends. The feeling of social comfort that one gets by dealing with one's own was described by the owner of a transportation company who often noticed that black customers gravitated towards the black service employees. This owner habitually sends racially-mixed teams to deal with clients as a strategy for good customer relations.

Businesses that specialize in ethnic products seemed to report a more involved communication with their customers than did businesses outside the ethnic enclave. Furthermore, eight of the ten owners who mentioned rapport had a moderate to large percentage of black clients. One owner whose products are ethnic in nature described how the store had become a meeting place for members of the black community: They come in [and say] "Oh! I'm waiting for so and so."

Client referrals bring new clients to the business. Some of the respondents expressed the perception that their satisfied black patrons were very likely to encourage their family and friends to patronize them: One of the things, when you get a customer from the black community and they are happy with your service, they spread the news. One woman in the beauty business related with evident satisfaction having overheard a client recommending her salon to a friend. A food manufacturer mentioned that recommendations for her business were spread in the church she attended every Sunday. Although our focus was on black clients, it is notable that one owner in the transportation business talked about similarities among the various ethnic minority groups: Usually I find in the ethnic--like in the Filipinos or the Chinese--if everything goes well, he will send you everybody his father. The same in the Black, the Indian. You are going to get their following--like all the Indians, all the Singhs. Several of our participants told us that, in general, they count on word-of-mouth advertising and referrals to generate business. To the extent that members of the ethnic community are cohesive and interact frequently, this is likely to be as effective a means of advertising as formal announcements in the media.

Interestingly enough, of the six owners who mentioned referrals as an important element of their relationship with ethnic clients, five of them operated non-ethnic businesses. Is it possible that clients have an initial scepticism which dissipates when the business is recommended by their fellow ethnics? This interpretation seems reasonable given some of the statements made by members of our sample regarding lack of client loyalty (see below).

Co-ethnic clients are proud of the firm. Five of our respondents made the point that their firm is seen (or they would like it to be seen) by clients as a symbol of pride for the black community:

I would like to think they are proud of the business. I want to build this business as a community thing. [ldots] Let the folks know that hey, it's theirs--it's ours--something for them to be proud of. It's an achievement for everybody not only for me. So when they have folks visiting they can say: "Look what we have here.[ldots][People] think that all of us live in the 'hood. So this business gets away from that stereotypical idea."

Another owner, with a business in personal care, had been featured in a newspaper article. She told us that young black clients would come into her store and tell her how proud they were of her and her business. And you could see they mean it, she added. Another owner had been given awards by the local black community. With evident satisfaction, he pointed out the trophies on display in his office. Not surprisingly, all of the people who described their firm as serving this symbolic function catered to a substantial number of co-ethnic clients, and four out of five had a specifically ethnic product or service.

Negative Relations with Co-Ethnic Clients

While respondents told us that they had a lot to be happy about in their interactions with co-ethnic customers, almost all of them (26) also had some criticisms. Here follows a description of the major categories of complaints.

Co-ethnic clients are not loyal. Nine owners observed that they were disappointed that black clients were not more loyal to black businesses. Some mentioned it casually, while others were quite emphatic. Consider the following from the owner of a retail store:

I have to educate our people on the Garvey principle, Support Your Own. [One day] I said, let me go over to Rupert's [a competitor] and spy. So I parked myself in Rupert's. Nobody knows who I am. And I sat and watched how many black folks--and sure enough--[little laugh] need I say more?

Her underlying belief is that the black customers of the competition were being disloyal to the black community since the owner of the competitive store was not black. Sometimes the owners' reasoning was economic--blacks should buy from blacks and keep the money in the community. Other ethnic groups do it, so the black community should do it too:

I always use the Jews as an example. All the money that the Jews spend is in the circle, the money never goes out of the circle. They know, even if they have to go across town to buy, they are going to buy from another Jew. This is what we as black folks should do--help each other, but we aren't doing that. [Customers] will go and buy from anywhere else. They would go down the road and buy their stuff from the white man. But I am saying for myself, I know right now everything I do, every business that I do is the black man first, you know. Because I know we can support each other but we aren't getting enough support from one another.

Marcus Garvey's admonition, "Support Your Own," was brought up more than once. Some respondents noted, moreover, that whites took advantage of their skills and services. The following from a beautician reflects this feeling:

I have white people from all different walks, very wealthy women coming because they feel I have the best to offer, while the black people are running to Marco's [white competition] and getting garbage. The same white clients and them are not going to Marco, you know, because they realize that that's garbage and they are not interested in that. They want quality.

Another business owner complained that black clients would visit his establishment when they needed charitable donations, but they wouldn't come as customers. A restaurant owner described his experience as follows: After the first four or five months, our black population just dropped off, so rapid that we couldn't understand why. But then we know it was the black community. We were the new kid on the block, they came out, they tried it and that was it. Now he has opened a new business in a related field, but his target market extends beyond the black community.

Co-ethnic clients make inappropriate demands. Six respondents mentioned that co-ethnic customers demand special treatment from them. Of these businesses, all but one produced non-ethnic products or services. One owner commented on the kinds of purchase orders that he received from black clients: Nine times out of ten, the request does not make sense, and ten times out often it is late. So the only way to do business with them is to treat them special, he complained. Another owner, who operated a dry goods business, stated: When you do meet a black [customer], they don't want to pay. They bargain, and then on top of bargaining, you have to wait for the money. This tendency to try to make deals and to negotiate may well derive from the perception that both the black business person and the co-ethnic client are trying make ends meet in an environment that can be hostile to minorities. The perception of shared difficulty may lead clients to think that minorities should help each other; hence the demand for speci al treatment. We saw above that some owners agree with this line of reasoning. Others, (or the same respondent at different times) resent it. The owner of a service outlet put it plainly: You have people coming here and when they see that you are black, they always try to make deals. They always try to, you know, bring your price down. There are times I've said, like I'm better off putting a white person in front I'll make more money.

Clients resent the owner's financial success. Six of our respondents noted that their financial success resulted in resentment from their ethnic clients. In the words of one owner: A good friend of mine who was in business, be said, "Tony, one of your compadres tell me he don't want to buy anything from you because you might get rich and go back to Jamaica." Another service-industry owner believed that: We are our biggest enemies because we are afraid of making one another rich. But, he continued, this is short-sighted because when co-ethnic clients patronize his firm, he in turn gets his supplies from other ethnic businesses, and the money stays inside the community.

Another owner talked about being on vacation in Barbados and meeting a client of hers there. A friendly conversation ensued, until the client asked the owner where she was staying in Barbados. When the owner pointed out a luxury hotel on the beach, the tone of the conversation changed immediately. The owner predicted that she would never see that client again. Not only were her predictions accurate, but most of the client's relatives never did business with her again either. The same owner pointed out the problems of starting a business on a shoe-string budget. Clients, she claimed, take note of the appearance of your place of business when you start. Any later improvements to your facilities are not necessarily seen as a good thing. On the contrary, people resent seeing "their" money going into the improvements. In her words: The mistake a lot of them [ethnic owners] make which I didn't make is that they start with nothing. So then they [clients] can say they build you. None of my ethnic customers can say t hey build me. Cause the first time they walk into my shop, it was small, but it was pleasantly decorated.

In her role as a client, one of our owners corroborated the notion that ethnic owners may indeed be tempted to "grow rich" off their clients. She is known to be relatively wealthy, and when she went to a firm run by a co-ethnic, she noticed she was charged a premium compared to the other customers there. And I said to [the proprietor], how come you're charging me so much? She said, that's the price. I said, OK, and I never went back to her.

The firms of these respondents who complained about resentment were fairly evenly divided in terms of the percentage of their clients who were co-ethnic. In addition, resentment was discussed both by owners of firms that specialized in ethnic products and services and by owners offering non-ethnic products and services.

Rumors travel within co-ethnic clientele. Six of our participants deplored the gossip within the ethnic community and the caution clients and owners alike have to use in what they say or do. Consider this remark: What I find is that people invent stories sometimes, and it just fly, you know, in the community. In another case, a business owner who catered overwhelmingly to black clients worried that they would learn that his wife was white: One of the reasons I don't get involved in our community is because of that. I'd like to go out and party. But because of [my wife] I don't go to the parties. He explained that if he was seen with his wife at a social event, his black clients would soon know about her, and they would resent the fact that "their" money was being used to support a white woman.

However, it is not always the owner who is the subject of rumors. Clients, too, were seen by owners as worried about the ease with which news could travel through the ethnic community. An interesting case was that of the purveyor of recreational services who found that many of his clients were reluctant to use credit cards. He claimed that they did not mind buying with credit cards elsewhere, but in dealing with the ethnic firm they feared that the owner would find out if they were over their credit limit. Then, presumably, everyone in the ethnic community would know. One of the respondents spoke about the fact that she really enjoys her own visits as a client of another ethnic business, but sometimes things that should be confidential are not kept confidential.

Five of the six owners who worried about gossip within the ethnic community had a moderate to large ethnic clientele. It was notable, too, that five of this group had been in business for a shorter-than-average period of time. Possibly the early years of a business are the time in which people are most curious and have most to discover about the new owner. Moreover, they have not yet developed trust and are unsure that the owner will maintain confidentiality.

Clients have a poor image of ethnic owners and ethnic firms. Comments in this category were made by one-third (11) of our respondents. They felt that co-ethnic clients in general have a poor image of black owners and do not want to deal with them. For example, one owner provided a service that was often associated with blacks, yet fewer than five percent of his clients were black. The owner surmised that his inability to get more black clients sprang from the fact that they did not want be "stereotypical." They would prefer to use a service that was not burdened by an ethnic stereotype, and thus was more prestigious. Another respondent spoke of the surprise of his black clients when he arrived at a job on time and neatly dressed.

In several cases, people did not mince words in telling owners they had a poor opinion of them and of their businesses. There was the case of the retailer who was setting up her wares at a trade exhibit and was approached with the comment: Oh, you and your [products] again. You're like a common bustler! Another owner reported the comment from one of his clients that he probably was not even a real professional, because if he were, he'd be working for a "real" company. Yet another owner told it very vividly: A lady, when I first telephoned, said to me "Are you black?" I said yes. She say, "I don't buy from black people, you're too thief." And she bang up on me. That was it. [Interviewer: Was she black?] Yes, she was black. She was a black lady.

Some owners do not want clients to think of their firms as ethnic. Six members of our sample mentioned the need to be identified as a business, and not as a "black" business. One beautician stated emphatically that she doesn't work like other black beauticians and the atmosphere in her salon is different: I wouldn't be happy bringing [my customers] in an all-black salon because we don't work the same. They wouldn't be comfortable and it really saddens me that if I was to bring my clients to another place, it would have to be a white salon for the type of atmosphere.

The other five businesses were more concerned about how their business was perceived and the need to draw from a wider client base than just the black community. These owners desired a business with a mixed clientele so that white clients would not feel intimidated. Others mentioned the advisability of having a wide base of clients in order to survive:

We'll select certain types of music, we play classical or jazz cause our customers are not just one set of people[ldots] You cannot put your personality and say look I want to listen to this R&B only cause this is my store. The store belongs to the customers too, and you may have someone coming from [neighbourhoods where there are few blacks].

A related concern is that because the owner is black, people believe that the business is only for blacks: This woman came to me once, a white client, and she said to me, "You know I always see this place and I thought it was just for black people." About 20 percent of our sample explicitly noted that success cannot depend only on co-ethnic clients, that life in the ethnic enclave means limited success. To tap into the larger market, they deem it necessary to make the business attractive to all clients, and this may mean de-emphasizing the ethnic aspects of the business. Although we have listed this rejection of the ethnic label as a negative relationship with co-ethnic clients, in the context of the larger market, it is not necessarily a bad strategy.

Building a Framework of Co-Ethnic Client Relations

The eleven categories of positive and negative remarks suggest three underlying dimensions: (1) coincident roles of business owner and fellow-ethnic; (2) flow of communication within an ethnic community; and (3) symbolic aspects of ethnicity within the larger majority group.

Coincident roles. Each owner in our sample has two roles to play. One role is that of a businessperson whose main concerns are the long-term survival and profitability of the business. At the same time, owners, and the clients they describe, play the role of fellow-ethnic. Especially for visible minorities in a sometimes hostile majority culture, this role may mean that there is cohesion among individuals of the same ethnicity--emotional bonds of allegiance may exist.

There are advantages when the two roles coincide and affective ties are combined with business practices. Advan-tages for the business include a clear basis for developing relationships with potential customers or even a "ready-made" clientele. Expectations of preferment seem natural in the context of ethnic allegiance, especially when clients may be low-income or poorly treated elsewhere, or when owners are still trying to establish their ventures within a competitive majority environment. When owner and client share expectations about these dual roles, loyal relationships develop to the benefit of both. Expectations are not always shared, however, and conflict between the two roles emerges when one party holds a business-is-business stance while the other is appealing to ethnic bonds. Then the owners are disillusioned when clients take their business elsewhere, and complain about customers' demands for special favors. Clients experiencing this conflict in role expectations may be disappointed and resentful as well.

Note that the same factor, coincident roles, allows us to explain both positive and negative remarks about loyalty and expectations of special treatment. Ambivalence, then, is predicted. In their research, Davis and Tagiuri (1994) have noted a similar pattern of ambivalent relationships in the family business, where the dual roles of family member and businessperson produce both benefits and drawbacks.

Communication Flow. Most of our respondents come from Caribbean cultures and had similar forms of expression, accents, and idioms. Language bound them together and separated them from the majority society. Because of these shared bonds, communication within the ethnic group was relatively easy and free-flowing. In addition, shared cultural interests made it likely that co-ethnics would attend the same social and artistic events, often lived in the same neighborhoods, and so en-countered each other with above-average frequency. As visible minorities, they tend to notice fellow-ethnics in a crowd. In general, and certainly in our specific group of ethnic business operators, people within the same ethnic community tend to know one another personally or by reputation. This parallels what Davis and Taguiri (1994) have called "shared identity" and "mutual awareness" in their family business model.

Familiarity clearly increases the rapport between owner and client. Easy interactions facilitate good public relations and breed trust. Co-ethnic rapport could be quite a powerful marketing tool. This fits well with the recent research interest in "relationship marketing" in which vendors develop long-term relationships with consumers, who then acquire the habit of patronizing particular businesses (Sheth and Parvatiyar 1995). Thus, rapport with co-ethnic clients could result in stronger relationships, making clients less likely to patronize other outlets. There are other benefits to the free flow of communication within the community and the frequent interactions among co-ethnics--a satisfied customer can spread the word rapidly about the business. Word-of-mouth referrals are, of course, a cheap but potent form of advertising.

Yet here, too, there is a downside. Ethnic businesses feel vulnerable to rumors which spread rapidly throughout the ethnic community. Privacy is difficult when there is so much talk, and it may seem at times that no action can go unnoticed. Both owners and clients may crave freedom from being watched. Moreover, the many similarities among individuals create the feeling that "we should all be equal" and that no co-ethnic should be substantially better off than anyone else. In other words, "If we share a common history and culture, why shouldn't we share a common socioeconomic status?" The outcome is resentment of the financial success of the owner, or overcharging the wealthy client. Again, we see that positive and negative outcomes stem from the same sources--shared ethnicity and the free flow of communication.

Ethnicity as a Symbol. The fact that the firm is owned by a member of a particular ethnic group may serve as a symbol that goes beyond mere commerce--it can be a source of pride for the business-person, the clients, and the community. The ethnic firm may be a symbol of self-sufficiency for the entire sub-group; its existence shows that the minority group is not necessarily and completely dependent on the larger society. The ethnic firm's activities may provide it as well as clients the satisfaction of showing outsiders the cultural artifacts or customs of the ethnic community.

On the other hand, the ethnic firm may be a symbol of entrapment and rejection. It may signify to clients and owners alike that they are "stuck" doing business activities with one another because other people won't do business with them. An important part of the ethnic enclave theory is the impact of discrimination from those outside the ethnic group. Dependence on co-ethnic customers and positioning the enterprise as one that is purely ethnic may actually stunt the firm's growth, as the co-ethnic market is small relative to the broader market. Both owners and customers who feel trapped symbolically may lash out in frustration, owners stating vehemently that their ethnicity has nothing to do with their business, and clients rejecting the co-ethnic owner.

The symbolic aspect of ethnicity, then, can make people feel proud, but it is equally likely to make people distance themselves from the entire notion of the ethnic firm. The following proposition, therefore, follows from this discussion:

Proposition 1: Coincident roles, communication flow, and symbolic ethnicity are variables that are salient to ethnic businesses and affect their relationships with co-ethnic clients. Each of the three variables engender both positive and negative reactions.

Predictors of Ambivalence

Now that we have looked at an across-case analysis of the content of the owners' remarks, let us return to a within-person analysis. It was noted above that both positive and negative remarks came from the same respondents in 16 cases (55 percent). We believe that this ambivalence is almost inevitable, since both benefits and disadvantages to owners and clients come from common attributes. Are there, however, patterns that explain when people emphasize their common ethnicity and when they do not? In what circumstances do the positive remarks predominate, and in which conditions do the drawbacks outweigh the advantages to owners? Drawing on the interviews, we found three variables worth pursuing as potential predictors of ambivalence: (1) whether the firm was in an ethnic enclave; (2) the ethnic mix of the firm's clientele; and (3) the age of the business. Table 2 presents the attributes of the sample firms and their reactions to their co-ethnic clientele.

As can be seen in Table 1, half of the participants in the ambivalent category sold ethnic-enclave products or services, and all of them except one had a large (over 40 percent) or moderately large (10-40 percent) co-ethnic clientele. This can be compared with the 10 participants who made only negative comments about customers. In this subgroup, only two Out of 10 sold ethnic products or services, and over half had few (under five percent) or no ethnic clients. Negative comments were more pervasive in businesses where the product or service was outside the enclave--eight of the 10 businesses offered mainstream products. For non-ethnic businesses, there is more competition and more choice available to the black customer. Perhaps in these circumstances, clients seek out the best value, regardless of the ethnic ownership of the business. It is even possible that for some products and services, blacks may believe that co-ethnic businesses are not the most competent in the industry. In some cases, the black owners may simply be offering poor quality.

Of the three owners who had only positive things to say about co-ethnic clients, two had few such clients, and none had businesses inside the ethnic enclave. Thus, ambivalence seems to be associated with frequent interactions with co-ethnics and with operating within the ethnic enclave. (Not surprisingly, these two variables are highly correlated.) Because of the small sample size, it was not possible to test relationships statistically, but the trends in the data are suggestive and warrant further investigation. Thus the following propositions were formulated:

Proposition 2: Having a business within the ethnic enclave increases the salience of coincident roles, communication flow, and symbolic ethnicity and leads owners to be ambivalent about their co-ethnic clients. Owners outside the enclave tend to have more polarized reactions, positive or negative.

Proposition 3: Having a large or moderately large co-ethnic clientele increases the salience of coincident roles, communication flow, and symbolic ethnicity, leading to ambivalent reactions. Owners with a small or non-existent co-ethnic clientele have positive or negative reactions.

We can also consider the age of the firms. The ambivalent subgroup had owned their firms for 10.2 years on average. This was a shorter period than the negative group, which had a mean of 17.7 years in business, and a longer period than the positive subgroup, which had owned their firms for a mean of 8.7 years. Again, statistical testing of differences was not feasible, but the means suggest that with time, owners may become increasingly disenchanted with their co-ethnic customers. Alternatively, it may be that older business owners are, and have always been, more negative than the younger cohort. Thus we suggest the following propositions:

Proposition 4: In general, owners are more likely to have positive relationships with clients if their firms are relatively recent. "Positive" owners are especially satisfied with the communication with and among their co-ethnic clients.

Proposition 5: In general, owners are more likely to have negative relationships with clients if they have had their business for a long time. "Negative" owners are especially dissatisfied with the conflict between the role of businessperson and coethnic, and with the impact of symbolic ethnicity.

Returning to our three dimensions (coincident roles, the communication flow, and symbolic ethnicity), it is also interesting that the positive subgroup made all their positive remarks about the flow of communication. In the negative subgroup, complaints focussed on the problems of coincident roles and of symbolic ethnicity; these two themes were each twice as common as complaints about the communication flow. The ambivalent subgroup's comments were fairly evenly divided among the three themes. Bringing together these possible predictors of ambivalence and the three themes that emerged from the interviews, we present our framework in Figure 1.

Limitations of the Research

As a theory-building exercise, it was appropriate that in-depth data be collected from a small number of cases. Although this was a fruitful approach, it did mean a small sample size. The theory developed from it must now be tested using a larger sample. A questionnaire that measures each of the themes and possible predictors should be constructed. This would be best conducted as an anonymous survey, since the type of information called for is quite sensitive. A mailed survey would allow researchers to cover a wider geographic area, increasing the pool of potential respondents as well as the assurance of anonymity. Statistical testing of hypotheses would then be possible.

We treated our 33-member sample as a homogenous cultural group. While this was useful, given the objectives of this study, any further statistical testing of our model should identify and control for possible cultural differences among the different subgroups within the black population, exploring linguistic-group differences, immigrant status, self-identification, and so on. Our group of positive owners had only three members. Our model would have been more powerful if we had more members in this group. Further testing will be especially needed to verify our propositions about sources of positive perceptions. Finally, our sample of owners was taken from one city. Given the histories of blacks in different Canadian cities, it is possible that there may be differences in co-ethnic customer relations. Blacks have been present in some cities since the eighteenth century, while in other cities, the large majority of blacks are first-generation immigrants.

Generalization to Other Ethnic Groups. Although our sample was drawn from the black community, we believe that this theoretical framework can apply to other minority ethnic communities, particularly visible-minority ethnic groups. We acknowledge that several researchers have reported that certain ethnic groups are more likely to start new ventures than others. The level of resources within the ethnic community (capital funds, for example) and the unique history or religion of particular groups have been cited as sources of inter-ethnic differences in the rate of business start-ups (Greene 1997; Waldinger, Aldrich, and Ward 1990). Yet we have no a priori reason to assume that role expectations, communication patterns, or symbolic ethnicity would differ systematically among ethnic groups that are in minority positions in different societies. The processes described here have been applied to family businesses in general, and we propose that they will apply to ethnic-minority groups in general. Clearly, though, it will be important to collect data about these propositions using other ethnic groups.

Studying the Viewpoint of Clients. This study concentrated on the ethnic owners' view of their relationships with clients; the client's point of view was not represented. It will be important to validate the model using surveys or interviews with clients to get a picture of their attitudes and motivations. As our themes emerged, we noted that the dynamics we discovered in these interviews often applied to members of the ethnic group in general, as opposed to just owners or just clients. Thus, for instance, there could be conflict between the coincident roles of client and co-ethnic, leading to ambivalence. Several owners talked about themselves as clients of other co-ethnic businesses and commented on the issues of rapport or gossip within the ethnic community. Some of them told us of their reactions to other businesses and the meaning they attached to the "ethnic" label of these firms. Our inclination, then, is to propose that the framework here will be endorsed by co-ethnic clients; future research is nece ssary to test this proposal.


This study offers a model for explaining the relationships between ethnic business owners and their co-ethnic clientele. This issue is particularly important given the movement of peoples among the various countries of the world. Many major cities in the developed world are now multicultural. Thus it would seem useful to understand how ethnic-minority businesses function.

The negative comments made by owners were initially surprising to us, since they were not predicted by most of the literature on ethnic enterprises. Considered within a framework of ethnic ties, however, this ambivalence makes sense. Should this model be supported in further research, there are important implications for firms. First, ambivalent relationships are natural and not in and of themselves a sign of poor business practice. Although negative reactions can never be eliminated, the challenge is to find ways in which the positive business outcomes can overshadow the drawbacks. Awareness of this should give the owner the confidence to persevere in building long-term relationships with co-ethnic clients, despite the difficulties.

The good news is that ethnic allegiance, and the high frequency of communication within the ethnic community, can provide substantial competitive advantage for firms. Researchers of relationship marketing discuss commitment and shared values as keys to establishing, developing, and maintaining long-term satisfying relationships between vendors and customers. Business owners who understand the processes described here can develop strategies to maximize the positive impact of their ties to the ethnic community.

This research also suggests that members of ethnic groups may actually assimilate some of the stereotypes held about the ethnic group by the larger society. If large-scale research were to bear this out, the results may be useful in the development of public policy towards ethnic entrepreneurship. Clearly the promotion of ethnic enterprises must then deal not only with the encouragement of the entrepreneur but with the encouragement of customers as well.

Dr. Dyer is associate professor of management at Concordia University in Montreal, Canada. Her research interests include entrepreneurship and the development and practice of expert judgement in organizations.

Dr. Ross is associate professor of marketing at Concordia University. He conducts research in ethnic entrepreneurship and marketing in developing countries.


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                   Attributes of Ethnic Enterprises and
                Reactions of Owners to Co-Ethnic Clientele
                    Ethnic Enclave      Percent of
Reactions of Owner Position of Firm Co-Ethnic Clientele Age of Firm
Positive group        inside = 0         high = 1
(n=3)                outside = 3          mod = 0        8.7 years
                         low = 2
Ambivalent group      inside = 8         high = 9
(n=16)               outside = 8          mod = 6       10.2 years
                         low = 1
Negative group        inside = 2         high = 1 [*]
(n=10)               outside = 8          mod = 3       17.7 years
                         low = 5
(*.)In one case, ethnic mix was not reported.
                Case-by-Case Description of Entrepreneurs,
                   Firms, and Co-Ethnic Client Relations
        Inside                   Years in   Proportion of      Reaction to
Case # Enclave?     Industry       Firm   Co-Ethnic Clients Co-Ethnic Clients
  1      Yes     Communications     5           High           Ambivalent
  2      No         Service         5            Low            Negative
  3      Yes    Wholesale/retail    6           High           Ambivalent
  4      Yes        Service         7           High           Ambivalent
  5      Yes    Wholesale/retail    13          High           Ambivalent
  6      Yes    Wholesale/retail    10          High           Ambivalent
  7      No      Manufacturing      13           Low           No Comment
  8      No         Service         32           Low            Negative
  9      No      Manufacturing     N.A.          Low            Negative
 10      Yes     Manufacturing      6         Moderate         Ambivalent
 11      Yes        Service         2           High           Ambivalent
 12      No         Service         24        Moderate          Negative
 13      No         Service         8            Low           Ambivalent
 14      No         Service         2           High           Ambivalent
 15      No         Service         22          High           Ambivalent
 16      No         Service         15           Low            Positive
 17      No       Construction      3            Low            Negative
 18      No      Manufacturing      7            Low           No Comment
 19      No         Service         35        Moderate         Ambivalent
 20      No     Wholesale/retail    2         Moderate         Ambivalent
21 No  Wholesale/retail 7    High   Ambivalent
22 No  Wholesale/retail 12   Low     Negative
23 No    Construction   21   Low    No Comment
24 Yes Wholesale/retail 7    High   Ambivalent
25 No      Service      45 Moderate  Negative
26 No      Service      7  Moderate  Positive
27 No      Service      20 Moderate Ambivalent
28 No   Transportation  4    High    Positive
29 No      Service      15   Low     Negative
30 No      Service      11 Moderate Ambivalent
31 No   Manufacturing   5    Low    No Comment
32 Yes  Manufacturing   4    High    Negative
33 Yes  Manufacturing   19 Moderate  Negative
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