Ethnic Minority Businesses - Term Paper Example

Report On the Issue of Raising Finance as an Ethnic Minority Table of Content Introduction 3 Discussion 4 Overview of the Issue of Raising Finance asan Ethnic Minority 4 A Description of Policies With Regards To SME Ethnic Minority Finance 6 Critical Evaluation 10 Conclusion 12 References 14 Introduction Ethnic minority is typically defined as a group, which follows diverse national or cultural traditions that are often found to be dissimilar from other majority groups. In commercial term, ethnic minorities are related with the entrepreneurs sharing collective national and cultural backgrounds. With regards to determine the historical background of “ethnic minority”, it can be regarded as a group of people who bears a common origin and share important fragments of a communal culture. In this regard, the ethnic business enterprises presently incorporate small and medium enterprises (SMEs) that are retained by ethnic or immigrant entrepreneurs and their co-ethnic helpers. The requirements of businesses in the context of ethnic entrepreneurship seem to be quite low in respect to the capital invested and the qualification of the minority entrepreneurs. The entrepreneurship in ethnic minority communities have effectively contributed in raising the standard of living and most vitally mitigating the barriers that raise within the community while conducting business (Volery, n.d.). It has been earlier mentioned that the “ethnic minority businesses” comprise both small along with medium-sized businesses that run by an ethnic mix of staff. The uniqueness of this sort of business lies with the ownership of the ethnic entrepreneurs in raising finance. However, in this regard, the ethnic entrepreneurs face issues is raising finance due to the factors like limited internal resource base and distinctive arrangements of organisational behaviour among others (Volery, n.d.). With this concern, the essay intends to critically evaluate the provided statement, which represents that the distinctions prevailing between diverse ethnic groups eventually make quite difficult in adopting and implementing effective set of policies in relation to SME ethnic minority finance. Various important aspects like analysing the issue of raising finance as an ethnic minority and describing the actual governmental policies as well as theories concerning ethnic minority financing will be taken into concern for evaluating the provided statement. Discussion Overview of the Issue of Raising Finance as an Ethnic Minority Finance plays an imperative role in aiding the entrepreneurs to commence a new business. It is quite essential during start-up stage of a specific business. Hence, it is widely observed that the financing imperfections in small along with medium sized businesses eventually become a determinant factor for ensuring their sustainability. Since, the equity capital involved in these enterprises is smaller in comparison with the larger ones, the entrepreneurs often had to depend on other financial institutions in order to meet their respective financial requirements. Specially mentioning, SMEs lack operational efficiency and performing innovative activities due to the incapability of raising adequate finance (European Commission, 2013). With reference to the above discussion, it can be affirmed that the other major area of concern for the SMEs apart from the issue of raising finance as an ethnic minority is lack of participation of formal financial institutions. Due to low participation of the formal financial institutions, it eventually creates a compulsion for the SMEs to incline toward the informal financial institutions, which in turn limits their access to credit (Nkuah & et. al., 2013). Considering the fact that SMEs possess limited scope of financing depending on their small level of operation, these enterprises need financing in order to suffice with their respective operational needs at distinct levels. Owing to their limited scope and financing, SMEs have to depend mainly on the financial institutions for attaining their long as well as short-term goals. The SMEs due to their small entrepreneurial operations and distinctive capital structure often fail to meet the collateral requirements of the banks or other formal commercial intermediaries in the context of availing loans (Ackah & Vuvor, 2011). SMEs are usually confronted with the limit of accessing credit because of conducting small business operations. In this regard, the SMEs often opt for other financing modes that entail mobilisation of reserve, self-financing and factoring. However, this again hinders the SMEs towards performing their respective operational functions efficiently. Observing the evident shortage of proper collateral resources of the SMEs, the access to private equity markets also becomes a difficulty in raising finance. Evidently, with the happening of economic crisis, the minimum chances of raising funds to meet the operational needs often become stagnant. This type of situation even leads towards further shrinkage of the fundraising activities. This eventually restricts the scope for SMEs to comply with the requirements of the customers. This restriction in turn enhances the requirement of raising funds in the form of finance for conducting business particularly at the time of financial downturn (OECD, 2009). Owing to the small mode of operation and low productivity, the SMEs have minimum access to the credit market. Again, it can be apparently observed that the SMEs are less attractive to the financial institutions. This behaviour is noted at the time when the cost of handling a small loan appears more or less at par with the cost of handling corporate loans. However, the return on loan, which the financial intermediaries would earn from a corporate, will be much more from the return earned from a SME (Rettab, 2001). The SMEs formed by the local ethnic groups mostly face the above discussed issues, whereas, the immigrant entrepreneurs belonging to the ethnic groups face major problems of financing from the mainstream entrepreneurs. The ethnic minority entrepreneurs are quite inclined towards raising their funds from their own community or group. This tendency leads to the restriction of the limit of credit, which they can avail for conducting business in future (Lassalle, 2008). Another major aspect, which form the distinctions between various ethnic groups and make difficult to adopt effective policies in relation to SME ethnic minority finance is maintaining a greater association with the entrepreneurs belonging to home and host country. Observing that most of ethnic minority entrepreneurs (EMEs) conduct business in their respective home nations, they often face problems about raising finance. It would be vital to mention in this similar context that due to the differences persisting in cultural background, the EMEs and the mainstream entrepreneurs fail to relate with conventional advisory sources. However, for EMEs, the major backlog arises specifically from the cultural differences that refrain them from establishing contact with the support group. This group is viewed to provide active support to the SMEs run by the local ethnic groups in diverse host countries (Lassalle, 2008). A Description of Policies With Regards To SME Ethnic Minority Finance SMEs have been one of the prime contributors towards the development of economies of the United Kingdom. It is worth mentioning that in order to conduct a particular business efficiently, the major requirements include skills, ambitions and aptitudes. These abilities are found to be prominent within the EMEs and the only reason for the failure in conducting the same can be traced as ineffective utilisation of the accessible resources. Owing to their respective performances and contributions made towards making significant economic growth, certain policies have been formulated by the UK government. In this regard, the UK government had several discussions with the British Banks and the ethnic groups of entrepreneurs operating in the nation to identify the requirements. It can be affirmed that this particular initiative of the UK government has safeguarded the EMEs in terms of generating awareness about the available schemes to raise finance. Apart from these, there are certain set of policies that provide active support to the SMEs and EMEs in solving varied financial issues of raising finance have been introduced by the UK government (Department for Communities and Local Government, 2013). By taking into concern the efficient participation of EMEs in conducting global businesses, the UK government took certain significant steps in order to prevent the above discussed issues. In this similar context, it can be apparently observed that the UK government have passed separate policies to promote and support the EMEs at large. Considering the fact that EMEs impose positive impact on the local businesses and plays an efficient role in increasing the competitiveness of the local communities, deliberate efforts were made on behalf of the UK government to enhance their operations (Dhaliwal, n.d.). The formal financial intermediaries like the banks are incessantly monitoring the need of finance at the start-up phase of business in order to cope up with the financial issues that rose due to the happening of worldwide economic crisis (Irwin, 2006). In relation to critically evaluate the state of ethnic minority finance with reference to existing academic theories and actual governmental policies, it has been apparently noted that the respective governments have brought relaxation in their funding norms for enhancing the operational efficiency of the SMEs along with the EMEs. Specially mentioning, governmental norms relating to the proliferation of loans, grants and guarantee schemes have been undertaken to mitigate the issues emerging from raising finance (Ramlee & Berma, 2013). The actual UK government policies intended towards addressing as well as mitigating the issue of funding or raising finance, which are faced by the SMEs and the EMEs due to the factors existent within the nation like the cultural barriers (Ram & Jones, 2008). In this similar context, the introduction of one of the actual governmental policies by the UK such as providing special loans at a lower rate than the actual rate might support the SMEs as well as the EMEs to cope up with the issue relating to raising finance as an ethnic minority. It is anticipated that the lower rate of loans would certainly ease out the financial burden of the SMEs, which in turn will aid them to flourish in this competitive landscape. Special agencies like the Enterprise Research Centre are being coordinated by other big financial and educational institutions to develop the SME sector through raising finance according to the requirements of the SMEs and the EMEs. This agency is operated by the specialists in enterprise management so as to identify the areas of development and to understand the future developments that could be implemented. Again, the British banks have found to participate actively in designing a free portal to suffice the financial needs of the EMEs. Through this portal, the ethnic minority groups operating in the country could easily find mentors in providing greater financial support to their respective businesses. These agencies act as a saviour for the SMEs and the EMEs in clearing out their respective backlogs through the application of the schemes associated with meeting the credit requirements at varied operational levels (Department for Communities and Local Government, 2013; Aruwa, n.d.). Based on the above discussed aspects, it would be vital to mention that in order to ensure sustainable growth of the SMEs even in the usual economic conditions certain effective policies needs to be designed. Due to certain quality facets of SMEs and EMEs that entail small size, less diversified economic activity, fewer financing option and low credit, they often become vulnerable towards facing severe challenges and threats (OECD, 2009). According to the report published by The World Bank Group (2013), an inclusive financial system can efficiently meet the requirement of the SMEs in terms of raising finance. Without a comprehensive financial system, it is strongly believed that the SMEs will have to rely on their limited earnings to pursue promising goals. This financing technique developed by the UK government will certainly facilitate the SMEs to have greater credit access. The ‘Global Partnership for Financial Inclusion’ (GPFI) have recently identified a range of business models that fill up the gaps, which the SMEs face while raising funds in a cost-effective manner (The World Bank Group, 2013). By taking into concern the features of SMEs as well as EMEs and their respective ways of conducting business, it can be affirmed that the economic policies framed by the UK government must be aligned with the issue of raising finance among the ethnic minority groups persisting in the nation. This might assist the SMEs as well as the EMEs to flourish in this competitive landscape by a certain level. However, the SMEs need to incorporate certain innovative skills and corporate cultures in order to raise funds adequately. It has been often observed that the SMEs are incapable of disclosing their financial statements in an efficient way, which eventually creates a backlog for them to raise funds from different intermediaries. In this regard, the SMEs must emphasise incorporating new innovative skills for availing promising returns. With active participation of the SMEs in the economic development of the community wherein they serve, the issue of raising finance as an ethnic minority could be weel addressed and mitigated by a considerable extent (Dhaliwal, n.d.). Based on the above identified policies of the UK government and existing academic theories, it can be apparently observed that the persistence of differences in home as well as host nation operations impose extensive impact on the overall performance of the SMEs and the EMEs. The policies designed to suffice the financial needs of the SMEs are quite important to be considered in order to solve finance related issues. Apart from the above discussed policies, the issues relating to finance can also be addressed and mitigated through proper management of the accessible resources, application of the innovative skills of the entrepreneurs and greater fulfilment of the promised goals. These aspects would certainly increase the financial credibility of the SMEs along with the EMEs in terms of raising funds. Subsequently, it can also be observed that the EMEs catering business through the SMEs are highly diverse depending on their respective communal paradox. This diversity prevailing between the groups eventually make the EMEs unique and also make them identifiable through having differences in business operations (Dana, 2007). Critical Evaluation Entrepreneurship is principally defined as an idea of starting a new business through the incorporation of innovative skills and the exploitation of available opportunities. In this globalisation driven era, the entrepreneurs need to possess certain innovate skills for growing their respective businesses and sustaining in this competitive landscape. The entrepreneurs belonging to a single culture or following solitary cultural traditions usually own ethnic minority businesses. These sorts of businesses are owned and run by the co-ethnic groups belonging to similar community (Lowe & Marriott, 2006). It has often been argued that the fundamental paradox of an ethnic minority group of entrepreneurs make them unique from one another. This uniqueness can be duly measured in terms of applying innovative capabilities, making effective decisions, developing operational functions and utilising accessible resources effectively. Notably, the distinctions prevailing between varied ethnic groups ultimately make the SMEs relying on ethnic minority finance to face difficulties in constructing effective set of policies for attaining predetermined business targets. This statement can be supported with reference to the fact that there exist certain prime reasons due to which the distinctions mainly occur, resulting in imposing adverse impact on the overall performance of the SMEs and the EMEs at large. In this similar context, one of such reasons can be apparently noted as the cultural disparities. Differences in cultural background have effects on the innovative skills of the entrepreneurs that often lead towards the uniqueness of the ethnic groups and increased level of distinctiveness. Moreover, each ethnic group possesses own set of norms as well as rules that certainly affect the decision-making procedure of the entrepreneurs at large (Ojo, 2013; Lowe & Marriott, 2006). Arguably, entrepreneurs belonging to diverse ethnic minority groups are ruled by their respective cultural orthodoxies. Hence, the decision-making and planning for conducting business efficiently vary from one group to other. Owing to the diversified culture and economic background, the entrepreneurs possess diverse approaches of making effective decisions and raising funds among others. Thus, the fund raising techniques of the groups also seem to be quite different, which in turn results in facing much difficulty towards constructing effective policies by the UK government (Department for Communities and Local Government, 2013; Dana, 2007). Hence, from the above discussion, it can be ascertained that the ethnic minority groups being different from each other relating to cultural norms ultimately make it difficult to construct an over-arching set of policies with regard to SME ethnic minority finance. Whenever a particular policy is to be introduced and implemented, the main difficulty faced by the SMEs along with the EMEs in making decisions whether to apply such a policy for reaping significant benefits. Considering the fact that each ethnic group possesses a separate set of operational mechanisms, it is obvious that their requirement of funds will also be different. By taking into concern this important aspect, it could be revealed that the distinctions prevailing between varied ethnic groups eventually make quite difficult to construct a predominant set of policies with regard to SME ethnic minority finance for mitigating the issue concerning raising adequate finance (Dana, 2007). Conclusion EMEs have been a subject of growing interest from an economic outlook. Participation of the EMEs in progressing the economy of a country is evident from the contribution made by them in advancing their respective ethnic groups. However, due to diversity prevailing within the operations and the cultural background of the entrepreneurs, the primary requirements of EMEs often become hard to understand. Funding issues have been evident from the initial days of operation of the SMEs along with the EMEs. However, in order to develop the policies of the SMEs operating in the UK, the government of the nation has introduced certain effective policies that might help in lessening the gap persisting between the SMEs and the financial intermediaries. It is quite obvious that investing little amount of capital and conducting small mode of operations eventually restrict the SMEs to reap the benefits of improved operational efficiency and increased level of profitability among others. However, by taking into concern the diverse cultural backgrounds of the ethnic entrepreneurs, it can be argued that the financial intermediaries and the government policies should be more sensitive to understand the funding requirements of the EMEs as well as the SMEs. Subsequently, it can also be observed that lack of education amid the entrepreneurs made them ignorant towards making fuller utilisation of the available alternative financing tools. Based on the above analysis and discussion, it can be concluded that the factor concerning diverse cultural background becomes a barrier for the EMEs to operate and carry out their respective businesses at a larger scale. By taking into concern the prevalence of dissimilar cultural orthodoxies and varied modes of business situations, it can be affirmed that these factors restricts the governmental policies to suffice the difficulties rising from raising funds for the SMEs as well as the EMEs in general. It can also be affirmed based on the observation of the above discussed aspects that the design of predominant mass policies might not prove to be suitable for varied ethnic groups in mitigating the issue of raising finance as an ethnic minority. For mitigating the aforesaid issue, the varied ethnic groups may follow diverse governmental related policies that would support them not only to develop their operational efficiently but also raising finance adequately in accordance with their respective business requirements. References Ackah, J. & Vuvor, S., 2011. The Challenges Faced By Small & Medium Enterprises (SMEs) In Obtaining Credit in Ghana. Master’s Thesis in Business Administration, pp. 8-16. Aruwa, S. No Date. Financing Options for Small and Medium Scale Enterprises in Nigeria. Department of Economics and Management Sciences, Nigerian Defence Academy, Kaduna, pp. 4-14. Dana, L. P., 2007. Ethnic Minority Entrepreneurship: A Co-Evolutionary View on Resource Management. Northampton: Edward Elgar Publishing Limited. Department for Communities and Local Government, 2013. Where Are We Now? Ethnic Minority Businesses and Access to Finance, pp. 7-20. Dhaliwal, S., No Date. The Take-Up of Business Support by Minority Ethnic SMEs: The Experience of the Asian, Korean and African-Caribbean Businesses in England. The Management School University of Surrey Guildford, pp. 4-15. European Commission, 2013. 2013 SMES’ Access to Finance Survey. Analytical Report, pp. 6-20. Irwin, D., 2006. Barriers Faced By SMEs in Raising Finance from Banks. Institute for Small Business & Entrepreneurship, pp. 3-7. Lassalle, P., 2008. A Major Issue for EMES: Accessing To Formal Source of Finance. Ethnic Minority Entrepreneurs: Communities, Social Capital, Actors Strategies, pp. 10-11. Lowe, R. & Mariott, S., 2006. Enterprise: Entrepreneurship and Innovation. Burlington: Elseiver Ltd. Nkuah, J. K. & et. al., 2013. Financing Small and Medium Enterprises (SMES) In Ghana: Challenges and Determinants in Accessing Bank Credit. International Journal of Research in Social Sciences, Vol. 2, No. 3, pp. 2-10. OECD, 2009. The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses. Contribution to the OECD Strategic Response to the Financial and Economic Crisis, pp.6-12. Ojo, S., 2013. Diaspora Entrepreneurship: A Study of Nigerian Entrepreneurs in London. A Thesis Submitted In Partial Fulfilment Of The Requirements Of The University Of East London For The Degree Of Doctor Of Philosophy, pp. 2-50. Ram, M. & Jones, T., 2008. Ethnic Minority Businesses in the UK: An Overview. Centre for Research in Ethnic Minority Entrepreneurship at Leicester Business School, No. 3, pp. 61-71. Ramlee, S. & Berma, B., 2013. Financing Gap in Malaysian Small-Medium Enterprises: A Supply-Side Perspective. SAJEMS Special, Iss. 16, pp. 115-126. Rettab, B., 2001. The Emergence of Ethnic Entrepreneurship: A Conceptual Framework. Research Report 0103, pp. 11-20. The World Bank Group, 2013. Emerging, Inclusive and Innovative Sources of Finance. Financing for Development Post-2015, pp. 46-60. Volery, T., No Date. Ethnic Entrepreneurship: A Theoretical Framework. Defining Ethnic Entrepreneurship, pp. 5-15. Read More