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Asian Small Businesses

The phenomenon of Asian American small businesses has gotten a lot of attention in the last several years. Some of this attention has been positive while some of it has been negative. This section examines theories of why Asians are so likely to open their own businesses and some of the issues that confront them as Asian American business owners.


Why Do So Many Asians Own Their Own Businesses?

The article on Asian American enclaves describes how Asian communities have proliferated since the arrival of new immigrants to the U.S., starting after 1965. The growth of these ethnic economies is directly and intrinsically tied to the growth of Asian small businesses. Walk around any Chinatown, Little Tokyo, Koreatown, or Little Saigon and you'll see hundreds of small shops and businesses, selling everything from traditional foods, ethnic music, travel, haircuts and manicures, flowers, and liquor.

Rates of Being Self-Employed, 2000
Racial/Ethnic Group

U.S.-Raised

Foreign-Raised

Total

Whites 12.6 16.6 12.8
Blacks 4.8 6.6 5.0
Hispanics/Latinos 7.0 9.4 8.1
Native Americans 6.1 8.4 8.4
All Asians 8.4 11.8 11.0
 
Asian Indians 7.4 11.5 11.0
Chinese 9.8 11.2 10.8
Filipinos 4.5 5.4 5.2
Japanese 11.1 14.0 12.1
Koreans 9.0 27.8 24.0
Taiwanese 11.9 16.6 15.4
Vietnamese 7.9 11.2 10.7
Population: All employed persons 25 or older
Data Source: 2000 Census 5% Public Use Microdata Samples (PUMS)

As it turns out, of all the major racial/ethnic groups, Asian Americans are the most likely to own their own small businesses (along with some European immigrants). The following table, based on data from the 2000 Census 5% Public Use Microdata Samples (PUMS), lists the rates of being self-employed for all persons 25 years of age or older in the seven major Asian ethnic groups. As the results show, foreign-raised Asians (those who immigrated to the U.S. at age 13 or older) are much more likely to be self-employed than U.S.-raised Asians (those who are either U.S.-born or who immigrated to the U.S. before age 13 -- the "1.5" generation).

Among foreign-raised Asians, Koreans have the highest self-employment rate at almost 28%. When we count family members or relatives who work for Korean store owners, the rate of being directly involved in a family small business in one form or another is probably even higher than that. However, Koreans do not have the highest self-employment rates among the U.S.-raised -- rather, Taiwanese do. In fact, research shows that in the last couple of decades, women, immigrants, and people of color have entered self-employment in increasingly larger numbers.

The question then becomes, why are so many Asian immigrants opening up their own business? In my academic research on self-employment and entrepreneurship among Asian Americans, I have organized the different explanations of Asian immigrant self-employment into four main categories. Of course, as with any categorization system, there will sometimes be some overlap between categories but for the most part, they represent unique characteristics that are associated with being self-employed.

The first is the theory of Labor Market Discrimination, which argues that immigrants try to find a "regular" job as an employee working for someone else but can't and therefore have no choice but to go into business for themselves because:

  • The immigrant is not very fluent in English
  • Her educational or occupational credentials from her home country are not recognized by U.S. companies
  • Simple discrimination by the employer based on race

The best examples of this theory are the experiences of Chinese immigrants in the late 1800s (see the section on Asian American history).

The second theory emphasizes Cultural Traits or Ethnic Resources. This theory says that immigrants chose to go into business for themselves when they apply their cultural traditions of working hard, delaying material gratification, and sacrificing for the next generation. They also rely on using family, relatives, or other immigrants in their ethnic group as unpaid or cheap labor. They also sometime set up an informal savings and loan arrangement with friends or relatives to get start-up capital. Finally, common ethnicity helps them develop a network of loyal customers within their own ethnic group.

Korean store owner in New York City © Catherine Karnow/Corbis

A third theory of Asian immigrant self-employment focuses on Class Resources. Here, Asian immigrants plan from the beginning to open their own business using specific education and job skills gained just for that purpose (i.e., a business degree or an apprenticeship). They are also likely to already have lots of financial resources to help them start their businesses. Finally, they tend to have "Americanized" attitudes and norms of behavior that makes it easier for them to relate to their Asian and non-Asian customers and community.

Finally, there is the theory of Structural Opportunities, which has three separate sub-theories or "models." The first is the Middleman Minority model. This model argues that middle and upper-class Whites business owners don't want to deal with their predominantly Black or Latino working-class customers because they fear losing money, status, or for their own personal safety. Therefore, they "use" Asian immigrants to serve as a "buffer zone" while they still control wholesale and distribution while the Asian business owners are left to face the hostility that is ultimately directed at Whites.

The second model is that of the Ethnic Enclave. This argues that it's in the Asian immigrant owner's best interests to open their businesses within their own ethnic community or enclave because the most well-developed enclaves (i.e., Chinatowns in San Francisco and New York) tend to produce much more profits. Also, working in the ethnic enclaves shield owners and workers from racial hostility and discrimination that they would normally face in the mainstream labor market.

The last model within the Structural Opportunities theory focuses on Economic Openings. As White small business owners sell their businesses in inner cities (i.e., Jews and Italians in New York in the 1980s), Asian immigrants take over in these areas. Also, as the U.S. economy changes from one based on manufacturing to services, more service-oriented business opportunities develop. These businesses tend to offer easy entry but also involve high risks of losses or failures (i.e, garment, groceries and restaurants, personal services, and retail sales).


The Evolution of Asian American Self-Employment

In my own research on this topic, I have found that, in the same way that analyzing self-employment using the all-encompassing category of "Asian American" distorts specific differences between Asian ethnic groups, analyzing self-employment as a single type of employment can also be misleading.

In other words, even among those who are self-employed, there are different types of occupations. The type that many people normally associate with Asian small businesses are the types that are traditionally found within ethnic enclaves -- relatively low-skill service industries such as restaurants, retail, groceries, beauty services, etc.

But increasingly, many Asian American entrepreneurs are starting their own businesses that involve high-skilled occupations and more professional-type of industries such as law offices, doctors' offices, financial services, real estate, insurance, computer consulting, etc. In fact, my preliminary research suggests that while self-employment among Asian American ethnic groups is slowly declining in general, self-employment in these professional industries is slowly on the rise.

Chinese produce stand © Robert Holmes/Corbis

Further, we know that the second and later generations of Asian Americans are increasing in size and as a result, helping to further integrate the Asian American community into the mainstream. As this happens, it is likely that a growing proportion of entrepreneurial activity among Asian Americans will move away from traditional "enclave" industries, and instead, will increasingly involve more businesses located in professional service industries -- industries that will allow Asian Americans to put to good use their high levels of education and occupational skills.


Characteristics of Asian Small Businesses

The Census Bureau's Survey of Business Owners: Asian-Owned Firms: 2007 (released in May 2011) provides a very comprehensive examination of the basic demographic and economic characteristics of Asian-owned small businesses in the U.S Specifically, the summary report points out that as of 2007, there were 1.5 million Asian American-owned businesses. This number is up 40% from 2002. These Asian American-owned businesses also generated more than $507.6 billion in receipts (up 55.4% from 2002), employed more than 2.8 million people, and supported payrolls totaling $79.6 billion.

They also describe how, very similar to the geography of the Asian American population in general, almost 60% of these businesses were located in just four states (California, New York, Texas, and Hawai'i) and that more than one-third are located in just four metropolitan areas (Los Angeles/Orange County, New York, Honolulu, and San Francisco). Regarding specific ethnicities, Chinese small business owners made up 27% of all Asian-owned small business owners in 2007, followed by Asian Indians at 20%, Vietnamese at 15%, and Koreans at 12%.

The 2007 Census data also shows that Asian-owned businesses had average revenues of about $338,400, which is less than the $410,600 national average for all business (excluding publicly held corporations). At the same time, Asian Indian-owned businesses had the highest average revenue among all Asians at $494,304 with Vietnamese American-owned businesses at the bottom with average revenues of $125,682. In terms of sector, the numbers suggest that Asian-owned businesses are generally concentrated in "repair, maintenance, personal, and laundry services," "professional, scientific, and technical services," and retail sectors.

Interestingly, the Census research illustrates how certain ethnic groups have come to dominate specific industries. For example, three-quarters of all Asian-owned hotels and lodging businesses are owned by Asian Indians, two-thirds of all Asian-owned fishing and hunting businesses are owned by Vietnamese, and half of all Asian-owned apparel and accessory stores were owned by Koreans. Sociologists argue that concentrating in these ethnic niches have allowed Asian small businesses to largely avoid direct competition with each other and have contributed to the dynamic growth of Asian enclaves around the country.


Issues Asian Small Businesses Face

Many Asian immigrant small businesses owners have a lot of success and can become quite wealthy. However, research shows that the majority of such businesses only show an modest level of profit from year to year. In fact, many aruge that many Asian small businesses are only able to turn a profit by exploiting their workers.

In other instances, small profits are only possible because the owners have no or very few paid employees and frequently work 18 or more hours a day to keep overhead costs low. Studies also show that there is a high turnover and failure rate for Asian immigrant businesses in the industries mentioned in the Economic Openings model.

But perhaps the challenge which Asian immigrant owners face that gets the most attention is their conflicts with Black and Latino customers. Movies such as Do the Right Thing and Menace II Society clearly portray the tensions that sometimes exist between Asian (frequently Korean but not always) small businesses owners and their Black or Latino customers.

There have been and continue to be numerous incidents involving robberies, violence, and death that have made headlines throughout the nation. The killing of Latasha Harlans in Los Angeles and the Crown Heights boycott in New York are just two prominent examples.

Racial tensions erupt in 1992 © David & Peter Turnby/Corbis

But the most graphic example of these tensions has to be the Los Angeles riots of 1992. For years and decades, much of Black community in Los Angeles had built up resentment and anger against the institutional racism they faced. At the same time, many Korean store owners tried to improve their lives by opening up stores in low-income areas. But cultural and language differences between Korean owners and Black customers eventually produced even more hostility. The acquittal of the four police officers who beat Rodney King was the spark that ignited all those tensions.

It was not a coincidence that 40% of all stores that were burned down, damaged, or looted belonged to Koreans. In addition to cultural and language differences, Blacks frequently complained that the Asians never hired minorities to work for them. Another common complaint was the high prices these Korean stores charged (largely due to the high rents the Korean owners had to pay). Nonetheless, all of this led to accusations that Koreans were parasites who exploit their community without giving anything back.

On the other hand, some Asian Americans have accused the media of oversensationalizing Asian-Black conflict. They point out that the vast majority of Asian-owned businesses around the country have little if any problems with their Black customers and that the images of Koreans shooting at Blacks and Latinos that were seen during the LA Riots were unfortunate but isolated incidents. Others claim that while the level of tensions between Asians and Blacks in many inner city communities may be overblown, the incidents of conflict and violence that do exist are very real.

Obviously we can't change what happened in the past. Nor can we erase the misunderstandings, tensions, and anger between these two groups overnight. But both sides are trying to forge new understandings and relationships. Many Asian small business owners, using the idea of "class resources" mentioned above, are employing more Blacks and Latinos in their stores. They are also participating more in community organizations (i.e., Chambers of Commerce, small business associations, etc.) in order to begin giving back to their community.

All of this goes a long way to a greater sense of mutual understanding, acceptance, and respect. It's just unfortunate that it took so much pain on both sides to get to this point.



Author Citation

Copyright © 2001- by C.N. Le. Some rights reserved. Creative Commons License

Suggested reference: Le, C.N. . "Asian Small Businesses" Asian-Nation: The Landscape of Asian America. <http://www.asian-nation.org/small-business.shtml> ().


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