Analysis of

Hispanic-Owned Companies

by Dr. David Birch

2000. [48] pages. Completed by Cognetics Marketing Services, Inc.,

100 Cambridge Park Drive, Cambridge, MA 02140-2324

under contract no. SBA-HQ-98-C-0011.

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

Hispanic-owned businesses are the largest category

of minority-owned firms in the United States. Yet relatively little is known about the socio-economic

environment in which these businesses operate. To

learn more about Hispanic-owned businesses, particularly those that are fast-growing, in comparison

with the entire business sector, the Office of

Advocacy contracted with Cognetics Marketing

Services, Inc., to look at the income and demographic characteristics of the neighborhoods surrounding

three categories of businesses: all firms, all

Hispanic-owned firms, and fast-growing Hispanicowned firms, also known as “Hispanic gazelles.”

Cognetics compared the household income and

Hispanic composition of neighborhoods surrounding

each of these types of businesses to determine

whether Hispanic businesses operate in an environment that is measurably different from other firms in

terms of income and demographics. Additionally,

the study examined the data to see whether Hispanic

gazelles more closely resembled other Hispanic

businesses or the entire business sector.

Scope and Methodology

Cognetics linked data from the Census Bureau and

Dun and Bradstreet Corporation (D&B) to derive the

needed information on the businesses and the neighborhoods in which they operate. The Census Bureau

divides the country into smaller areas called census tracts for reporting income and demographic

data. Using 1990 Census of Population data,

Cognetics classified neighborhoods into three

income classes (under $25,000, $25,000-$49,999,

and $50,000 or more) and three demographic groups

(less than 10 percent Hispanic, 10-49 percent, and 50

percent or more).

To obtain business information, Cognetics used

data on firms from the D&B data base of companies

for December 1994 and December 1998. This file

comprises information on both corporate and noncorporate businesses, drawn from a variety of public

and private sources. Although D&B verifies some of

the information, the number of employees and the

demographics of the firm’s owners may not be consistently defined by the sources supplying the data or

checked by D&B. Cognetics defined the neighborhood of each establishment by using three boundaries: 1) the census tract within which the business

resides; 2) an area defined by a one-mile radius from

the firm; and 3) an area defined by a three-mile

radius from the firm.

According to Cognetics, D&B defined a firm as

Hispanic if it is at least 51 percent owned by

Hispanics and if its management and daily business

operations are control led by Hispanics. Cognetics

defines Hispanic gazelles as firms that were

Hispanic-owned in 1998 and had an employment

No. 199

September 2000
“growth index” of 5 or more. The growth index is

calculated by multiplying the absolute change in

employment from 1994 to 1998 by the percentage

change in employment, expressed as a decimal.

Highlights

Most of Cognetics’ report consists of tables showing

the number and percent distribution of firms or

employees, broken out by the demographics of the

firm’s owners; the income and demographics of the

neighborhood; and the size of the neighborhood.

These highlights are generally drawn from the distribution of firms (rather than employment totals)

and the characteristics of the single nearest census

tract (rather than all tracts within one or three

miles).

• Hispanic-owned firms are four or five times as

likely as all firms to be located in Hispanic-majority neighborhoods. Only 5 percent of all firms are in

such neighborhoods, whereas 23 percent of all

Hispanic-owned firms and 19 percent of Hispanic

gazelles are in Hispanic-majority environs.

• Conversely, non-Hispanic neighborhoods (in

which fewer than 10 percent of persons are of

Hispanic descent) are home to 75 percent of all

firms but fewer than half of all Hispanic-owned

firms (45 percent) and Hispanic gazelles (49 percent). Thus, Hispanic gazelles closely resemble all

Hispanic-owned firms, and differ significantly from

non-Hispanic-owned firms, in the Hispanic makeup

of their surroundings.

• While the percentage of Hispanic ownership

varies, of course, among the three categories

(Hispanic- and non-Hispanic-owned, and Hispanicowned gazel les), about one-third of all three categories are found in low-income neighborhoods. A little over one-half of the firms are in middle-income

neighborhoods. The remaining 12 to 15 percent of

firms are in upper-income neighborhoods.

• Within each income stratum, most firms are

found in non-Hispanic neighborhoods. Hispanicowned firms, including Hispanic gazelles, however,

are located in areas that have at least 10 percent

Hispanic population.

• The demographic contrast shows up most clearly

in low-income areas. Two-thirds of all U.S. firms

that operate in low-income neighborhoods are in

non-Hispanic areas. But fewer than one-third of

Hispanic-owned firms that are in low-income neighborhoods are in non-Hispanic low-income zones.

• Similarly, nearly three-quarters of all firms are

in non-Hispanic middle-income areas. But most of

Hispanic-owned businesses, including Hispanic

gazel les, that locate in middle-income neighborhoods do so in areas that are partly or predominantly

Hispanic.

Conclusions

Nearly one-half of Hispanic-owned firms are found

in neighborhoods with almost no Hispanic population. Nevertheless, Hispanic-owned firms are far

more likely than other firms to be located in heavily

Hispanic neighborhoods. In general, the percentage

of firms found in lower-, middle-, or upper-income

neighborhoods is similar for all firms, Hispanic

firms, and Hispanic gazelles. But Hispanic-owned

gazel les are found less often than other Hispanicowned firms in low-income Hispanic neighborhoods,

suggesting that a neighborhood that is both poor and

Hispanic poses a double barrier to a firm’s chances

of growing at “gazelle” speed.

Ordering Information

The full text of this report, along with summaries of

other studies performed under contract to the U.S.

Small Business Administration’s Office of

Advocacy, is available on the Internet at

www.sba.gov/advo/research.

Printed copies are available from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

Tel.: (800) 553-6847

TDD: (703) 487-4639

Order number: PB2000-107716

Price codes: pending

The National Technical Information Service’s complete data base of federally funded business

research is available on the Internet at www.ntis.gov.