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CHAPTER FOUR BASELINE DATA ANALYSIS

Introduction

4.1 As discussed in the research methods, the following information in this chapter provides a detailed analysis from a dataset on 81 MEBs and 33 white-owned businesses located in Scotland. The chapter also gives analysis on comparisons between the Scottish MEBs and the full dataset of 855 MEBs for the UK. The dataset covers the six minority ethnic groups; Indian, Pakistani, Bangladeshi, Chinese, African and Caribbeans. As indicated in chapter 2, the dataset contains profile data on the characteristics of the enterprise, the entrepreneurs and their access to finance and business support both at start-up and during the 12 months prior to the interviews. The remaining sections that follow, in this chapter, deal with profile characteristics of the surveyed MEBs and their owners, their access to finance and their access to business advice, information and support. Some conclusions are provided at the end of this section to summarise the key findings. As indicated in the research methods chapter, the survey was conducted before the establishment of the Business Gateway network.

Characteristics of surveyed entrepreneurs and enterprises

Characteristics of entrepreneurs

• The vast majority of surveyed MEBs in Scotland are male owned

4.2 Most surveyed MEBs are owned by male entrepreneurs (79 per cent), as they are in the rest of the UK (78 per cent). They are not significantly different from the white-owned control group in this respect. However, unlike the rest of the UK, most of the remainder of Scottish MEBs are co-owned (17 per cent), reflecting the greater proportion of Chinese-owned firms in the Scottish sample, since co-ownership was a particular feature of the Chinese community in the study as a whole. A corollary is the low proportion of women-led businesses, reflecting the dominance of Indian and Pakistani owned firms in the Scottish sample.

• More than 1 in 4 MEB owners are second generation migrants, having been born in the UK

4.3 Twenty seven per cent of the Scottish sample are second-generation migrants, compared with 22 per cent in the rest of the UK.

• MEB owners in Scotland are younger than their English based MEB counterparts.

4.4 In the UK sample, a statistically significant difference was observed between the age distribution of MEBs compared with their white counterparts. In Scotland, the MEBs surveyed are somewhat younger than those in England, with 72 per cent below 45 years old (compared with 62 per cent), although the white control group of entrepreneurs in Scotland was also younger, with 73 per cent below 45 years old, compared with 50 per cent in England.

• Scottish MEB owners show a low propensity to have formal management qualifications, management training and/or previous management experience in another company.

4.5 The surveyed MEB owners in Scotland showed a significantly lower propensity to have formal management qualifications (17 per cent), compared with their counterparts in England (34 per cent) and with the white control group (28 per cent). They were also much less likely to have participated in formal management training than surveyed MEBs in England (17 per cent compared with 32 per cent), or indeed compared with the white control group overall (31 per cent). Whilst these features may be partly explained by the low proportion of African and Caribbeans in the sample, since these minority ethnic groups were the most likely to report formal management qualifications and training in the UK survey as a whole, the result does point to an area of support need.

4.6 In view of the younger age profile of MEB owners in the Scottish sample, it is perhaps not surprising that they had a lower propensity to have had management experience in other companies before starting their firms (28 per cent compared with 40 per cent of MEB owners in England). They are significantly less likely to have had previous management experience than entrepreneurs in the white control group, both in Scotland (66 per cent) and in England (52 per cent).

Characteristics of enterprises

• The vast majority of Scottish MEBs surveyed are microenterprises

4.7 As previous studies have shown, the vast majority of MEBs are microenterprises, employing less than 10 people: 78 per cent compared with 76 per cent of the white control group, 80 per cent and 73 per cent respectively in the case of the English sample. At the same time, this means that a significant minority of surveyed MEBs in Scotland were small firms, employing 10 or more. This contributed to an overall mean total employment of 8.26 and a median of 5 employees, compared with a mean of 12.6 and a median of 4 employees in the Scottish white control group; and a mean of 7.78, with a median of 4 employees in the surveyed MEBs in England.

• The majority of surveyed MEBs in Scotland are in retailing and catering, with a few manufacturing and professional service firms

4.8 In Scotland, 65 per cent of surveyed MEBs were operating in retailing/wholesaling and 24 per cent in restaurants/catering, with just 6 per cent in professional services and 4 per cent in manufacturing. This is a less diversified sectoral mix than in the English sample, where 32 per cent were in retailing/wholesaling; 25 per cent in professional services; 22 per cent in restaurants/catering; 11 per cent in other (mainly personal) services; and 9 per cent in manufacturing.

4.9 As Table 4.1 shows, there are some differences in the sectoral mix between minority ethnic groups, although in each of the three largest minority ethnic groups, retailing/wholesaling accounted for a majority of surveyed firms, with restaurants/catering being the second most common.

Table 4.1: Sectoral Mix by MEB group in Scotland

Source: Kingston SBRC Minority Ethnic Business Database

• Surveyed MEBs are typically long established firms

4.10 As in England, a majority of surveyed firms in Scotland were more than ten years old at the time of the interviews in 2001. In fact, enterprises in the Scottish sample showed an older age profile than their English counterparts: 60 per cent were at least 10 years old, compared with 53 per cent in England and 50 per cent of white owned firms in the Scottish control group. This older age profile may be associated with a greater predominance of Indian and Pakistani-owned enterprises in the Scottish sample, which are typically older than their African and Caribbean counterparts in the national sample.

• Although surveyed MEBs in Scotland showed a slightly lower propensity to be growth orientated, the difference was small.

4.11 Although MEBs in Scotland showed a lower propensity to have been seeking to grow in the 12 months prior to the interviews (that is, during 1999-2000) (48 per cent) than either their white counterparts (52 per cent) or English MEBs (51 per cent), the differences observed are not statistically significant.

4.12 Similarly, when asked if they were seeking to grow their businesses in the 12 months following the interviews, 74 per cent of MEBs in Scotland reported they were, compared with 71 per cent of their counterparts in England and 78 per cent of the white control group.

• Surveyed MEBs in Scotland do not appear to be disadvantaged in terms of actual growth performance compared with either MEBs in England or their white-owned counterparts

4.13 Unlike the national survey, which showed the reported performance of MEBs to be weaker than that of firms in the white-control group, this was not the case in the Scottish sample. In Scotland, 84 per cent of surveyed firms that were growth seeking, achieved some growth in sales in 1999/2000, compared with 70 per cent of those in England and 79 per cent of all growth-seeking, white owned firms. Moreover, a similar proportion achieved sales growth of 20 per cent or more in that year (35 per cent) compared with firms in the other groups.

4.14 A similar picture of relatively strong performance emerges with respect to reported profitability in the same period. 53 per cent of Scottish MEBs reported an increase in profits in 1999-2000 in relation to the previous year, compared with 36 per cent of their counterparts in England and 52 per cent of white control firms.

4.15 At the same time, most surveyed MEBs in Scotland maintained the same employment level in 1999-2000: 86 per cent compared with 72 per cent of their MEB counterparts in England and 69 per cent of white control group, surveyed in Scotland. As a result, only 9 per cent of surveyed Scottish MEBs actually increased employment during this 12 month period and just 5 per cent reduced it.

• Surveyed Scottish MEBs are predominantly local market oriented, although few are dependent on co- minority ethnic markets

4.16 Although a majority of surveyed MEBs in Scotland appear to be local market orientated, they are not significantly different from the white control group in this respect. 87 per cent depend on the town/city in which the firm was based for at least half their total sales, compared with 78 per cent of the white control group. 76 per cent depend on the local market for at least three quarters of total sales compared with 75 per cent of the control group firms.

4.17 Scottish MEBs surveyed appear less dependent on customers from either the same or other minority ethnic groups than their counterparts in England, perhaps reflecting the smaller concentrations of minority ethnic people in Scotland, and possibly the older age profile of the Scottish sample. However, as noted in the previous chapter, minority ethnic communities have a higher proportion of people of working age than national averages. In practice, a majority (87 per cent) reported making some sales to other minority ethnic customers, but only one third relied on members of minority ethnic groups for at least half their total sales. The equivalent figures for the English sample were 96 per cent and 56 per cent respectively.

Access to finance

Start-up finance from formal sources

4.18 All business owners/managers interviewed in the baseline survey, undertaken in 2000, were asked if they had attempted to obtain external finance when they started their business and, if so, what their experience had been. This included both formal sources (such as banks, leasing companies, venture capital partners, loan funds and grant awarding bodies), as well as informal sources, such as family and friends. It should be noted, however, that since surveyed enterprises were mainly established firms, their experience with respect to accessing start-up finance was not necessarily recent.

• With regards to accessing external finance from formal sources at start-up, among surveyed firms in Scotland, there is greater variation between minority ethnic groups than between MEBs and white-owned firms.

4.19 The diversity of experience with respect to accessing external finance between MEBs was one of the key themes emerging from the BBA project as a whole (Ram, et al. 2002, page 133). The results from the Scottish part of the survey confirm this, although there are detailed differences, compared with the UK results overall, that stem from the ethnic composition of the Scottish sample. As in England, Chinese-owned firms are by far the most successful group in Scotland in accessing bank finance; significantly more so than the white control group. Pakistani-owned firms showed a similar propensity to have accessed bank finance at start-up as white owned firms. Indian-owned firms, which made up most of the rest of the Scottish sample, appear disadvantaged compared with both white-owned firms and their English MEB counterparts. As Table 4.2 shows, banks appear to be the dominant formal external source of finance in all minority ethnic groups, with a leasing company being the only non-bank formal source used by any MEB in Scotland during this period.

Table 4.2: External finance from formal sources at start-up ( i.e. other from own savings, family and friends), (2000 Survey)

Source: Kingston SBRC Minority Ethnic Business Database

4.20 Although few Africans and Caribbeans were included in the Scottish sample, their significant disadvantage in the UK survey compared with both white-owned firms and other MEB groups is relevant to the Scottish context, because of the potential role that Africans and Caribbeans play in the Scottish minority ethnic population; that is, their potential contribution to minority ethnic enterprise activity.

4.21 As in England, detailed analysis shows that among firms that are successful in accessing external finance at start-up from formal sources, this typically accounted for about half the total start-up capital (median 48 per cent; mean 45 per cent). There appears little difference between either white-owned firms (median 50 per cent; mean 48 per cent) and MEBs, or between minority ethnic groups themselves (Pakistani: median 50 per cent; mean 53 per cent; Indian: median 50 per cent; mean 49 per cent; Chinese median 50 per cent; mean 45 per cent).

4.22 In Scotland, MEBs show a higher propensity to use loans, in cases where they were able to access bank finance at start-up, compared with white-owned firms (56 per cent and 13 per cent respectively), although the sample size is too small for the difference to be statistically significant, with fewer relying on overdrafts (41 per cent and 75 per cent respectively). There was no statistically significant difference between surveyed MEBs in Scotland and their counterparts in England with regards to the distribution of overdrafts and term loans.

4.23 Not surprisingly, collateral is required in the vast majority of cases where bank finance hasbeen accessed at start-up, as it is in the case of white-owned firms (86 per cent and 90 per cent respectively), although it is somewhat less common in the case of firms surveyed in England (73 per cent of MEBs accessing bank finance and 71 per cent of white-owned firms).

4.24 Firms that had been successful in accessing bank finance at start-up were asked if their successful application to one bank had previously been rejected by another. In Scotland, 24 per cent of MEBs accessing bank finance reported that this had been the case, compared with 20 per cent of white-owned firms (comparable figures in the English sample were 18 per cent and 26 per cent respectively). In view of the small sample size, the difference between MEBs in Scotland and other groups is too small to be statistically significant.

Start-up finance from informal sources

• MEBs were significantly more likely to draw on start-up finance from family and friends than comparable white-owned firms

4.25 Previous research has suggested that one of the distinctive characteristics of MEBs, compared with white owned firms is their greater propensity to draw on finance from within their own personal and community-based networks. The survey results show that, as in the English sample, MEBs in Scotland were significantly more likely to have accessed finance from informal sources at start-up (54 per cent and 38 per cent respectively). Moreover, where finance from informal sources was used, it typically represented a significant proportion of total start-up capital (median 50 per cent; mean 57 per cent). At the same time, the proportion of total start-up finance contributed from informal sources varies considerably between the main minority ethnic groups in the Scottish sample. This is highest among the Pakistani (median 80 per cent) and Indian-owned firms (70 per cent), but lower in the case of the Chinese (40 per cent).

Firms accessing external finance 1999-2000

4.26 As Table 4.3 shows, only 17 per cent of firms in the Scottish sample (established for at least one year) had sought external finance from a bank or other formal source, during the 12 months prior to the interviews in 2000 (15 per cent of MEBs and 21 per cent of white-owned firms), which was not significantly different from the sample in England ⁵. However, whilst all the white-owned firms that sought finance from formal sources received some, only half the MEBs did so, with success rates being lower than in the English sample (79 per cent). In the Scottish sample, banks appear to be the dominant formal, external source of finance accessed during the 1999-2000 period by established firms (6 MEBs and 6 of the white-owned firms). Only a handful of firms accessed finance during this period from a leasing company, venture capital or public sector sources.

Table 4.3: External finance from formal sources during the 12 months prior to the interviews in 2000 ( i.e. other than from own savings, retained earnings, family and friends)

Source: Kingston SBRC Minority Ethnic Business Database

Access to business information, advice and consultancy

Advice from an external source at start-up

4.27 With regards to the use of advice and/or guidance from an individual or organisation outside the firm at start-up, the results from the Scottish sample broadly mirror those in the study as a whole. 29 per cent of MEBs in Scotland accessed advice from some external source, compared with 31 per cent in the white control group (the equivalent figures for the English sample were 30 per cent and 27 per cent respectively). In most cases, respondents described the type of assistance received as 'general start-up advice', except in the case of the use of banks and accountants, where 'help in accessing finance' and 'financial planning' were emphasised.

Table 4.4: Sources of external advice at start-up in Scotland (2000 survey)

Source: Kingston SBRC Minority Ethnic Business Database

4.28 However, unlike the English sample, MEBs as a group are as likely to have accessed start-up advice from one of the formal sources as a white-owned firm (20 per cent and 19 per cent respectively), although less likely to have used one of the public or quasi-public sector agencies (5 per cent and 13 per cent respectively). The explanation for the difference is the predominance of Chinese-owned businesses in the Scottish sample, who had used external advice at start-up (58 per cent), typically from a combination of formal banks (71 per cent of those using some source) and accountants (50 per cent)) and informal sources ( i.e. family and friends: 86 per cent). Only a small minority of Indian and Pakistani-owned firms have used external advice start-up (16 per cent and 11 per cent respectively) and then mainly from informal sources.

Sources and use of external advice post-start-up

4.29 Surveyed firms were also asked about advice they had received from an external source since they started their business. In the Scottish sample, 34 per cent of MEBs had accessed advice from some external source, compared with just 16 per cent of the established white control group (significant at the 0.05 level). As Table 4.5 demonstrates, the main types of assistance where MEBs are more active relates to 'managing finance'; 'business planning'; IT/computing; and 'coping with government regulations'.

Table 4.5: Types of external advice used since start-up

Source: Kingston SBRC Minority Ethnic Business Database

4.30 As in the English sample, there is a significant difference between MEBs and white-owned firms in who they turned to in order to obtain this external assistance. By far the most common source for MEBs was 'family and friends' (19 per cent of all MEBs) followed by LECs (15 per cent); and banks and accountants (12 per cent each). In contrast, none of the white-owned firms mentioned an informal source, whereas 27 per cent reported accessing external advice from a LEC; 12 per cent from an enterprise trust; and just 6 per cent (each) from banks and accountants.

Summary and conclusions

• The fact that most MEBs are microenterprises, operating in the retailing or catering sectors, means that many of their characteristics and development problems are shared with white-owned firms, with similar size and sector characteristics.
• Although to some extent influenced by the ethnic composition of the survey sample, the low propensity of MEB owners in Scotland with management qualifications, training and/or management experience in another company points to an area of distinctive support need.
• MEBs in Scotland do not appear to be distinguished from similar white-owned firms in terms of growth orientation, or disadvantaged in terms of their actual growth performance.
• Scottish MEBs surveyed appear less dependent on customers from either the same or other minority ethnic groups than their counterparts in England, perhaps reflecting the smaller concentrations of minority ethnic people in Scotland.
• As in England, there are 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. Significantly, Chinese-owned firms show the highest propensity to access finance from mainstream sources. They also show the highest propensity to access external advice at the start-up stage.

• Although few Africans or Caribbeans were included in the Scottish sample, their significant disadvantage in the UK survey compared with both white-owned firms and other MEB groups is relevant to the Scottish context. This is because of the potential role that Africans or Caribbeans play in the Scottish minority ethnic population; that is, their potential contribution to minority ethnic enterprise activity.

• As in England, MEBs in Scotland are significantly more likely to draw on finance from family and friends at start-up than white-owned firms. Finance from informal sources appears particularly important in the case of Pakistani-owned firms.
• Only about 1 in 6 established firms sought external finance during the 12 months prior to the interviews. Whilst there was little difference between MEBs and white-owned firms in their propensity to seek such finance, MEBs appear to have lower success rates.
• In terms of start-up advice, Chinese-owned firms appear the most outward looking, often taking advice from a combination of formal (banks and accountants) and informal sources (family and friends). As a group, MEBs were less likely to take advice from a public or quasi-public sector agency than white-owned firms.
• Unlike white-owned firms, MEBs continue to use informal sources of advice once the business is up and running, often in combination with more formal sources.

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