Co-ethnic markets: Financial penalty or opportunity? Rachel S. Shinnar a, *, Michael B. Aguilera b,1 , Thomas S. Lyons c,2 a Walker College of Business, Appalachian State University, ASU Box 32089, Boone, NC 28608-2089, United States b Department of Sociology, University of Oregon, Eugene, OR 97403-1291, United States c Baruch College, Zicklin School of Business, 55 Lexington Avenue, Box B9-240, New York, NY 10010, United States 1. Introduction In this research, we apply the resource based theory view of the firm to minority entrepreneurship. More specifically, we examine the impact of a unique resource—tacit knowledge and understanding of a co-ethnic clientele—on the financial performance of minority businesses. Resource based theory (RBT) argues that entrepreneurs create new resources (or combine existing resources in new ways) which results in wealth creation and competitive firms. To offer sustained competitive advantage and performance, these resources must be valuable, rare, inimitable, and non-substitutable (Barney, 1991). A business opportunity arises when the entrepreneur has the insight into the value of a resource that others do not share which leads to heterogeneous assets and firm advantages (Alvarez & Busenitz, 2001). These resources, Prahald and Hamel (1990) add, comprise not only static resources but also include inimitable skills and/or knowledge. In this paper, we consider the tacit knowledge that minority entrepreneurs have about the special tastes and preferences of their co-ethnic peers, and their ability to deliver goods and services in a language other than English or in a culturally sensitive way, as a valuable, rare, and difficult to imitate (Alvarez & Busenitz, 2001) resource, which, RBT would argue, represents a competitive advantage. By co-ethnic clientele we refer to those individuals who share a common origin, culture, national background or migratory experience (Aldrich & Waldiger, 1990) with the minority business owner. International Business Review 20 (2011) 646–658 A R T I C L E I N F O Keywords: Co-ethnic markets Financial performance Minority entrepreneurship Resource based theory A B S T R A C T This paper applies the view of resource based theory to minority entrepreneurship. It examines minority entrepreneurs’ reliance on co-ethnic markets in terms of the impact this has on the financial performance of their firms. This research focuses on three minority groups in particular: African Americans, Korean Americans and Mexican Americans. Findings indicate that owner’s age and marital status, but not business age, shape the extent to which a business owner relies on co-ethnic clients. Furthermore, Korean American owned firms are less likely to have high proportions of co-ethnic clients compared to Mexican- and African American owned firms. Having a large co-ethnic clientele results in a financial penalty in terms of the revenue an owner draws from his or her business. This penalty occurs in businesses owned by all three groups of entrepreneurs. Findings lend support to the resource based theory view of the firm in terms of the need to dynamically apply resources in order to achieve a competitive advantage. Implications for theory and practice are discussed. ß 2011 Elsevier Ltd. All rights reserved. * Corresponding author. Tel.: +1 828 262 7314; fax: +1 828 265 8685. E-mail addresses: shinnarrs@appstate.edu (R.S. Shinnar), mba@uoregon.edu (M.B. Aguilera), Thomas.Lyons@baruch.cuny.edu (T.S. Lyons). 1 Tel.: +1 541 346 5059; fax: +1 541 346 5026. 2 Tel.: +1 646 312 3633; fax: +1 646 312 3621. Contents lists available at ScienceDirect International Business Review jo u r nal h o mep age: w ww.els evier.c o m/lo c ate/ib us r ev 0969-5931/$ – see front matter ß 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.ibusrev.2011.02.014