Scottish Government

EXECUTIVE SUMMARY

1. This national scoping study on minority ethnic enterprise in Scotland is the first systematic study on the distinctive nature and importance of minority ethnic businesses ( MEBs) in Scotland. The vitality of Scotland's economy is dependent upon the range and diversity of entrepreneurial activity. MEBs are an important contributor to that diversity and this study identifies the extent of their importance and diversity. To do this, the study has used a combination of research methods: secondary 2001 Census data analysis, quantitative analysis of baseline data, qualitative interviews and extensive consultation with key informants. The extent of this study provides an opportunity, for the Scottish Executive and other agencies, to build on the main findings and some implications from the main conclusions.

Research Aims

2. The main aim of the scoping study was to provide information on the distinctive issues and distinctive importance of MEBs in Scotland. In order to do this it has been necessary to:

2.1 Map their geographical and sectoral distribution and importance in Scotland.

2.2 Examine the nature of distinctive issues with MEBs in Scotland compared to a white control group and MEBs in other areas of the UK.

2.3 Investigate the importance of the nature of issues with an interview-based sample with MEB owners across different localities and different sectors, representative of the distribution indicated by the quantitative phases of the study.

2.4 Undertake extensive consultation with minority ethnic community leaders, providers of finance, advice and support from both 'mainstream' and specialised agencies.

Research Methods

3. The scoping study has used a combination of research methods to achieve these aims. These methods have been used in distinct stages so that the quantitative methods, used in the earlier stages, can underpin the basis of the qualitative samples used for the later stages of the study. In more detail the study has involved the following research methods:

3.1 Secondary data analysis of the 2001 Census data on the numbers and distribution of self-employment in Scotland by minority ethnic groups including: Pakistani, Indian, Chinese, Bangladeshi, African and other groups. The analysis has included an investigation into the importance of minority ethnic self-employed and small employers in the main cities, the Central Belt outwith the main cities and rural areas including the Highlands and Islands and the South of Scotland.

3.2 Baseline data analysis of a dataset of 81 MEBs located in Scotland including representation of Pakistani, Chinese, Indian, Bangladeshi and African owners. The dataset also comprised an additional 33 white-owned businesses, which served as a control group.

3.3 A programme of 41 face-to-face, semi-structured interviews with MEB owners including representation of the minority ethnic groups from the quantitative analysis phases. The programme of interviews has been designed to include representation of different sectors; both traditional, such as retailing, and emergent, such as IT and leisure and of geographical distribution in the main cities, in the Central Belt and in rural locations in the Highlands. Most of the interviews have been transcribed and analysed using a qualitative software package.

3.4 An extensive programme of consultation with 32 key informants through either face-to-face interview, telephone interview or e-mail communication. The consultation was completed with identified key informants from minority ethnic business communities in different localities and with representatives from support agencies and providers of finance including, where possible, key decision-makers that have experience of direct contact with MEB owners.

4. Methodological issues in conducting the research were overcome through assistance from the Research Advisory Group, for which the research team are grateful, and by having a research team that contained experienced researchers with minority ethnic communities who could, in some cases, conduct interviews in the respondents' first language. The research team have used the respondents' own perception of their ethnicity using definitions of minority ethnic groups from the 2001 Census.

Summary Findings

5. The following summary findings are identified, as associated with each stage of the study.

5.1 From the 2001 Census data

• Minority ethnic business owners account for just over 3 per cent of all self-employed in the nation, or, alternatively, minority-owned businesses account for 3.6 per cent of the number of small employers. It is estimated that there are over 4,400 MEB registered enterprises in Scotland. However, the importance of MEBs is greater than the ethnic breakdown of Scotland's population might suggest, this is due to the higher rates of self-employment and business ownership in minority ethnic communities than other ethnic groups, with the highest rates of self-employment in the Pakistani, Chinese, Indian and Bangladeshi communities respectively. The relative importance of the numbers of MEBs for Scotland will increase in the future, on current trends, due to the younger demographic profile of the minority ethnic population.
• The most important concentration of minority ethnic enterprises geographically is in Glasgow, which is Scotland's most important city for minority ethnic enterprises. MEBs account for 10.6 per cent of the self-employed and 14 per cent of small employers in Glasgow. 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.
• MEB owners are also important in areas of the Central Belt outside Glasgow and Edinburgh and indeed this area contains over 45 per cent of all the minority ethnic self-employed in Scotland, with a similar proportion accounted for with the number of small employers and own-account workers.
• 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.

5.2 From the database analysis.

• The database analysis, comparing MEBs in Scotland to a white control group and equivalent MEBs in England, indicated a concentration of 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 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. It was Chinese-owned firms who showed the highest propensity to access finance from mainstream sources. They also showed the highest propensity 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.
• The analysis indicated that in seeking and accessing formal finance, MEB owners had lower success rates than white-owned firms. In terms of seeking and accessing advice and support, the analysis indicated that MEBs, as a group, were less likely to do so than white-owned firms, although there were differences between minority ethnic groups.

5.3 From the programme of interviews

• The interviews revealed a richness and diversity of MEBs through the range of sectors, different ownership and generation. The interviews highlighted 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. One common theme appears to be high drive and ambitious MEB owners who are 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 reinforce the quantitative baseline analysis, indicating 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 2 ^nd generation owners.
• The interviews indicated that, although variable, MEB owners tend to be well-educated. Some MEB owners have been willing to engage in additional training, although there is some evidence that this could be enhanced. MEB owners appear to be remarkably 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 interviews confirm that the role of social capital and resources acquired from close knit networks, is complementary to that of informal capital, although it may act as a barrier to the ambitions of younger and 2 ^nd generation MEB entrepreneurs. Related to this finding, is the lack of awareness and, more importantly, basic knowledge of the level and type of services provided by the mainstream agencies, which should be a major focus of concern. The lack of engagement ranges from the relatively basic lack of awareness, attitudes that see support agencies as not relevant, and deliberate strategies to by-pass support agencies.
• The interviews also indicated important 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 some cases there has been a more stoic acceptance that such difficulties are part of the normal and expected patterns of establishing a successful business.

The main conclusions

6. Combining the analysis from these different stages of the research together with the extensive consultation has provided a basis for interpretation and conclusions. These are discussed as separate chapters in the main report but include the following.

6.1 A key conclusion is the importance of the numbers and diversity of MEBs in Scotland. 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 are also important to maintaining diversity in other locations, especially areas of the Central Belt, contributing to local economic development. In rural areas as well, such as the Highlands, the role of minority ethnic enterprises is important, helping to diversify and enrich local rural economies, particularly given the demographic context for rural areas, which generally provides a more marked ageing population structure than other areas of Scotland.

6.2 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, contributing to diversification. Examples of positive strategies to promote such diversity as a source of innovation and creativity that have been used elsewhere, for example in London, are discussed in the main report.

6.3 The interviews revealed that, even in traditional sectors, MEB owners are resourceful and prospering, and are able to innovate and diversify. However, Scotland is dependent for cultural and ethnic diversity on MEB owners that are both geographically and sectorally concentrated. The continuing vitally and diversity of MEBs will be crucially significant for Scotland's economy. Demographic trends indicate a significantly ageing population for Scotland ( GROS, 2004), it is important that the younger age profile of minority ethnic communities is able to contribute to economic development through the achievement of potential entrepreneurial development. This will mean encouraging both diversification of sectoral concentrations and ensuring engagement of new start MEBs with appropriate and relevant support.

6.4 Having noted the importance and diversity of MEBs in Scotland, there are particular issues regarding access to finance and business advice and support.

• First, there is comparatively low access to formal sources of finance. There is a marked reluctance 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 is 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 appears to be a lack of intermediaries between agencies, the banks and minority ethnic communities that could provide a means of building the trust that is required to establish relationships with the commercial banks.
• Second, there is a lack of engagement with the formal mainstream sources of advice and support such as Business Gateway and a low take-up of formal training. This matters because it could restrict the development potential of MEB owners that could benefit from such sources of support and it is important for Scotland's economic performance and productivity that these business owners do engage with public sector sources of support. There are different dimensions to this non-engagement. These dimensions include a lack of awareness of sources of support and advice to deliberate strategies to avoid engagement. The former could be tackled by profiling and the use of additional means of communication, making messages relevant to local minority ethnic communities. The latter requires the building of trust with local minority ethnic communities in the same way as required to build relationships with formal sources of finance such as the commercial banks. 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 developing 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 also 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.

6.5 This study has identified a number of additional issues including:

• Third, the nature of succession planning. Many MEBs are family businesses, where these are in traditional sectors there may be a reluctance of the 2 ^nd generation to continue in the family business. In addition, in some cases, there are different attitudes of the 2 ^nd 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 specialist advice and support.
• Fourth, the need for diversification with MEBs in traditional sectors. Although it is noted that MEB owners have shown resilience and innovation in traditional sectors, there are still areas of support needed to achieve diversification. It is noted, in the main report, that these sectors are perceived to be ineligible for support, such as retailing and catering. However, it should be possible to provide advice and assistance drawing upon successful examples of diversification or providing assistance with feasibility studies. Increased diversification may be achieved by the promotion of diversity linked to increasing innovation and creativity, drawing upon examples of successful policies elsewhere, mentioned in the main report.
• Fifth, 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. 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.
• Sixth, the nature of MEB experience in rural areas. MEBs in rural areas are virtually invisible in terms of assistance and profiling. Their needs are different as 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. 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. The development of MEBs in these sectors to promote diversity, could provide a mechanism to engage MEBs in mainstream support, whilst recognising their distinctive needs. Agencies in rural areas, such as VisitScotland, should profile ethnic diversity as a positive tourist strategy.

Areas for further research

7. Finally the authors suggest a number of areas for further research that arise from this study :

• 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. The research could investigate the nature of inter-generational ambitions and succession planning.
• The dynamic nature and changing role of social capital and its distinctive nature for MEBs could provide an important strand of research. This would help to inform agencies how best to build bridges and trust with local minority ethnic communities. 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.
• An investigation of methods of successful diversification that can inform support policy in this area. There is a need for further research to examine ways of achieving diversification in two main areas. The first area focusing on supplier diversity and the second area focusing on assessing scope for diversity being developed as a source of competitiveness for the Scottish economy.
• Further investigation with MEB owners on the nature of human capital and the management training and development needs of MEB owners in different sectors. A training needs analysis ( TNA), with selected MEBs, could help to determine the nature of management development seminars and assistance, perhaps drawing on experience from the Glasgow City Council MEB support programme.
• An investigation into the nature of marginalisation of MEBs in difficult trading conditions. Such an investigation could identify mechanisms that will assist breakout into wider markets and identify policies that could provide some security and protection for existing MEB owners operating in hostile trading environments.
• The nature of MEB development in rural areas of Scotland should be investigated further through additional qualitative and case study research to determine the extent of integration and/or isolation of MEBs and their associated special needs.
• An investigation into improving the relationships between sources of advice, support and finance, which could provide additional information on appropriate mechanisms that can build bridges with minority ethnic communities and their businesses.
• Finally, monitoring and evaluation of existing and planned initiatives will be required that may be targeted at MEB owners.