The impact of women’s entrepreneurship cannot be ignored. Around the world women are starting businesses at incredibly high rates, resulting in increased revenue and job creation in the world’s economies. In 2010, for example, 104 million women in 59 countries started and managed new business ventures contributing to their nations’ gross domestic product. And women of color have particularly experienced notable success: A 2008 report from the Center for Women’s Business Research showed that African American, Asian American, and Hispanic women business owners substantially outpace all other U.S. firms in the growth of revenues and number of employees.
Yet while women, particularly women of color, have proven themselves to be successful businesswomen, barriers to their economic empowerment continue to exist. Although women of color started companies at three times the rate of other women in 2010, their average revenue was less than 25 percent of businesses owned by white men.
As we celebrate International Women’s Day, let’s take a look at why we need to invest in women of color and the impact added investment will have on economies worldwide.
The need to invest in women
Women of color are a rapidly growing segment of business owners. In 2008 women of color made up 26 percent of all women-owned firms—generating $165 billion in revenues and employing 1.2 million people—helping to revive our economy and allowing our nation to stay globally competitive. Businesses owned by women of color play a critical role in the current marketplace through job creation and added innovation in a way that they never have before. Today, women of color own more and earn more than at any other time in history—and the projections show that this will continue to grow.
Studies show that more women in a company is an indicator of better performance, demonstrating that companies that employ more women in upper-level management tend to be more profitable. Women are often better collaborators, being more willing to listen to new ideas and work with others, often resulting in better long-term results.
Women business owners, particularly women of color, are also uniquely situated to understand their clientele. As of 2009, women were responsible for 80 percent of consumer-buying decisions in the United States. What’s more, the purchasing power of blacks, Native Americans, and Asian Americans is 15.3 percent of the nation’s total, and their combined purchasing power is estimated at $1.9 trillion. By bringing together women from different backgrounds and experiences, businesses can more effectively market to their consumers.
Women business owners also strive to be in touch with their communities, helping them better understand the needs of their consumers. Following the Great Recession, 39 percent of women business owners increased their levels of civic engagement to boost their exposure and create value for their communities. Moreover, research conducted in 2008 by the Center for Women’s Business Research in partnership with Babson College found that many women business owners of color have a double bottom line: They’re invested in giving back to their communities as well as advancing their profits. Businesses owned by women and people of color are more likely to generate job opportunities for residents and recycle a larger share of their revenue back into the community.
The need to invest in women of color is clear. As economic drivers, women significantly contribute to a fast-growing economy, and if barriers to women’s economic growth are broken down, the global impact will be tremendous.
The global impact of investing in women
Across the globe women are pioneers in the business world, currently representing the fastest-growing cohort of entrepreneurs and business owners in developing countries. In order to stay globally competitive, it’s necessary that countries invest in women. The global impact of investing in women of color in the workplace correlates to increased economic growth, work productivity, and public health benefits.
Studies show that an increase in women’s labor force participation and earnings lead to reduced poverty and faster economic growth. In the Middle East and North Africa, for example, estimates show that if the female labor force participation rates had increased during the 1990s at the same rate as women’s education, the average household income could have been 25 percent higher. Additionally, when women earn an income, they are more likely than men to spend it on food, education, and health care for their children and families.
Additionally, diverse senior management adds creativity, innovation, and productivity to the workplace, and capitalizing on diversity is simply good for the bottom line. Goldman Sachs estimates that U.S. GDP could increase by 13 percent if male and female participation rates were equalized. A McKinsey study also found that when women went from holding 37 percent of all U.S. jobs to nearly 48 percent over the past 40 years, the productivity gains accounted for approximately one-quarter of our current GDP.
Promoting public health
Investing in women in the workplace and providing resources for family planning leads to better health care practices, allowing women to use workplace flexibility options to work from home when needed, take care of a sick child, or recover from an illness. Access to paid leave and resources for new mothers and families has proven to be an effective method in promoting public health. Studies also show that cities that guaranteed paid sick days actually saw their economy grow faster. Moreover, one study of 25 developing countries found that one to three years of maternal schooling reduces child mortality by about 15 percent.
It’s clear that women are a driving force behind economic growth across the world. Promoting women in the boardroom and beyond is necessary to stay competitive in this global economy. Yet while women in the United States continue to launch enterprises at a rate exceeding the national average, their firms remain smaller than average, restricting them from reaching their full potential. Researchers have found that acquiring capital and dealing with financial institutions is particularly difficult for business owners that are women of color, citing the small size of most women-owned firms, lack of financial sophistication, and discrimination as the leading factors.
Women of color need access to capital, networks, and trainings that allow small businesses to scale up to mid- and large-scale companies, making them more sustainable in the long haul. It is important that business communities learn how to support the growth of this dynamic sector of women business owners. Leveraging women’s economic empowerment by promoting entrepreneurism among women of color is critical, and programs that provide technical assistance and education to budding businesswomen are needed to ensure greater success for their businesses.
As the demographics of our nation continue to rapidly change, communities of color will soon become the majority. We will lose ground both at home and abroad if we do not unleash the economic potential of women of color. Businesses owned by women of color are a substantial economic force, and as women of color are one of the fastest-growing segments in entrepreneurialism—both in the United States and abroad—investing in women of color is simply smart economics.
Sophia Kerby is the Research Assistant for Progress 2050 at the Center for American Progress.