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Vanus James and Rosalea Hamilton | How female-owned businesses compare

Published:Thursday | October 27, 2016 | 10:00 AMRosalea Hamilton and Vanus James

Women in business typically bear a double burden - they shoulder the responsibility of their children/family as well as the responsibility to create and sustain a profitable business. So how do female-owned businesses fare when compared to their male-owned counterparts?

Invaluable insights into the answer to this question come from analysis done by the Scotiabank Chair in Entrepreneurship and Development at the University of Technology, Jamaica, using data collected under the Scotiabank Enterprise-Wide Risk Management and Financing (SERMAF) project executed by during the period 2014 to 2015.

There is no consensus on how to define a "female-owned business." Definitions vary according to the presence/absence of women as owners, the percentage ownership of the business and/or the degree of control of the business by women in leadership positions.

In the SERMAF survey, we refer to female-owned businesses as businesses where the influential and dominant owners are women with at least 15 per cent of the ownership of the establishment or exercising a controlling influence on decision-making in the business. Using this definition, business risk ratings and profiles have been determined for 739 randomly selected male and female owned establishments in Jamaica. From this data, we can make a comparison between male and female-owned Jamaican businesses.

Managing Business Risks

Owning a business involves significant risks which must be managed. "Business risk" can be defined simply as the probability of making a loss or earning less than anticipated profits. This risk is influenced by many factors, including financial factors (such as sales, price, input costs); psychological factors (such as personality, opinions, attitudes); as well as environmental factors (such as market competition, the overall economic climate and government regulations). So is there a difference in the management of these risks between men and women?

The data reveals that among the top 100 establishments with the best risk ratings, female-owned establishments are doing well compared to their male counterparts. The majority of the top 100 female-owned establishments are micro enterprises. Female-owned establishments are less well represented among the small, medium and large sized establishments. The data revealed the following:

1. Female-owned establishments make up 43 per cent of the top 100 establishments but 37 per cent of all establishments, significantly outperforming male-owned establishments. By comparison, female-owned businesses are somewhat under-represented in terms of their share of the 398 First-Tier establishments (A-rated) businesses (33 per cent) relative to the share of all businesses (37 per cent).

2. Female-owned micro establishments make up 27 per cent of the top 100 as compared to 22 per cent for male-owned micro establishments of the top 100. They are also outperforming male-owned establishments in this regard.

3. As much as 63 per cent of the female-owned establishments in the top 100 performers are micro establishments (as compared to 39 per cent of male establishments in the top 100).

So why are female-owned establishments doing better than their male counterparts? Data on the psychological predispositions of male and female business owners may offer some clues.

 

Psychological predispositions

 

Importantly, the data revealed the risk-reducing impact of certain psychological predispositions and preferences on the use of perception and judgement of business owners. The average impact exceeds 20 per cent of the risk level that is expected to prevail in the absence of the favourable predispositions. For example, it was found that business owners who find it easy to communicate in social settings have a 31.3 per cent lower probability of making a loss than businesses whose owner do not possess that characteristic. These predispositions tend to help business owners make better decisions about labour employment, technology, and management, leading to a superior enabling business climate, higher labour productivity and lower business risk which, in turn, means better prospects for profitability.

The findings also suggest that lower business risk depends heavily on predispositions that can be enhanced by education to promote innovativeness and economic profitability and thus create a better client for the financial sector.

Importantly, the data revealed that education and knowledge assets are major risk-reducing advantages for female-owned businesses. The data revealed that the female-owned businesses that have the best risk rating also have a relatively high level of education and knowledge assets. These results suggest a long run policy orientation to favour the use of education to develop and spread the most impactful risk-reducing characteristics among both male and female micro, small and medium sized enterprises (MSMEs).

- Vanus James, PhD, and Rosalea Hamilton, PhD, Scotiabank Chair, Entrepreneurship & Development, UTech, Jamaica. Email feedback to columns@gleanerjm.com and rhsermaf@gmail.com or scotiabankchair@gmail.com.