Can Expanding the Use of Computers Improve the Performance of Small Minority- and Women-Owned Enterprises?

Abstract

A thriving small business sector is an important national objective. So, too, is the development of healthy businesses owned by women and minorities. Currently, African Americans, Hispanic Americans, and women fall well short of achieving the business success that white men attain. Wide ethnic and gender gaps in self-employment demonstrate this trend. As of 2000, nearly 1 in 7 employed white men worked in their own business, as compared with about 1 in 18 employed African American men, 1 in 12 employed Hispanic men, and 1 in 14 employed women.1 Minorities and women are less likely to own businesses than are white males and the businesses they do own generate far lower sales (figure 1). Even among small business owners, minority- and women-owned enterprises (MWEs) are less likely to survive and prosper (Fairlie and Robb 2003).

Helping small businesses in general and MWEs in particular can promote economic growth and improve the relative economic position of minorities and women. To pursue these goals, the federal Small Business Administration offers loans and technical assistance, and federal and state governments engage in preferential contracting policies. These existing policies represent a national commitment to creating and channeling contracts to MWEs. However, only limited resources have been devoted to helping these businesses achieve the high levels of productivity, profitability, and dynamism necessary for them to contribute significantly to economic and employment growth. Since public support may hinge on how well these businesses enhance growth and avoid becoming a drain on public resources, it is critical that policymakers understand what is helping and what is hindering small businesses and MWEs.

The effective use of computer technologies is one factor that may influence the business success of small firms and especially small MWEs. Past studies have found lower computer use among MWEs than among white-male-owned firms, though not for all uses (Bitler 2001). Numerous studies have examined the complex relationship between computer use and firm performance and productivity. While most studies point toward a positive impact of computer use on performance, others present conflicting results.2 In any event, no existing studies provide up-to-date evidence on the differences among small firms in computer use and the effects of such differences on firm performance.

This study aims at increasing our knowledge in this area by obtaining and analyzing new data to answer three key questions:

What performance and productivity gains are achieved when small businesses and MWEs implement information technology? What are the potential economic benefits of improving MWEs' use of information technology? What are the factors that lead some MWEs to take great advantage of computer technologies and that lead others to utilize computers only in a limited way? What are the barriers to MWEs' adoption and effective use of technology? In particular, how significant are the impacts of constraints on capital, on knowledge of the technology and its possible role in improving businesses, and on the ability to train workers? Is there a gap in computer use that separates small MWEs and small, white-male-owned enterprises? Are MWEs falling behind in adopting and implementing information technologies for important business functions? Answers to these questions can identify ways of helping MWEs and other small businesses become more productive and profitable. In particular, this study's review of actual use of computers, barriers to more effective use, and effects of computer use on business success can guide new public and private initiatives.

Keywords: Economy/Taxes, Employment, Race/Ethnicity/Gender