Guest editorial: The effect of COVID-19 on the performance of ethnic-minority firms in the UK and worldwide

Citation

Saridakis, G., Idris, B. and Jones, P. (2023), "Guest editorial: The effect of COVID-19 on the performance of ethnic-minority firms in the UK and worldwide", International Journal of Entrepreneurial Behavior & Research, Vol. 29 No. 3, pp. 553-560. https://doi.org/10.1108/IJEBR-03-2023-027

1. Introduction

The COVID-19 crisis, which was declared as a global pandemic in March 2020 brought several economic and social consequences worldwide. For example, existing economic and business literature show that a decline in gross domestic product (GDP), an increase in income inequalities within and across economies, supply chain disruptions and product shortages, augmented job insecurity and financial stress as well as increased business failure risk are some of the myriad outcomes that are associated with this external shock (Bartik et al., 2020; Barrero et al., 2020; Blundell et al., 2020; Junior et al., 2021; Belitski et al., 2022; Pereira and Patel, 2022). In this uncertain environment, business owners, innovators, entrepreneurs and investors were all called to adapt to the new challenging conditions (Welsh et al., 2021) and to the (hostile or less hostile) strategies used by their government to control and limit the spread of the virus.

In the business literature, a crisis is defined as a “sudden and unexpected event that threatens to disrupt an organization’s operations and poses both a financial and a reputational threat” (Coombs, 2007, p. 163). Within this context the COVID-19 pandemic consisted of a crisis and affected businesses of all sizes. Micro, small and medium-sized enterprises (MSMEs) were more at risk than large enterprises due to constraints imposed by their limited size, infrastructure and resources. Importantly, ethnic minority businesses (EMBs) faced increased business closure risks due to their several vulnerabilities in the marketplace. According to Smallbone et al. (2005, p. 43) “… businesses with ethnic minority owners are “different” from the rest of the population, both in terms of their behavioural characteristics and in terms of the types of problems that they face”. For example, recent studies showed that EMBs are 15% more likely to have experienced a crisis that threatened their survivability prospects (Wishart et al., 2018). Existing research in the field of ethnic minority entrepreneurship has identified several factors that affect EMBs’ survival and resilience to external shocks, including for example, the lack of financial capital, a low level of education, absence of assets to be used for collateral (e.g. Ram and Jones, 2009; Bruder et al., 2011; Bewaji et al., 2015) and management competencies and practices (Carter et al., 2015).

Moreover, it is widely acknowledged in the field of ethnic minority entrepreneurship that EMBs tend to concentrate their business operations in sectors where there are low barriers to enter, low growth prospects, low profits returns, high labour intensive and low economies of scale such as restaurants, retailing and convenient stores (e.g. Aldrich and Waldinger, 1990; Barrett et al., 2002; Edwards and Ram, 2006; Dana and Morries, 2007; Dheer, 2018; Nazareno et al., 2018; Verver et al., 2019). However, from the ethnic enclave theory, it is widely agreed that although EMBs tend to concentrate their activities in lower return sectors, they benefit from serving their co-ethnic communities because individuals are bounded by ethnicity and tend to support each other for survival and economic prosperity (Sithas and Surangi, 2021). Hence, it can be argued that EMBs concentration in these niche markets allow them to serve their co-ethnic consumers, rely on their co-ethnic networks and co-ethnic labour (Verver et al., 2019), which will in turn, give EMBs some sort of competitive advantage.

Despite the rich and interesting literature, there is still a need to unpack the effects of COVID-19 on entrepreneurship and EMBs, in particular. As Doern et al. (2019) show, for example, when there is a crisis, entrepreneurship is not “business as usual” and that response strategies adopted by entrepreneurs depend on a number of factors such as the availability of resources to the firm, the age and the experience of the business, and the development stage of the business. Given that the current pandemic was surrounded by significant uncertainty and disruption, especially for smaller and vulnerable EMBs, the purpose of this invited volume is to shed light on the EMBs-performance nexus during the COVID-19 pandemic. We focus on EMBs since the latter group contributes significantly to economic growth, entrepreneurial activity and innovation as well as to societal fabric and harmony. The invited papers aim to provide more evidence on how EMBs were affected by the current pandemic, and how these firms were able to survive, achieve agility and navigate their way out of the difficulties imposed by the health crisis.

According to Schindehutte and Morris (2001, p. 86), firms’ failure or survival is a “function of their fit within an ecological niche in the marketplace”. Hence, in the current COVID-19 crisis, the concept of adaptability and resilience became very important for small and fragile firms to navigate these unprecedented times and stay afloat. It has been suggested that adaptive small entrepreneurial firms tend to interact with the changes in the surrounding environment by observing the current situation, collecting information, evaluating their options, and thereafter taking strategic decisions based on their collected information (Stoica et al., 2003; Stoica and Schindehutte, 1999). Therefore, we argue that it is vital to understand how EMBs adapted to the current environment and to examine their adopted strategies used for their survival.

As a result of this invited volume of selective papers, we aim to provide readers with fruitful information on how the current pandemic affected EMBs around the world. This editorial makes a significant contribution to the already important and growing literature in the field of ethnic minority entrepreneurship and provides interesting research that shows how firms with disadvantages and vulnerabilities, compared to their larger and non-EMB competitors, were able to adjust to new challenges, and apply different coping mechanisms and find innovative solutions to adapt to the new normal. Moreover, this invited volume adds how different government response policies to contain the pandemic affected EMBs in different ways. We suggest that since EMBs play a significant role in every country, scholars and policy makers should consider their peculiarities and actively listen to their needs and resources as these can differ from their counterparts.

2. Articles in the invited volume

This invited volume consists of four papers that examine the effect of the COVID-19 pandemic on EMBs from different perspective, such as, for example, the impact of public policy responses, access to finance during the pandemic, survival strategies and coping mechanisms adopted by EMBs.

The first paper titled “Public policy responses to Covid-19 and the survival of ethnic minority businesses (EMBs): Does entrepreneurial orientation (EO) matter?” written by Kabir and Abubakar (2023), examine the relationship between government response to the pandemic and the survivability of ethnic-minority firms located in the intra-region provinces of Nigeria. The paper explores whether entrepreneurial orientation mediates the above-mentioned nexus and act as a shock absorber to policy responses and promote EMBs’ survival. Using institutional theory, the paper divides public policy responses in Nigeria into aggressive responses (e.g. stay-at-home orders), and less aggressive responses (e.g. social distancing orders). The paper hypothesises that when government response policies towards mitigating the impact of COVID-19 are less aggressive, the survival of intra-regional EMBs will be impacted to a lesser extent than the more aggressive policy responses. Moreover, the paper suggests that these response policies will trigger EMBs’ entrepreneurial orientation (i.e. innovation, proactiveness, risk-taking) and support their survival. Using data collected from 310 ethnic-minority businesses located in the intra-region in Nigeria from different sectors, the results show that when government response policies were less aggressive, the survival rates of these firms were higher than the survival rate of firms under more aggressive policies. Moreover, the results show that policy approaches positively affected firms’ innovativeness, proactiveness and risk-taking behaviour. For instance, the findings show that firms used different innovative strategies, such as product diversification, marketing, digitalisation and distribution, that enabled them to increase their survival rates. Firms as well, have been found to use strategic proactiveness to respond to the aggressive government policy measures and quickly exploited entrepreneurial opportunities which increased their probability of survival. Regarding risk-taking behaviour, the findings suggest that most firms took risk to seize COVID-19-related opportunities and engaged in risky activities which contributed to their survivability.

Although previous research in the filed examined the survival of ethnic-minority firms during a crisis, Kabir and Abubakar’s (2023) study is the first to examine how the role of entrepreneurial orientation mediates the relationship between institutional policy responses to the pandemic and firms’ survival in intra-regions in a developing economy. Their study contributes to previous research by suggesting that entrepreneurial orientation can act as a crisis response strategy and as a shock absorber to reduce the negative effect of the imposed government policies, allowing firms to survive the crisis.

The second paper titled “Survival strategies adopted by microbusinesses during COVID-19: an exploration of ethnic minority restaurants in northern Finland” by Arslan et al. (2022) analysed the survival strategies and coping mechanisms adopted by ethnic minority entrepreneurs operating in the hospitality sector in Northern Finland during the pandemic. The paper aims to understand the business support schemes provided by the government and its extent in helping ethnic minority firms to survive. Using exploratory qualitative case study analysis, the paper collected data from four micro restaurants in Northern Finland from ethnic minority backgrounds (two Indians, one Iraqi and one Turkish) through in-depth interviews with the owners of the restaurants. The findings show that the pandemic had a negative effect on these small ethnic minority restaurants, however, in order to survive and ride through the negative impact, ethnic minority owners applied different sets of survival and operational strategies centred around adaptability and making necessary adjustments to cope with the restrictions. For example, instead of choosing to close their businesses or reduce the number of their workforce, all case firms adjusted the working hours of their staff thereby reducing their operational costs. Moreover, due to disruption in supply chains, all case firms were able to adapt to the new emerging situation and find alternative business models in order to keep their businesses in operations. While it is widely acknowledged in the ethnic minority entrepreneurship literature that ethnic minority owners rely on their co-ethnic networks and on their co-ethnic suppliers, all case firms sought alternative supply chain solutions and started to form relationships with local Finnish suppliers across Northern Finland (despite some challenges such as language barriers). This has enabled them to reduce transportation costs and control the impact of future supply disruptions. It can be suggested from the findings, that these ethnic minority firms have built up resilience and were willing to engage in different innovative activities in order to stay in operations and offer various solutions to their customers and their workforce. Hence, the research shed further light on the internal and external strategies adopted by ethnic minority restaurant owners in Northern Finland that were beneficial for coping with external shocks. Moreover, the results show that, contrary to the extent literature, ethnic minority owners were reluctant to use online delivery application services. The study highlights that although ethnic minority firms were in a crisis, these firms found it difficult to adapt new technologies due to their cost. In terms of understanding how governmental support schemes in Finland supported ethnic minority restaurant owners, the results show that ethnic minority owners perceived these support schemes as unfavourable, not easily accessible and there was a lack of awareness on the kind of support provided. Instead, the results reveal that ethnic minority firms were more reliant on their informal networks to seek finance during the uncertain times and the challenges they faced.

Although previous research in the field examined the coping mechanisms by entrepreneurs and ethnic minority firms during a crisis, Arslan et al. (2022) research focusses on a unique geographical area where immigration is a new phenomenon compared to the rest of the country. Therefore, this paper fills in an important gap in previous research by examining the peculiarities of these ethnic minority owners in Northern Finland where the region is not considered to be well connected compared to the rest of the country and other European cities.

The third paper titled “Interfirm collaboration as a performance-enhancing survival strategy within the business models of ethnic minority-owned urban restaurants affected by COVID-19” by Crick et al. (2023) aims to investigate how the role of knowledge sharing through interfirm collaboration act as a performance enhancer strategy in enabling ethnic minority owned restaurants to navigate and survive the COVID-19 crisis. Using the resource-based view theory of the firm, the paper specifically examined how knowledge sharing amongst rivals (i.e. competition) can be a rational choice for under-resourced firms to enhance their performance. By collecting data through semi-structured interviews with 40 owner-managers of restaurants offering different types of cuisines in Canada, the results suggest that knowledge sharing produced significant advantages for different EMBs and enhanced their performance. In addition, the findings suggest that weak and strong ties played an important role during the crisis. More specifically, the findings reveal that although under-resourced EMBs had the choice to make their decisions internally and apply “an individualistic business model”, engaging in knowledge sharing, with their competitors in the same geographical area regarding the pandemic situation, inter-firm collaboration allowed firms to enhance their performance. Moreover, the findings show that inter-firm collaboration amongst EMBs allowed firms to reduce the uncertainty associated with different legislations related to the pandemic restrictions. Knowledge sharing and exchange of information amongst firms allowed EMBs to adapt their business models. For instance, those ethnic minority restaurants which did not offer take-aways’ options, were quickly able to pivot their business models and sought information and advice amongst their networks regarding reliable delivery services with lower costs. This has also meant, that the nature of competition amongst firms has changed. Where restaurants were previously competing with other dine-in restaurants, now they were competing with shops that offer only take-aways. To keep customers loyal to their services, firms turned to social media platforms to keep their customers engaged and informed about their offering. Some firms even went a step further than just engaging customers and started to sell their customers ingredients of their ethnic cuisine with recipes for customers to cook their own meals at home.

Although research on the effect of pandemic and firms’ survival started to emerge in the past two years, Crick et al.’s (2023) paper takes a unique direction in suggesting that under such crisis inter-firm collaboration strategies can act as a performance enhancer for firms. The paper adds to previous literature on the importance of weak and strong ethnic ties and offers new insights to show that when in crisis, ethnic ties are utilised within and across ethnic communities as a survival strategy. The information, knowledge sharing and learning through inter-firm collaboration enabled firms to make mutually beneficial decisions, which is consistent with the RBV. Moreover, the paper suggests that owner-manager’s strategies were not only responsive to the conditions in the market, but also capture opportunities arising from collaborating with competitors rather than competing with them. Hence, inter-firm collaboration can provide owner-managers, regardless of ethnicity, with resources, capabilities, knowledge and learning which can act as a mutually beneficial strategy to enhance firms’ performance during market disruptive times. The paper adds to previous literature showing that engagement in inter-firm collaboration is based on developing trust amongst partners to reduce the uncertainty associated with disruption in the market. Crick et al. (2023) paper makes significant and important implications for practitioners. For example, the paper indicates that during a market disruption, through inter-firm collaboration and sharing knowledge, owner-managers of ethnic minority firms can balance the risks and the rewards and gain significant competitive advantages such as developing their strong and weak ties and enhancing their flexibility to pivot their business model when needed.

The fourth paper titled “Ethnicity and bank lending before and during Covid-19” by Cowling et al. (2023) examine how the ethnicity of business owners may have an impact on the demand for bank loans application rates, and how it could have an impact on banks decisions to supply these loans. More specifically, the paper aims to understand if there are any differences in the patterns in the demand for bank loans and supply of bank loans between EMBs and non-EMBs. Based on previous literature established in the field of ethnic minority firms and access to finance, the paper hypothesises that, on the demand side, EMBs will have a lower demand for bank loans, due to their risk-aversion behaviour and borrower discouragement from applying. On the supply side, the paper hypothesise that EMB owners will have higher rejection rates due to the ethnicity of the owner, their personal characteristics, firms’ characteristics and discrimination. To account for the demand for formal types of financing, the paper hypothesises that ethnic minority firms will have a higher demand for formal types of finance (i.e. bank loans) during the COVID-19 crisis, and that the use of government support schemes will increase the share of total lending for EMBs. The paper uses a large data set from the UK SME Finance Monitor covering eight-quarters leading up to the first two-quarters of the COVID-19 crisis in the UK, by considering three loan guarantee schemes which were introduced by the government and targeted to small and medium-sized firms. The results show that there is no supporting evidence that ethnic minority owners had a lower demand for bank loans compared to their counterparts either before COVID-19 or during COVID-19. On the supply side, the results show that EMBs, and their counterparts have identical rates of loan acceptance which points towards the revelation that no discrimination was present on the supply side pre-COVID-19 period. However, during the COVID-19 period, the results show that EMBs were more likely to have their loans applications accepted than their white counterparts.

Although studies that investigate ethnic differences in access to finance of small firms are established in previous research, these previous studies investigated the general access to finance of small firms and the possible barriers to obtain credits. However, the Cowling et al. (2023) paper adds significant insight to the previous literature in several ways. First, the paper links the demand side for bank loans by ethnic minority firms, and the supply side for these loans by banks. Second, the paper examines whether “potentially deep-rooted behaviours and practices” (Cowling et al., 2023, p. 2) on the demand and supply side of the capital market have become ingrained in this global pandemic. Finally, the paper offers preliminary solutions to the increased need for loan banks during a crisis and imply that the existence of loan guarantee schemes may provide support and solutions. Thus, the existence of a very generous loan support schemes from government will act in an ethnic minority firms favour.

3. Conclusion and directions for future research

The purpose of this invited volume is to shed further light on our understanding regarding how the recent pandemic affected EMBs’ survival and to explore the coping mechanisms and survival strategies adopted by EMBs to weather the effect of COVID-19. The four papers in the invited volume researched the effect of the pandemic on EMBs from different perspectives, such as the effect of government policy responses, the adopted survival strategies and coping mechanisms and access to finance during the pandemic.

Although previous research in the field of entrepreneurship examined how ethnic minority firms survive a crisis, the role of entrepreneurial orientation as a mediator was not explored. In this invited volume Kabir and Abubakar (2023) show that entrepreneurial orientation can be employed as a response strategy to a crisis being faced by EMBs thus enabling these firms to survive. An interesting avenue for future research is to explore the role of entrepreneurial orientation as a response strategy in a wider perspective and not just by focussing on ethnic minority firms. Moreover, there is an avenue for understanding how other dimensions, such as competitive aggressiveness, can enable firms to survive a crisis. In addition, although it is widely known in previous research on ethnic minority firms (from the ethnic enclave theory) that these firms tend to collaborate and serve their co-ethnic consumer, Crick et al. (2023) show that knowledge-sharing with competitors in the form of inter-firm collaboration allowed firms to survive the crisis. We suggest that, in this increased competitive landscape, in order for ethnic minority firms to survive and compete with larger firms, there is a need for a breaking out from their enclave ethnicity to start serving mainstream markets, which is needed for their survival and growth. Future research should understand the enablers and constraints of EMBs breaking out and the mechanisms that can allow these firms to expand their consumers base, such as knowledge sharing, collaboration and competition with their counterparts. Finally, the role of digitalisation, such as using online platforms and applications, has been widely acknowledged in previous research as an enabler for firms’ growth (see Saridakis et al., 2022). However, previous research in this area of study focussed on the benefits and the ease of use of such online platforms and applications without considering the process that ethnic minority firms tend to go through when considering employing these applications in their businesses. Future research should explore the factors that contribute to the decision-making process of applying such digital technologies in ethnic minority firms.

Although this invited volume includes a small number of academic papers, it provides a rich source for academics, policy makers and other stakeholders that are interested in EMBs. While the invited papers have EMBs at their core, they provide different methodological approaches, deal with various aspects that concerns EMBs and provide useful information from a broad geographical spectrum. We hope that this invited volume can motivate future collected volumes on EMBs and stimulate more theoretical and empirical attention to increase contributions to this field of entrepreneurship and to the general effort of building agility and sustainability to withstand times of external shocks and uncertainty.