“Small business enterprises and Latino entrepreneurship: An enclave or mainstream activity in South Texas?”

Abstract

We surveyed 298 Latino small businesses in South Texas, a minority-majority region, in the summer of 2010. The survey focused on Latino entrepreneurship, and in this paper, we report findings associated with business start-up, immigration status of the entrepreneur, the sphere of business operations within formal or informal markets, the role of language in business operations, and the impact of the US-Mexico border in business success. We explore Latino entrepreneurship in the region as an enclave or mainstream activity developing a typology of business income chances associated with immigration documentation and business start-up rationale. Lastly, using multivariate analysis, we find gender, financial access, residence, and business language significant determinants in business orientation between necessity-driven and opportunity-driven Latino enterprises.

En el verano de 2010, les entregamos cuestionarios a 298 emprendedores latinos, dueños de negocios pequeños en el sur de Tejas, las cuales contaban con mayorías de latinos entre su población. La encuesta está enfocada en emprendedores latinos y el análisis correspondiente reporta los resultados acerca de nuevas empresas, estatus migratorio, sectores de negocios, informalidad, el papel de idiomas, y el impacto del ambiente fronterizo en el éxito del empresario. Examinamos si la presencia de emprendedores latinos en esta región resulta de barrios cerrados o si el efecto es general, con el intento de desarrollar tipologías y expectativas de empresas según estatus migratorio y la creación de empresas. Terminamos llevando acabo un análisis multivariable, donde encontramos como significativos los variables de género, finanzas, residencia e idioma – determinantes de los principales motivos de necesidad u oportunidad respaldando el negocio.

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Notes

  1. 1.

    See Alberto Dávila and Marie Mora’s Hispanic Entrepreneurs in the 2000s, María Verdaguer’s Class, Ethnicity, Gender and Latino Entrepreneurship, and the emerging work from the Stanford Latino Entrepreneurship Initiative for recent exceptions.

  2. 2.

    Latino-owned businesses in Willacy County comprised 83.5% of all businesses.

  3. 3.

    We use entrepreneurship, self-employment, and small business owner interchangeably in this article, after Blanchflower and Oswald (1998).

  4. 4.

    For two recent examples, see Samaratunge et al. (2015) for Sri Lankan immigrant entrepreneurs in Australia and Knight (2015) for Polish immigrant entrepreneurs in the UK.

  5. 5.

    Translation and back-translation procedures followed Brislin (1980).

  6. 6.

    According to the Small Business Administration, a restrictive definition of small businesses is enterprises having fewer 100 employees and receipts of less than 2.5 million dollars (SBA 2013). All firms in our sample meet this definition.

  7. 7.

    See Richardson and Pisani 2012, 2017 and Rogers et al. 2012, for successful examples using the Bordlerlife Project.

  8. 8.

    The Borderlife Project, under the direction of Dr. Chad Richardson (Professor Emeritus of Sociology at the University of Texas Rio Grande Valley), trained students as embedded interviewers to investigate and describe cultural and social life situations within the South Texas borderlands. Most research topics start out as ethnographic descriptions. The patterns revealed in the anecdotal accounts permit more focused follow-up and purposive survey-based interviews.

  9. 9.

    This is also much higher than the global average, see Kobeissi (2010).

  10. 10.

    Because of the imprecision of the firm categories, firm activity will only be utilized if meaningful in the results that follow in the next section.

  11. 11.

    As calculated from a cross-tabulation of firm age and firm location categorical variables (Pearson chi-square 9.009, p = .061).

  12. 12.

    We note that there is a continuum of firm creation choice from necessity to opportunity and that many factors arise in promoting firm initiation. Here we use the terms necessity and opportunity to describe the primary rationale in the initiation of the business.

  13. 13.

    Specifically, 14.5% of necessity-driven enterprises have a written business plan as compared to 30.5% for opportunity-driven firms. The difference is significant at the .01 level (cross-tabulation, Pearson chi-square = 10.300, p = .001).

  14. 14.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 21.782, p = .000.

  15. 15.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 19.562, p = .001.

  16. 16.

    There was no significant difference with regard to birthplace (USA, non-USA) and rationale for business start-up (necessity-driven, opportunity-driven) and to gender and immigration status.

  17. 17.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 3.162, p = .075.

  18. 18.

    Significantly different at Pearson chi-square = 6.998, p = .008.

  19. 19.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 5.090, p = .078.

  20. 20.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 18.225, p = .003.

  21. 21.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 5.157, p = .076.

  22. 22.

    Annual household figures were significantly different between authorized and unauthorized business owners with a cross-tabulation, Pearson chi-square of 19.490 and p value of .002.

  23. 23.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 8.248, p = .041.

  24. 24.

    There was no significant difference in language use between men and women.

  25. 25.

    Unauthorized businesses report using Spanish 87.2% and Spanish and English 11.4% of the time, respectively. Authorized businesses report using English, Spanish, and both English and Spanish in the conduct of business, 33.3, 54.5, and 12.2% of the time, respectively. The difference was significant and was computed by cross-tabulation, Pearson chi-square = 17.186, p = .000.

  26. 26.

    The significant difference was computed by cross-tabulation, Pearson chi-square = 16.268, p = .000.

  27. 27.

    These differences were significant and were computed by cross-tabulation, Pearson chi-square = 47.305, p = .000.

  28. 28.

    These differences were significant and were computed by cross-tabulation, Pearson chi-square = 26.607, p = .000.

  29. 29.

    In toto, these differences were significant and were computed by cross-tabulation, Pearson chi-square = 7.088, p = .029.

  30. 30.

    Post hoc ANOVA analyses also confirm the differential effects on business value of advice coming from the government and professional agents (F = 3.32, p < .05).

  31. 31.

    Post hoc ANOVA analyses also confirm the differential effects on household income of advice coming from the government and professional agents (F = 4.01, p < .01).

  32. 32.

    The advice coming from government and professional agents was also found to weakly effect (F = 3.55, p = .06) the difficulty of goals for the next 5 years of respondents. Small business owners set more “positive” goals of improvement when they are helped by these formal agents.

  33. 33.

    For a recent look at the broader area of Latin America, see Chen et al. (2016).

  34. 34.

    The score is determined by the following procedure: four points if the respondent is born in the US, zero if not; two points for each respondent parent born in the USA, otherwise zero; and one point for every respondent grandparent born in the USA, otherwise zero.

  35. 35.

    A comparison of means for assimilation and language use in the business (English [average = 8.08], Spanish [average = 2.87], and both [average = 7.46]) were significant, ANOVA, F = 61.368, p = .000).

  36. 36.

    A comparison of means for assimilation and firm type was significant, ANOVA, F = 61.368, p = .000.

  37. 37.

    A comparison of means for assimilation and residence was significant, ANOVA, F = 3.659, p = .003.

  38. 38.

    A comparison of means for assimilation and residence was significant, ANOVA, F = 41.196, p = .000.

  39. 39.

    The generation score for necessity-driven firms is 4.22 and 5.89 for opportunity-driven firms. A comparison of means for assimilation and residence was significant, ANOVA, F = 9.613, p = .002.

  40. 40.

    The generation score by start-up costs are as follows: $0–$1000 = 4.37, $1001–$5000 = 4.46, $5001–$10,000 = 6.88, $10,001–$15,000 = 8.20, and above $15,001 = 6.38. These differences were significant as computed by a comparison of means, ANOVA, F=3.160, p = .015.

  41. 41.

    These differences were significant and were computed by cross-tabulation, Pearson chi-square = 27.490, p = .000.

  42. 42.

    Logistic regression is the appropriate multivariate statistical test with a dichotomous dependent variable (necessity-driven firm or opportunity-driven firm) and multiple independent variables.

  43. 43.

    This is calculated as 1-β.

  44. 44.

    We note the logistic regression model is a good model and predicts the outcome successfully of whether a firm is necessity-driven or opportunity-driven 1.4 times better than chance.

  45. 45.

    Fairlie and Miranda (2017) find that growth-oriented Hispanic-owned business start-ups are more likely to hire employees at a faster rate than Anglo start-ups, perhaps suggesting that there may by some connection between opportunity-driven Latino enterprises and the presence of paid workers.

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Corresponding author

Correspondence to Michael J. Pisani.

Additional information

We wish to thank the two anonymous reviewers and the editor for their helpful and constructive comments.

Appendix: Small business interview guide

Appendix: Small business interview guide

Demographics:

  1. 1.

    Gender: A) Male; B) Female

  2. 2.

    What is your age? Are you: A) Under 18; B) Between 18 and 29; C) Between 30 and 39; D) Between 40 and 49; E) Between 50 and 59; F) Older than 60

  3. 3.

    Which of the following categories best describes where you live?

    1. a.

      Rural area with houses scattered over wide area;

    2. b.

      Colonia, outside of city limits

    3. c.

      Colonia, inside of city limits

    4. d.

      Barrio/poor neighborhood in a city (but not considered a colonia by those who live there)

    5. e.

      Middle-class city/town neighborhood

    6. f.

      Upper-class city/town neighborhood

  4. 4.

    Where were you born?

    A) US; B) Mexico; C) Other

  5. 5.

    Which of your parents were born in the US?

    A) Father; B) Mother; C) Both; D) Neither

  6. 6.

    How many of your grandparents were born in the US.

    A) None; B) One; C) Two; D) Three; E) Four

  7. 7.

    How many people, including yourself, currently live in your household?

  8. 8.

    How many of these people are 18 years of age or older?

  9. 9.

    How many of the adults in your household are employed? How many of those under 18?

  10. 10.

    What is your highest level of formal education completed?

    A) None; B) Eighth grade or below; C) Some High School; D) GED; E) High School Graduate; F) Some College; G) 2 year college degree; H) 4 Year College Grad or higher

  11. 11.

    What about your personal financial situation? Over the past year, has it: A) gotten better; B) stayed about the same; or C) gotten worse?

  12. 12.

    How many members of your household, if any, have health insurance?

  13. 13.

    What ways do you use to cut expenses (for example, making or growing your own food or clothing, crossing the border to get things more cheaply, etc.)?

Business-related questions:

  1. 1.

    Please briefly describe the kind of business do you operate in terms of the product or service you offer.

  2. 2.

    How many years have you been operating this business?

  3. 3.

    From what location do you operate your business? A) From your home; B) From a rented location; C) From a location I own; D) No fixed location; E) Other (Describe)

  4. 4.

    What is the primary language used within your business, especially with customers? A) English; B) Spanish

  5. 5.

    How many full-time employees do you have?

  6. 6.

    How many part-time employees do you have?

  7. 7.

    How many of your employees are family members? Are they full- or part-time?

  8. 8.

    What was your main reason for starting this business? A) lost previous employment; B) I needed additional income to support myself and/or my family; C) I wanted to be independent and to have the freedom to do something on my own; D) I had an idea or a skill that I thought would make money and I wanted to try it out; E) I started out doing it as a hobby or just for the enjoyment if got and decided to turn it into a business; F) Other

  9. 9.

    For how long had you planned to start your business before you actually started it?

  10. 10.

    How much money did you need to start your business?

  11. 11.

    What source did you use to get the money to start your business? A) Personal savings or selling personal possessions; B) Loan or from family members or friends; C) Credit card(s); D) Loan from a bank or lending institution; E) Doing side jobs; F) Other

  12. 12.

    Do you still owe money on your business? A) Yes, a lot; B) Yes, but not too much; C) No, or very little

  13. 13.

    What sources are available to you now when you need additional money for your business? A) Personal savings or selling personal possessions; B) Loan or from family members or friends; C) Credit card(s); D) Loan from a bank or lending institution; E) Doing side jobs; F) Earnings from the business; G) Other

  14. 14.

    What advice do you wish someone had given you when you started your business?

  15. 15.

    How do you know how much money your business is making or losing? A) I keep track of income and expenses using software on a computer; B) I keep track of income and expenses in a log or book using bookkeeping practice; C) I mainly keep track in my head; D) I just look to see how much money is available; E) Other (please describe)

  16. 16.

    What percentage of your business is usually done in cash (dollars and/or pesos)?

  17. 17.

    If cash is generally your main form of payment, is it your preference or that of your customers or clients? A) My preference; B) My customers; C) About equally mine and that of my customers or clients

  18. 18.

    Please mark each of the other methods of payment that you accept from your customers?

    A) Check; B) Credit or debit card; C) Lone Star Card; D) Extend them credit; E) Other

  19. 19.

    What do you do mainly do when customers refuse to pay? A) Take back what I sold them; B) Refuse them service next time; C) Report them to police or to court; D) Turn debt over to collection agency; E) Write it off as bad debt; F) Other

  20. 20.

    What is the main factor that contributes either to the success or failure in starting a business like yours here in the RGV? A) Having capital or being able to get loans; B) Having the skills or training to run a business; C) Having the right permits and/or licenses; D) Giving customers very good service or high-quality merchandise; E) Being willing to take calculated risks; F) Having good employees; G) Willingness to keep going even during hard times; H) Having the right equipment; I) Good advertising or good location; J) Other

  21. 21.

    Please select from the following each of those things that currently makes it very difficult for you to grow your business? A) Taxes; B) Permits and/or licenses; C) Not having business skills, training, or knowledge; D) Not being able to get a loan; E) The current economic situation; F) My lack of documents (citizenship or residency); G) Not having help I can trust; H) Bad location; I) Problems in my personal or family situation; J) Other

  22. 22.

    Which of the following do you most trust to give good answers to business-related questions?

    A) Family; B) Friends; C) Other people in businesses like mine; D) Local non-government agencies set up to help small businesses; E) Government agencies (like Small Business Administration); F) Qualified professionals; G) Internet; H) Other

  23. 23.

    Please check each of the following that you have gone to for information or training in starting or running a business and how satisfied you were with the help they provided (Very satisfied (VS), Satisfied (S), Not sure (NS), Dissatisfied (D), or Very dissatisfied (VD))

    1. A)

      Small Business Administration. Were you: A) VS; B) S; C) NS; D) D; or E) VD

    2. B)

      Texas Comptroller’s Office. Were you: A) VS; B) S; C) NS; D) D; or E) VD

    3. C)

      UTPA Small Bus. Develop. Center Were you: A) VS; B) S; C) NS; D) D; or E) VD

    4. D)

      Local Chamber of Commerce Were you: A) VS; B) S; C) NS; D) D; or E) VD

    5. E)

      Women’s Business Center Were you: A) VS; B) S; C) NS; D) D; or E) VD

    6. F)

      A bank or financial institution Were you: A) VS; B) S; C) NS; D) D; or E) VD

    7. G)

      Other Were you: A) VS; B) S; C) NS; D) D; or E) VD

  24. 24.

    Which of these, if any, has been most helpful?

  25. 25.

    What information or training have you needed but been unable to get?

  26. 26.

    Have you ever written up a formal business plan? A) Yes; B) No; C) Not sure

  27. 27.

    If yes, did anyone help you do it? [If so, please indicate who or what agency]

  28. 28.

    What permits, inspections, and licenses are required of businesses like yours?

  29. 29.

    In what ways, if any, would your business be affected if you had to fully comply with all the regulations, permits, licenses, fees, inspections, and taxes required by the different government agencies?

  30. 30.

    In what ways does the U.S.-Mexico border impact your business?

  31. 31.

    Please rank (one, two and three) the main ways that you use to attract new customers.

    Word of mouth; Referrals from satisfied customers; Soliciting in person or by phone; Paid advertising; Online data base; Promotions; Leaving card or brochure at prospective customers; Internet advertising; Other

  32. 32.

    Please describe how you would most like to expand your business in the near future

    A) Get a different location; B) Start a satellite location; C) Get more employees;

    D) Expand the services or products I offer; E) Have more inventory; F) Other

  33. 33.

    How likely do you feel that it is that you will have to close or sell your business? A) Very likely; B)

    Likely; C) Not Sure; D) Unlikely; E) Very Unlikely. [If they answered either “very likely,” “likely,” or “not sure,” ask, what might make this happen?]

  34. 34.

    If you sold your business today, how much money do you think you would receive for it?

  35. 35.

    If someone offered you that much money today for your business, would you sell it? A) Yes; B) No

  36. 36.

    If yes, why? And if No, why not?

  37. 37.

    What barriers or obstacles could most likely keep you from expanding your business?

  38. 38.

    Do you currently have other means, besides your business, of earning money? A) No, none; B) Yes, part-time employment; C) Yes, Full-time employment; D) Yes, occasional employment; E) Other

  39. 39.

    What goals do you have for your business in the next five years?

  40. 40.

    Approximately how much income do all the people who live in your home earn (all together) each year? (in dollars) A) Less than $25,000; B) Between $25,000 and $39,999; C) Between $40,000 and $54,999; D) Between $55,000 and $74,999; E) $75,000 to $99,999; F) Over $100,000 a year

  41. 41.

    What is your current immigration status? A) US citizen; B) US resident alien; C) Have a current visa D) Other

  42. 42.

    What sources of government assistance (food stamps, Medicaid, etc.), if any, have you or other members of the household received over the last year?

  43. 43.

    Have you ever had to not report some of your income or property to obtain this form of support?

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Pisani, M.J., Guzman, J.M., Richardson, C. et al. “Small business enterprises and Latino entrepreneurship: An enclave or mainstream activity in South Texas?”. J Int Entrep 15, 295–323 (2017). https://doi.org/10.1007/s10843-017-0203-6

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Keywords

  • Latino entrepreneurship
  • South Texas
  • Opportunity-driven versus necessity-driven enterprises

JEL classifications

  • L26
  • R19
  • J46