The role of institutional support in Asian entrepreneurial expansion in Britain

Abstract

This paper examines the role of formal and informal institutional support in the expansion of Asian‐owned businesses in Britain, based on a large survey of Asian entrepreneurs based in Britain. More specifically, it investigates the significance of formal (bank) sources of finance relative to that of informal (family or personal) sources of finance at start‐up and the implications of that reliance on subsequent business expansion. The paper also examines the wider role of informal family and community networks in providing access to information and labour, in addition to capital, and the impact of these support networks on business expansion. The methodology used is that of quantitative, statistical analysis supplemented by qualitative survey data. The evidence suggests that both formal and informal institutional support have played a limited role in fostering Asian entrepreneurial expansion in Britain. Although bank finance was valuable in preventing undercapitalised ventures, rapidly growing Asian businesses did not rely on bank finance either at start‐up or for expansion. This may be attributed to the short‐term perspective of banks. Rapidly growing Asian businesses did not rely on formal sources of advice. Nor did they rely on family or community networks for finance or labour. The Asian entrepreneurs who rapidly expanded their businesses invested their personal savings at start‐up, relied on their family and friends for advice, employed non‐Asian labour and invested in employee training. These results imply that Asian entrepreneurs aspiring to grow need to advance beyond the traditional reliance on informal support networks for finance and labour. Formal institutions could offer long‐term debt or equity finance, encourage investment in employee training, and provide appropriate training schemes.

Discouraged Advisees? The Influence of Gender, Ethnicity, and Education in the Use of Advice and Finance by UK SMEs

“…However, men were more likely to use family and friends (possibly, as the literature suggests, due to men"s higher level of access to social capital such as business networks Carter and Shaw, 2006;Manolova et al, 2006;Heilbrunn, 2004) (Barrett, 1995;Basu, 1998;Bennett and Robson, 1999a;Ram et al, 2002;Whitehead et al, 2006;Fraser, 2007;Bennett, 2008;Robson et al, 2008). The conclusion here is that Business Link has started to make inroads into the African Caribbean community because of: (a) social capital: there are fewer existing entrepreneurs within African Caribbeans" social networks to give advice; and (b) gender: there may simply be more women entrepreneurs within this community.…”

“…Hussain et al (2008) found that 65 per cent of their sample of BME graduate entrepreneurs -but no African Caribbeans -accessed advice from family and friends. On a cautionary note, Basu (1998) (Fraser, 2007). Although this finding must be treated with caution since it is based on only 8 firms, it suggests prior business experience for Indians (perhaps in family businesses) or high levels of education.…”

Barriers faced by SMEs in raising bank finance

“…As well as operating firms in an intensely competitive milieu (Ram et al, 2000), ethnic minorities may experience problems with access to finance, especially during start-up (Ram and Deakins, 1996;Bank of England, 1999;Ram and Smallbone, 2001;Ram et al, 2003), and particularly African Caribbeans and Bangladeshis, although there may be a strong influence of the business sector in which particular ethnic groups concentrate (Curran and Blackburn, 1993). Ethnic minority owner-managers also favour personal savings and co-ethnic informal sources of finance (Basu, 1998). Smallbone et al (2001) suggested that:…”

The emergence of a South Asian business elite in the United Kingdom

“…Although a majority of respondents were willing to rely on bank financing at start-up, many were unable to secure loans. This was mainly because of insufficient collateral, but also lack o{ a business plan, unsatisfactory credit terms offered by banks, and other factors (as discussed in Basu, 1999). The human capital resources of the entrepreneurs surveyed are extremely high in contrast with their limited access to financial resources.…”

“…This suggests that they came from a middle-class bourgeois or petit bourgeois background, which is consistent with the findings of earlier studies on the family background of business elites (Fidler, 1981). Four fifths of the entrepreneurs have self-employed relatives in the UK, with some in the same line of business as the respondents themselves (see Basu, 1999, for further details). This implies the existence of social networks in South Asian communities in Britain that can play a useful role in facilitating the exchange of information and advice among community members.…”