Determinants of Ethnic Minority Entrepreneurial

Growth in the Catering Sector

L E V E N T A L T I N A Y and E S E R A L T I N A Y

This paper seeks to evaluate the variables which influence the growth of
the Turkish-speaking ethnic minority businesses in the catering sector,
in London, UK. The paper reports and analyses the findings of 111
face-to-face structured interviews with Turkish Cypriot, Kurdish and
Turkish restaurant business owners. Findings suggest that fluency in
English, recruitment through formal recruitment channels, and the high
proportion of co-ethnic labour force makes a positive impact on business
growth. The paper concludes that these determinants of growth are
crucial for the ethnic minority catering entrepreneurs to gain a competi-
tive edge in this customer focused, labour intensive sector.

INTRODUCTION

It is becoming somewhat commonplace to point out the importance of ethnic minority

firms to the nation’s wellbeing. The pivotal economic role of ethnic minority
businesses is widely accepted, and constitutes a rare example of political accord.
Ethnic minority businesses are responsible for around 9 per cent of new business
start-ups in the UK [Bank of England, 1999]. It has been estimated that there are
1.8 million residents of ethnic minority origin and these minorities own 62,000
businesses, which represent 19 per cent of all businesses in London [London Skills
Forecasting Unit, 1999]. Furthermore, these ethnic businesses employ over 200,000
people on a full- and part-time basis [SME Statistics for the UK, 1998]. Inevitably,
these recorded figures highlight the fact that ethnic minority businesses make a
significant contribution to the UK’s economy by their small business investment,
by promoting innovation, engendering competition, creating employment and creat-
ing economic wealth and spending power. These figures are likely to increase over
time, due to the expected increase in the ethnic minority population over the next
decade [London Research Centre, 1999].
Self-employed immigrants are highly concentrated in the hotel and restaurant
industry; some estimates suggest that 36 per cent of all immigrants end up in this

Dr Levent Altinay, Department of Hospitality, Leisure and Tourism Management, The Business School,
Oxford Brookes University, Gipsy Lane Campus, Headington, Oxford, OX3 OBP, UK. Email: laltinay@
brookes.ac.uk; Eser Altinay, Management Department, School of Business, University of Reading, UK.
The Service Industries Journal, Vol.26, No.2, March 2006, pp.203–221
ISSN 0264-2069 print=1743-9507 online
DOI: 10.1080=02642060500369354 # 2006 Taylor & Francis
204 THE S ERVICE INDUS TRIES JOURNAL

sector [Dustmann et al., 2003]. The independent restaurant sector, including restau-
rants as well as takeaways and cafes, has been a popular activity for ethnic minority
businesses in the UK [Atkinson and Hurstfield, 2003]. This can be explained by the
relatively low entry barriers, such as the low financial start-up capital required
compared to the other sectors [Basu and Altinay, 2002], low skill requirements
[Basu and Goswami, 1999] and the cultural business tradition of ethnic groups
[Basu and Altinay, 2002].
To date, the research into the growth of small firms has concentrated almost exclu-
sively on the growth of small businesses operating in different sectors in general [see
Almus and Nerlinger, 1999; Birley and Westhead, 1990; Storey, 1994]. The evalu-
ation of the extant research, however, has indicated that limited literature appears
to exist on the growth of ethnic minority small businesses in the service sector.
Little is known about how ethnic service businesses grow and more specifically
why some ethnic businesses grow more rapidly than others. Given the importance
of ethnic minority small businesses for the economy, this paper aims to fill the exist-
ing research void by contributing to a better understanding of ethnic service business
growth. This paper particularly seeks to evaluate the variables which influence the
growth of Turkish ethnic minority catering businesses in London, which it is hoped
will both illuminate the challenges ethnic minorities face, and highlight the options
that they may consider as part of their growth strategies.
Self-employment is a very important form of economic activity for ethnic min-
ority groups in the UK, and at 20 per cent the Turkish ethnic group has one of the
highest proportions of the self-employment [Muftuzade, 1999] after Pakistani and
Bangladeshi (22 per cent each) [London Skills Forecasting Unit, 1999]. London
has been the focus of this study because as a result of the migration process this
city has become one of the most cosmopolitan cities in the world with 38 different
immigrant groups and according to population projections carried out by the
London Research Centre the total immigrant population will reach 28 per cent of
the population of Greater London in the next decade [London Research Centre,
1999; London Skills Forecasting Unit, 1999].

FRAMEWORK OF ANALYSIS

In the small business growth literature, there is as yet no consensus among researchers
on the determinants of business growth. It is possible to identify four sets of expla-
nations for business growth. The first set of explanations focuses on the personal
resources of the entrepreneur, the second set of explanations focuses on the entrepre-
neur firm itself, the third set of explanations focuses on the entrepreneur’s informal net-
works and the fourth set of explanations focuses on the entrepreneur’s human resource
strategies. The following section of the paper reviews these sets of explanations
accordingly. It then explains the variables and develops a model consistent with past
research. Finally, the paper aims to demonstrate the extent to which the difference
in an entrepreneur’s personal resources and access to informal networks, and his or
her firm’s characteristics and human resource strategy can explain the different
growth rates of Turkish immigrant community businesses in London.
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 205

Based on previous research, the hypotheses to be tested may be stated as follows.

H1: Long run success or growth depends on the entrepreneur’s personal
resources.
H2: Long-run success or growth depends on the entrepreneur’s business itself.
H3: Long-run success or growth depends on entrepreneur’s informal networks.
H4: Long-run success or growth depends on entrepreneur’s human resource
strategy.

Entrepreneur’s Personal Resources

In this section, seven different types of personal resources and their relationships with
business growth were examined.

Ethnicity. Previous immigrant entrepreneurship literature indicated that some ethnic

groups performed better in entrepreneurship compared to their counterparts. These
successful ethnic groups maintain strong ties and informal networks which give
them competitive advantages over counterparts and lead to business growth
[Waldinger et al., 1990; Ward, 1983; Werbner, 1990]. For example, East African
Asian entrepreneurs are more successful than Indians and Pakistanis in the UK
[Metcalf et al., 1996], Korean entrepreneurs are more successful in entrepreneurship
than the other immigrant groups such as European, Chinese and other Asian entrepre-
neurs in the US [Light, 1984; Kim, 1981; Kim and Hurh, 1985; Zhou, 1992] and
Macedonian entrepreneurs are not as successful as other entrepreneurial groups in
Canada [Herman, 1979]. In the light of these, we introduced an ethnicity variable
(DTCY) into the analysis to understand whether being a Turkish Cypriot or
Turkish from Turkey makes a difference to growth.

Business Entry Motives. Business entry motives and their impact on the growth of the
business have been examined in several previous studies [see Basu, 2004; Basu and
Altinay, 2002; Basu and Goswami, 1999]. It is asserted that having a positive reason
for entering self-employment or business owner’s positive motives at business entry
stimulates the growth rate of his business. On the other hand, some individuals may
have no other option but to choose self-employment. Immigrants are forced into self-
employment in order to avoid being unemployed [Reitz, 1980]. In addition, immi-
grants are ‘pushed’ into self-employment because of racial discrimination in the
labour market. All these negative motives in the form of unemployment, discrimi-
nation and redundancy hinder business growth [Basu and Goswami, 1999; Rafiq,
1992; Ram, 1992]. Therefore, the negative motive variable (DNEGAT) has been
incorporated into the analysis in order to assess the association between negative
motives and business growth.

Business Family Tradition. Previous literature on family business traditions suggests

that successful entrepreneurs have acquired necessary business skills prior to their
business start-up through their family tradition in business. These researchers assert
206 THE S ERVICE INDUS TRIES JOURNAL

that those successful entrepreneurs trained by their fathers acquire certain skills and
learn how to carry on the business and these all lead to business growth [Basu and
Goswami, 1999; Duchesneau and Gartner, 1990]. In a similar vein, previous work
experience before entering into self-employment influences business survival and
growth [Focus Central London, 1999; Jovanovic, 1982]. For example, employment
in a similar sector to that in which they had already developed expertise would
positively influence their business growth. Jovanovic [1982] emphasised that business
growth is positively related to the entrepreneurs’ past learning experiences.
Therefore, a family business tradition variable (DFATH) has been entered into the
analysis.

Age at Business Entry. It is possible to identify three sets of explanations for the link
between business growth and the age of the entrepreneur at business entry. The first
set of explanations asserts that there is an inverse relationship between the firm’s
growth and entrepreneur’s age at business entry. This approach suggests that as an
entrepreneur becomes older he loses his energy and has more commitments such as
looking after his family. In a similar vein, Kalleberg and Leicht [1991] alleged that
those who establish their businesses at early ages are more likely to have growing
businesses due to having fewer family responsibilities and commitments, are more
likely to sacrifice a little comfort and are more likely to survive at least one year
not drawing salary from the business budget compared to those who establish their
businesses at a later age. The second set of explanations, which is opposite to the
first view, asserts that there is a negative relationship between business growth and
the age of entrepreneur. This view suggests that younger entrepreneurs are less
likely to experience growth because even though they are more likely to work
longer hours they lack both experience and financial credibility [Storey, 1994]. The
third set of explanations asserts that middle-aged entrepreneurs are more likely to
have rapidly growing businesses than others [Barkham et al., 1996; Storey, 1994].
Given these arguments, a variable for age at business entry (GENT) has been
entered into the analysis and we expect to find a relationship between the age of entre-
preneur and business growth.

Educational Qualification. Entrepreneurship literature suggests that education has a

positive impact on the development of entrepreneurial abilities and this leads to
business growth [Basu, 1998; Basu and Goswami, 1999; Casson, 1991; Focus
Central London, 1999; Jones et al., 1992; Roper, 1998; Storey, 1994]. For
example, Casson [1991] emphasised that education develops both the analytical
ability and the computational skill of the entrepreneur as well as communication
skills. Therefore, those who attain a higher level of education are better equipped
to communicate with and understand markets, which then leads to a higher level of
growth in their businesses. In empirical research, Focus Central London [1998]
found that there is a strong relationship between the educational achievement of
ethnic minority entrepreneurs and their business growth; the more educated an entre-
preneur, the higher the rate of firm growth. Therefore, an educational qualification
variable (DGRAD) has been entered into the analysis.
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 207

English Fluency. Immigrant groups suffer higher rates of unemployment compared

to the indigenous population because of their poor knowledge of the host country’s
language, [Light, 1984]. Indeed, the previous scant literature suggests that there is
a positive link between the ability to speak English and success in the labour
market [Dustmann et al., 2003; Heath, 2001]. According to these reports, the
ability to communicate with others in English is an important factor, which in turn
has a significant impact on social and economic integration and productivity. From
the self-employment point of view, it is also necessary to attract customers by com-
municating with them and it is also beneficial to access necessary resources like
business advice, and start-up bank loans. Therefore, an English fluency variable
(DFLUENT) has been entered into the analysis. In the analysis, the distinction was
made between those with excellent English and others with less than excellent
English.

Sojourning. A sojourner can be defined as ‘a stranger who spends many years of his
lifetime in a foreign country without being assimilated by it’ [Siu, 1952: 34]. In terms
of psychology, a sojourner is not willing to organise himself as a permanent resident
in the host country. The sojourner stays on abroad but he also never loses his home-
land tie. Sojourning also has an economic effect, which is the willingness to suffer
short-term deprivation to hasten the long-term objective of returning to the country
of origin [Bonacich, 1973]. For this reason, sojourners work long hours, send their
savings to their home, and encourage thrift; they have little time or money to
spend on consumption. This sojourning orientation contrasts with that of settlers
and natives who generally do not aim to live elsewhere. From the point of self-
employment, sojourners work long hours and very hard to make more money as
quickly as possible in order to return their country of origin. Given these arguments,
the sojourning variable (DSOJ) has been entered into the analysis.

Firm Characteristics
Business Location. Location was introduced as an important variable to consider
whilst explaining the growth of firms [see Almus and Nerlinger, 1999; Birley and
Westhead, 1990; Storey, 1994]. We therefore incorporated it in our model. Previous
studies [see Almus and Nerlinger, 1999] which use regional population density as a
location variable ignore the income level differences and deprivation index in these
regions. Those [see Birley and Westhead, 1990] who use regions as a location vari-
able ignore differences within these regions. We therefore take boroughs as our
location variable (DHDEPRI) to overcome those possible limitations and explain
the growth of ethnic minority businesses located in different regions of London
with different deprivation indices.

Business Sector. Different studies [see Almus and Nerlinger, 1999; Birley and
Westhead, 1990; Philips and Kirchhoff, 1989; Storey, 1994; Wagner, 1995] intro-
duced the industry sector as an important variable to explain growth. However,
these studies treated catering as a homogenous sector and ignored the fact that there
might be differences between the growth of firms which operate in different
208 THE S ERVICE INDUS TRIES JOURNAL

sub-sectors. We therefore introduced DFASTFOOD as a variable in our study in order

to find out whether there are any differences between the sub-sectors of catering sector.

Business Age. There is a consensus among the researchers that younger firms grow
faster than older ones [see Almus and Nerlinger, 1999; Davidson et al., 2002;
Glancey, 1998; Wijewardena and Tibbits, 1999]. We therefore incorporated a
business age (AGE) variable in our model.

Legal Status. There is a widespread view that legal form is related to growth and
firms that choose the limited liability legal form grow more rapidly [see Almus and
Nerlinger, 1999; Storey, 1994]. Firms with limited liability are more willing to
take risks, whereas sole proprietors are less inclined to take risks because the personal
wealth of the owner is not protected from excessive losses of the firm. This study
incorporates legal status as a variable and aims to find a possible association
between legal status and growth. In this analysis, the distinction was made between
those that are limited companies or sole proprietorships or partnerships at start-up.
Therefore, the (DLIMIT) variable was created.

Informal Networks
For the ethnic minority entrepreneurship, informal networking involves the activities
through which capital is raised, labour is recruited and co-ethnic customers, co-ethnic
suppliers and ethnic products are identified, and information gathered [Basu, 1998;
Ram, 1994]. Therefore the present study would expect that to be able to stay competi-
tive and grow in the market ethnic minorities would rely heavily on their informal
social networks, namely co-ethnic customers and suppliers and information and
advice from their families and co-ethnics.

Co-ethnic Capital. Bearing in mind that these ethnic minority businesses may face
discrimination in raising funds from formal resources such as banks and receiving
credit from suppliers [Ram, 1994], it is inevitable that they will informally borrow
money from family members and co-ethnics at the start-up. Research indicates that
there is a positive interaction between ethnic resources in the form of cheap
finance from extended family, and business growth [see Basu and Goswami, 1999;
Basu, 1998; Ward, 1983]. Therefore the present study would expect that to be able
to stay competitive and grow in the market; ethnic minorities would heavily rely
on capital from their relatives and co-ethnics at business start-up. Therefore, the
extent of informal capital variable (DINFCAP) has been entered into the analysis.

Co-ethnic Labour. The importance of co-ethnic labour for business growth has been
recognised by the previous immigrant entrepreneurship literature [Basu and
Goswami, 1999; Waldinger et al., 1990]. According to these researchers, the
greater use of family and co-ethnic employees gives a competitive advantage to the
immigrant business over their counterparts. Co-ethnic labour enables ethnic
businesses to cut their employment costs and maintain lower payrolls, on average.
Immigrant entrepreneurs make best use of cheap family labour as the members of
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 209

family provide low cost support [Waldinger et al., 1990]. In addition, immigrant
entrepreneurs have privileged access to their co-ethnic labour who are ready to
work on less favourable economic conditions due to their lack of qualifications
which makes it difficult for them to obtain employment in the mainstream job
market or even to illegal status [Waldinger et al., 1990]. On the other hand, some
researchers found that an inverse relationship between business growth and the pro-
portion of co-ethnic employees or family employees [Basu, 1998; Bates, 1994; Jones
et al., 1994]. A co-ethnic employee variable (DCOETH) has been entered into the
analysis and this study would expect to find a relationship between co-ethnic employ-
ment and business growth.

Information. The previous literature suggests that information support is very import-
ant for business growth [Storey et al., 1987]. According to the immigrant entrepre-
neurship literature, ethnic minority business owners rely very little on mainstream
institutional information from banks, accountants, business advisors and from
support service providers [Fadahunsi et al., 2000]. Instead, informal social networks
are more common [Basu, 1998; Fadahunsi et al., 2000]. From the business growth
point of view, the literature suggests that information about markets is very important
for growth and those businesses that maintain strong ties and informal networks have
advantages compared to their counterparts [Bonancich, 1973; Waldinger et al., 1990;
Werbner, 1990]. Therefore a variable for information and advice from informal
networks (DSHARE) has been entered into the analysis.

Co-ethnic Market. Ethnic minority businesses rely heavily on selling ethnic products
to co-ethnic markets particularly at the initial stages of the business where it gives an
additional advantage [Waldinger et al., 1990]. Werbner [1990] states that dealing
with co-ethnic customers and co-ethnic suppliers influences business growth
because, firstly it is easier to transact business in a language that the business
owner is familiar with. On the other hand, some scholars advocate that heavy reliance
on co-ethnic customers and failure to attract customers from the mainstream market
is the main constraint to business growth [Basu, 1998; Smallbone et al., 1999]. If
ethnic businesses stay within their community then their business growth is limited
[Waldinger, 1990]. These scholars argued that inability to attract customers from
outside of the ethnic market is the key constraint to the growth of the ethnic
businesses. Therefore, to be able to grow a strategic ‘breakout’ into the mainstream
market is needed [Ethnic Minority Business Initiative, 1991]. Given the importance
of co-ethnic markets we incorporated ethnic customers (COCUST), ethnic suppliers
(COSUP) and ethnic products (COPROD) into our analysis.

Human Resource Strategy

Four different strategies and their relationship with growth were examined. These
strategies are given as follows:

Empowerment. There is a consensus among the researchers that delegation leads

to employee commitment and efficiency, thus to increased growth [Plunkett and
210 THE S ERVICE INDUS TRIES JOURNAL

Fourrier, 1991; Lashley, 2000]. Unlike disempowered or powerless employees,

empowerment provides employees with a sense of autonomy, authority and control
[Jones and Davies, 1991]; inherent skills and talents within the employees will be
realised and put to the use of organisation [Ripley and Ripley, 1993] and this will
result in additional commitment and effort from employees [Lashley, 2000]. In
turn, this will produce more satisfied customers [Johns, 1993], together with increased
sales and more profits [Plunkett and Fournier, 1991]. The question in the ethnic
minority literature is whether the firms should delegate power to the family or to
non-family members. Research indicates that in order to accelerate growth ethnic
minority businesses should delegate power to non-family members [see Basu and
Goswami, 1999; Casson, 1991, Penrose, 1959]. Given these, we incorporated
power delegation to non-family members as an independent variable (DOUT) in
our analysis.

Training. Many organisations have already shifted their thinking about the training
function. They have seen for themselves that training is where skills are developed,
attitudes are changed, ideas evolve and the organisation is reinvented. In the course
of learning the skills that will increase sales, build effective teams, improve quality
standards or meet a wide range of other objectives, employees create a new organis-
ational culture [Daniels, 2003]. Considerable caution must therefore be exercised in
the introduction of coherent bundles of training that would boost organisation per-
formance. Research into ethnic minority businesses also recognised the importance
of training and its positive influence on growth [see Ram, 1994; Basu and
Goswami, 1999]. We therefore introduced training as a variable (DTRAIN) into
our model.

Incentives. Organisations need to provide both income and non-monetary incentives

to increase business performance. An analysis of the utilisation and effectiveness of
non-financial incentives in small business by Appelbaum and Kamal [2000] indicated
that firms need to provide both income and non-monetary incentives to allow employ-
ees to meet physiological and security needs for themselves and their families. By
increasing job satisfaction via job enrichment, employee recognition, internal pay
equity and the use of skilled managers, smaller firms can increase productivity and
attractiveness to existing and potential employees. We therefore introduced incen-
tives as a variable (DINCENT) into our analysis.

Recruitment. Studies have indicated that informal sources (such as direct appli-
cations and employee referrals) may yield higher performing and more stable
employees than formal recruiting sources [Breaugh, 1981; Kirnan, Farley and
Geisinger, 1989]. In terms of ethnic minority recruitment, research is geared
towards the recruitment of family labour and co-ethnic groups through informal
sources. It is argued that these channels of recruitment might encourage nepotism
in selection and promotion decisions and leads to a growth problem [Bates, 1994;
Ram, 1992]. This raises a need for a formal recruitment approach to be proposed.
However, to date limited research seems to exist about the influence of formal
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 211

recruitment procedures on growth. We therefore incorporated formal recruitment pro-

cedures as a variable (DFORMR) to our analysis.

AN OVERVIEW AND DESIGNING THE MODEL

Based on previous research many factors have been identified and the following
model for testing was developed.

Business Growth ðyÞ ¼ f ðEntrepreneur’s personal resources; the firm

characteristics; Networks; Human Resource StrategyÞ:

The variables included in the empirical analysis are explained and classified into
four blocks or categories as represented in Table 1. This table specifies the nature
and measurement of the variables, that is, whether they are dummy or continuous vari-
ables. Variables with the prefix D are dummy variables. Dummy variables are the usual
method of dealing with qualitative data in econometrics [Barkham, 1990]. They are
usually used to incorporate qualitative explanatory variables into a linear model. In
this study the 0,1 dummy variable is used. Dummy variable 0 is allocated to data if
they are in the control group or a dummy variable 1 is allocated to those in treatment
group. The remaining variables without the prefix D (e.g. AGENT, INFCAP, COETH,
CUST, AGE) are continuous variables and they represent numerical data.

RESEARCH DESIGN

This study investigated the entrepreneurial behaviour of Turkish-speaking small

businesses in London by conducting 111 structured face-to-face interviews with
entrepreneurs who work in sub-categories of the catering sector, namely restaurants,
cafes and fast food restaurants. Of these, 37 (33.3 per cent) operate in fast food, 33
(29.7 per cent) operate in ethnic restaurants, and the remaining 41 (36.9 per cent)
are in cafés. The sample is drawn from a database of 1,200 Turkish-speaking entre-
preneurs who own micro (minimum 2, maximum 9 employees) and small businesses
(minimum 10, maximum 49 employees) in different boroughs of London. This is con-
sidered appropriate since a high proportion of Turkish-speaking entrepreneurs work
in these sectors and live in London [Muftuzade, 1999].
The multiple regression analysis was performed by using the SPSS 11 (statistical
package). Simple bivariate analysis could be a useful method for analysing the
relationship between two variables. The main benefit of using bivariate analysis is
that it shows how one variable changes with respect to another. In other words,
simple regression analysis is concerned with one dependent variable and one indepen-
dent variable. However, as stated before, the relationship between business growth
and an entrepreneur’s personal resources, HRM strategies, social informal networks
and his/her firm’s characteristics are multivariate rather than univariate. A hypothesis
regarding multi-variable relationships cannot be tested fully with the use of a simple
bivariate analysis and also it is not possible to show one variable’s influence on
212 THE S ERVICE INDUS TRIES JOURNAL

TABLE 1
INDEPENDENT VARIABLES

Variables Abbreviated name Name of variable and transformation

Entrepreneurs’ personal resources

Ethnicity
Social marginalisation
Business family tradition
Age at business entry
Educational qualifications
Competent in English
Sojourning orientation
Business location
Business sector
Business age
Legal status at start
Extent of Informal capital
Extent of co-ethnic employees COETH
Share Information with
co-ethnic friends
Extent of co-ethnic customers
Extent of co-ethnic suppliers
Extent of ethnic products
Entrepreneurs’ human resources management strategy
Delegation of functions to
non-family members
Employee business training
Employee incentives
Recruitment
DTCY Dummy variable Turkish
Cypriot ¼ 1 otherwise ¼ 0
DNEGAT Dummy variable If negative motives influence
business entry decision ¼ 1 otherwise ¼ 0
DFATH Dummy variable
Businessman/trader ¼ 1 otherwise ¼ 0
AGENT Age at business entry
DGRAD Dummy variable
Degree holder ¼ 1 otherwise ¼ 0
DFLUENT Dummy variable Fluent in
English ¼ 1 otherwise ¼ 0
DSOJ Dummy variable Sojourning
orientation ¼ 1 otherwise ¼ 0
The firm characteristics
DHDEPRI Dummy variable In the least deprivation
index ¼ 1 otherwise ¼ 0
DFASTFOOD Dummy variable
Fast food ¼ 1 otherwise ¼ 0
AGE Business age
DLIMIT Dummy variable Limited
company ¼ 1 otherwise ¼ 0
Entrepreneurs’ informal networks
INFCAP Percentage of informal capital at start
Percentage of non-ethnic employment
DSHARE Dummy variable Share ¼ 1 otherwise ¼ 0
CUST Percentage of ethnic customers
SUPP Percentage of ethnic suppliers
PROD Percentage of ethnic products
DOUT Dummy variable Delegation of more than 3
function (of 6) ¼ 1 otherwise ¼ 0
DTRAIN Dummy variable If invested in employee
business training ¼ 1 otherwise ¼ 0
DINCENT Dummy variable If invested in employee
incentives ¼ 1; otherwise ¼ 0
DFORMR Dummy variable Most favoured recruitment
method is formal ¼ 1; otherwise ¼ 0

business growth without controlling for the influence of other variables. Therefore, a
multiple regression analysis is required in order to test the hypothesis that entrepre-
neurs’ personal resources, HRM strategies, informal networks and firm’s character-
istics influence business growth independently and significantly.
The econometric model followed in the estimation of the regression was the
Kitchen Sink Model. This involves starting with a very general model including all
possible variables and then gradually eliminating the insignificant ones, in stages,
in order to move to a simpler model [Basu and Goswami, 1999: 63].
The dependent variable is compound employment growth, measured by change in
employment since start-up. Ei ¼ Ej (1 þ r/100)a Ei is the employment today, which is
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 213

in year 2000, Ej is the employment at start-up, a denotes the number of years since
start-up, and r is the compound average growth rate of employment since start-up.
The measurement of the growth of emerging small businesses is a complex area,
with no generally accepted measurement criteria [Naman and Slevin, 1993]. A variety
of financial measures have been utilised to evaluate small growth: sales volume [Rue
and Ibrahim, 1998, Basu and Goswami, 1999], profit levels [Birley and Westhead,
1990], number of employees [Birley and Westhead, 1990], number of customers
and increases in market share [Baldwin et al., 1994]. However, there are practical
limitations with respect to gathering the reliable data about these measures as small
business owners are unwilling to provide and share this information. Barkham
et al. [1996] emphasise that the least problematic growth measurement is sales turn-
over, which is always recorded and is a good indicator of size and growth. On the
other hand, as Kloosterman et al. [1999] state, and the current research found,
Turkish community entrepreneurs are not keen on answering questions on their
sales turnover; this is probably for tax reasons.1 This present study, therefore, utilises
compound employment growth and thus aims to maximise reliability and objectivity.
Growth is measured by the compound employment growth; the difference between
the number of employees at start-up and the present number of employees [Birley
and Westhead, 1990].

RESULTS AND THEIR INTERPRETATION

The final equation, which presents a simpler model with only those variables that are
found to be significant in the range of 0 to 10 per cent, is presented below. The model
is given as follows:
The dependent variable is compound employment growth since start-up
Compound employment Growth ¼ 20.0516 þ 0.107 English Fluency



þ 0.071 The extent of co-ethnic employee proportion

þ 0.204 Formal Recruitment Channels



Notes: where
¼ significant at 5 per cent;

¼ significant at 1 per cent;


¼
significant at 0.1 per cent level. The variable without
is significant at 10 per cent
F-value ¼ 44.236


means significant at 0.001 level
R2 ¼ 0.58
R22 ¼ 0.57
N ¼ 99
The model includes entrepreneur’s personal resources, HRM strategies, networks
and the firm’s characteristics variables. The R2 is 58 per cent, which means OLS esti-
mation in this case explains 58 per cent of the variation in the dependent variable
(compound employment growth) with an adjusted R2 of 57 per cent. This means
that the empirical model can explain about 57 per cent of entrepreneurial growth.
Furthermore, the absolute values of the coefficients in all cases are between zero
and one (0 , jbj , 1). This suggests that the functional relationship between the
dependent variable and each independent variable, irrespective of whether it is
214 THE S ERVICE INDUS TRIES JOURNAL

positive or negative, is estimated to be concave. This implies that the marginal

contribution of each explanatory factor to the growth process is subject to diminishing
returns.
Multicollinearity is the condition where the independent variables in the
regression model are themselves highly correlated. In order to be able to detect multi-
collinearity in the model, variance inflation factors (VIF) are used. The VIF implies
the degree to which the standard error of the independent variable is increased due to
the independent variable’s correlation with the other independent variables in the
model. VIF values greater than 10 or tolerance values less than 0.10 are often con-
sidered to be an indication of collinearity. In our model, the average VIF is 1.14
and the average toleration is 0.87 for the model. The small size of the standard
error terms at every stage as well as close to 1 VIF and more than 0.10 toleration
rate indicates that multicollinearity among independent variables included in our
model is not a problem in the current model.

R2 ¼ :669

R2 ¼ :578
N ¼ 98
F-value ¼ 7:331


means significant at 0:001 level
R2 ¼ 0:58

2
R ¼ 0:57
N ¼ 99
F-value ¼ 44:236


means significant at 0:001 level

The results in Table 2 show that among the personal characteristic variables,
fluency in English rates as highly significant according to the high coefficient. This
supports the assertion made by Heath [2001], who emphasises the importance of
English fluency in integrating into the wider community. It is noticeable that the edu-
cational background of entrepreneurs, which is considered to be an important factor in
influencing the survival and growth of ethnic businesses by previous studies [Basu,
1998; Basu and Goswami, 1999; Casson, 1982] is not significant in our empirical
analysis. This implies that even if ethnic minority entrepreneurs obtain a university
degree, it will not impact upon the growth of their catering firm unless they speak
English fluently. The following quotation from one of the informants illustrates the
point well.
My little daughter is very important for my business. She is the only one who
speaks good English. She reads the letters, she translates them to me . . .
Without her help I am nothing. She communicates with customers on behalf
of me, she makes the orders with my suppliers she deals with everything that
is regarding with this business.
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 215
TABLE 2
KITCHEN SINK MODEL EQUATION 1 (INCLUDES ALL VARIABLES)

Coefficient Table

No Variables Unstandardised coefficients (B) t Sig.

Constant 0.016974407 0.216 .830

1 Cypriot 20.032239101 21.032 .305
2 Negative motives 20.008535295 2.327 .744
3 Business family tradition 0.039882419 1.419 .160
4 Age at business entry 20.001244249 2.668 .506
5 Graduate 20.073412904 21.660 .101
6 English fluency 0.131929801 4.430 .000
7 Sojourning 0.043627827 1.312 .193
8 Delegation 20.034047908 2.950 .345
9 Employee business training 20.032790233 21.041 .301
10 Employee incentive 0.017419896 .571 .570
11 Formal recruitment 0.177614609 5.364 .000
12 Co-ethnic capital 0.04767235 1.091 .279
13 Co-ethnic employees 0.119600051 2.839 .006
14 Co-ethnic products 20.012785917 2.267 .790
15 Co-ethnic customers 20.069210333 2.808 .422
16 Co-ethnic suppliers 20.044785199 21.012 .315
17 Information networking with co-ethnic 0.002747206 .114 .909
18 Most deprived 20.049664047 21.463 .148
19 Business age 20.000189216 2.108 .914
20 Limited company 0.021455868 .432 .667
21 Fast food 20.029686105 2.970 .335

Dependent variable is compound employment growth since start-up.

Language fluency can facilitate communication with the customers, suppliers and
other stakeholder groups and thus contribute to the growth of the business.
Among different sources of informal networks, the proportion of the co-ethnic
labour force is highly significant and has one of the highest positive coefficients
implying its influence on the growth rate index. This supports the views of Basu
and Goswami [1997] and Waldinger et al. [1990], who state that the greater use of
co-ethnic employees gives a competitive advantage to the immigrant businesses
over their competitors. This may be due to the fact that by recruiting co-ethnic

TABLE 3
K I T C H E N S I N K M O D E L E Q U A T I O N 2 ( E X C L U D E S V A R I A B L E S W I T H P . 0 .1 0 I N
EQUATION 1)

Coefficient Table

No Variables Unstandardised coefficients (B) t Sig.

Constant 20.05168 22.76 .007

6 English fluency 0.106631 4.39 .000
11 Formal recruitment 0.204075 7.51 .000
13 Co-ethnic employees 0.071582 1.93 .057

Dependent variable is compound employment growth since start-up.

216 THE S ERVICE INDUS TRIES JOURNAL

employees, entrepreneurs cut their employment and training costs and maintain lower
wage payroll, on average, than their counterparts. However, this does not imply that
catering entrepreneurs gain competitive edge by exploiting unskilled co-ethnic
labour, ready to work in less favourable economic conditions. Neither would they
encourage nepotism in recruitment and selection. Among different human resource
management strategies, a formal recruitment approach is highly significant and has
the highest positive coefficient, implying the most influence on the growth-rate
index. This supports the assertions of Bates [1994] and Ram [1992], who recommend
that ethnic minority entrepreneurs should use formal channels for recruitment. Entre-
preneurs who were prepared to develop a less subjective, more competence-based
approach for recruitment were better equipped in the market.
The positive relationship between fluency in English and growth can be interpreted
as evidence for the need to integrate into the wider community. Previous studies high-
lighted the positive impact of education on the growth of ethnic minorities in local
business. However, our findings indicated that it is fluency in English, rather than
education, which positively impacts growth. These findings suggest that for those
Turkish-speaking entrepreneurs who obtain educational qualifications from their
country of origin, or even from the UK, success cannot be guaranteed unless they
improve their English-language communication skills. Education cannot supplant
the benefits of communicating effectively with the customers, suppliers, other
businesses, banks, etc., and being accepted by the wider community. It is also import-
ant that ethnic minority entrepreneurs open their doors to the wider community and
further integrate by recruiting people through formal recruitment channels. Recruit-
ment through formal channels, based solely on the competences of successful candi-
dates and not on nepotism, will help the ethnic minority businesses to integrate into the
wider community, including customers, suppliers, businesses and banks, by exploiting
the skills and mindsets of those recruits. These candidates are more likely to possess a
range of skills including not only communication, negotiation, critical thinking and
cooking and serving but also their considerable accumulated experience.
It is noticeable that factors like education, training, location and information which
have been considered to be important in influencing the survival and growth of ethnic
businesses by previous studies [see Basu and Goswami, 1999; Ram, 1994; Storey
et al., 1987] are not significant for the catering firms in our empirical analysis.

CONCLUSIONS AND IMPLICATIONS

This paper has presented a multiple regression analysis of the factors contributing to
the growth of Turkish-speaking catering entrepreneurship in London, UK. The analy-
sis is based on two econometric approaches; classifying variables into pre-determined
blocks as well as using the general-to-specific approach to generate a simpler model.
As it can be observed, the final equation contains three variables, all of which can
be directly related to the extent of competition in the catering sector. Those in the
catering sector who run restaurants, cafes, and takeaway shops, face competition
from both domestic and international catering firms, with an increasing number of
outlets within the same geographical proximity and also from the supermarkets
ETHNIC MINORITY ENTREPRENEURIAL GROWTH IN CATERING 217

selling fast food [Bowie and Buttle, 2004]. Ethnic minority catering entrepreneurs
therefore need to pursue both low-cost leadership and differentiation strategies
that help them gain a competitive edge over their wide range of growing direct and
indirect counterparts. English fluency is a personal resource which ethnic minority
entrepreneurs need to consider as a differentiation strategy, even before the start-up
of the business. It is not like recruitment strategies that can be put into place as a
firm grows. It is a pre-determinant of growth which entrepreneurs have and/or
possess throughout the start-up and growth of a firm and it allows an ethnic minority
catering entrepreneur to understand and meet the expectations of different stakeholder
groups, including customers and suppliers.
Besides gaining a competitive advantage through language fluency, ethnic min-
ority catering entrepreneurs seek low-cost leadership by shaving costs off the labour
element of the value chain. Labour is the largest component of overhead costs in hos-
pitality operations because of the labour-intensive nature of the industry [Burgess,
2001; Harris, 2003]. It, therefore, did not come as a surprise that the high proportion
of the co-ethnic labour force, which keeps wage costs lower and demands less costly
training, i.e. on-the-job training, is one of the most influential factors in growth.
However, increasing the proportion of the co-ethnic labour force does not imply
that ethnic minority businesses will sacrifice their quality of service in an attempt to
keep costs low. Recruitment of co-ethnic employees who know the ethnic products
of the business, and can inform the customers about these products, may help
ethnic minority entrepreneurs differentiate themselves at the service level. This will
certainly, without any nepotism, require recruitment of skilled employees with good
inter-personal communication skills and perhaps good skills in cooking and serving.
It is, therefore, no coincidence that our analysis illustrates the importance of a more
formal competence-based approach in recruiting employees.
The unique contribution this paper makes is the identification of variables which
influence the growth of ethnic minority entrepreneurship in a specific industry. Earlier
studies which investigated the growth of ethnic minority entrepreneurship seldom had
an industry focus and they thus generally avoided serious linkage to service industry
and ethnic minority entrepreneurship. The paper clearly demonstrates the relationship
between the catering industry characteristics and trends and ethnic minority entrepre-
neurship growth. Ethnic minority entrepreneurs who strive to achieve growth in this
highly competitive industry, in which consumer eating and drinking habits change
rapidly, should bear in mind that they work in a customer focused industry. This
implies that their survival and growth highly depend on meeting the expectations
of existing and future customers. This paper’s findings indicate that communication
with different stakeholder groups, particularly with customers, is key in this endea-
vour. Ethnic minority entrepreneurs therefore need to improve their English-language
communication skills.
In addition, increasing the proportion of the ‘co-ethnic labour force’ can help them
to add ‘ethnic flavour’ to what they offer to customers. Previous studies [Basu and
Goswami, 1997; Ward et al., 1986] which discussed the advantages of recruiting
co-ethnic labour for business growth focused solely on the cost saving dimension of
this recruitment approach. This is indeed true, especially in such a labour intensive
218 THE S ERVICE INDUS TRIES JOURNAL

sector as catering. What is equally important, however, is the need to communicate

effectively with customers. In the food service sector it is important that employees
know enough about the products in order to be able to inform the customers about
what they experience [Seo, Wildes and Demicco, 2001; Stephenson, 1995]. In the
case of an ethnic catering outlet, offering an ‘authantic’ food experience will inevita-
bly require employing a ‘co-ethnic labour force’ who know about the cultural dimen-
sion of the food and food serving experience.
However, it will be a challenge for ethnic minority entrepreneurs to recruit a
cheap, but skilful, co-ethnic labour force in a sector which is faced with skill
shortages. On one hand customer expectations are rising across the range, and on
the other hand the industry is struggling with the general shortage of skilled staff,
particularly chefs [Hospitality and Catering Industry Report, 2003].
The Turkish-speaking entrepreneurship located in London has been chosen as the
focus of this study, so the comparability with other ethnic minorities is therefore ques-
tionable. Although the research findings have not indicated any substantial differences
in terms of ethnic minority growth, the findings of this research cannot be generalised.
There are several implications of these findings. Firstly, the benefits of and need for
improving English-language communication skills are emphasised by the multiple
regression analysis in this paper. Secondly, in order to promote entrepreneurial survi-
val and growth, Turkish-speaking entrepreneurs need to continue to expand the formal
recruiting sources that they employ and track the effectiveness of those sources.
Thirdly, the traditional reliance of Turkish-speaking businesses on the restaurants
and cafes and takeaway sectors can be reduced in order to diversify growth risk associ-
ated with these sectors. Finally, they may have to consider the need to further adapt
and integrate themselves in the host community through the improvement of their
language skills, adaptation of their social life and the management of human resource
strategies, more specifically their recruitment practices. This process of integration
within the host country and across international borders will help them gain a competi-
tive edge both in the UK and in international marketplaces.

ACKNOWLEDGEMENT
The authors would like to thank Anuradha Basu for allowing us to adopt/adapt questions used in her Asian
entrepreneurship questionnaire.

NOTE

1. 11.9 per cent of Turkish entrepreneurs refused to give any information on their sales turnover.

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