Beyond Ethnic Enclaves

Clark University

Beyond Ethnic Enclaves: Location Strategies of Chinese Producer Service Firms in Los AngelesAuthor(s): Yu ZhouReviewed work(s):Source: Economic Geography, Vol. 74, No. 3 (Jul., 1998), pp. 228-251Published by: Clark UniversityStable URL: http://www.jstor.org/stable/144375 .Accessed: 10/05/2012 20:39

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Beyond Ethnic Enclaves: Location Strategies of Chinese Producer Service Firms in Los Angeles*

Yu Zhou

Department of Geology and Geography, Vassar College, Poughkeepsie, NY 12604

Abstract: Ethnic enclaves are often not only the main residential areas for ethnic populations but also the prime locations for their businesses. As more and more ethnic enterprises locate outside such enclaves, the spatial pattern of ethnic business becomes more complex. To understand the spatial pattern of ethnic business, I argue that we need to go beyond treating "ethnic" as the only adjective. Drawing from the literature on industrial networks and territorial agglomeration, I examine the location patterns of ethnic producer services and their interfirm transaction networks. Chinese-owned firms in three types of producer services of Los Angeles County were selected: accounting, banking, and computer distribution. I collected information on networks and locations through surveys, interviews, and directories. This research found that location strategies are extremely important for ethnic entrepreneurs to exploit their market niches in all three sectors. While Chinese firms show markedly different spatial patterns from their non-Chinese counterparts, each type of producer service also differs from the others in spatial pattern. Accounting offices and bank branches concentrate in the Chinese central business district because of their Chinese-client-oriented network. A number of larger bank headquarters find downtown Los Angeles a favorable location because they are seeking international recognition and closer integration with mainstream financial institutions. Computer firms locate at the fringe of Chinese-concentrated areas and cluster with other Chinese computer distributors to participate in a product pool so that parts can be exchanged faster. I conclude that the spatial organization of ethnic business needs to be understood as the outcome of interaction between cultural and industrial identities of enterprises.

Key words: ethnic enclaves, ethnic network, location strategy, producer services, Chinese immigrants.

Ethnic communities such as Chinatown, Little Italy, Koreantown, and Little Havana have long been a distinctive part of the American urban landscape. These enclaves not only serve as the main residential areas for ethnic populations, but also are identified as the prime locations for their businesses. In the last two decades, however,

* This article was prepared as part of a research project supported by the National Science Foundation (Grant no. NSF\SBR- 9303692), the MacArthur Peace and Interna- tional Cooperation Program, and the Depart- ment of Geography, University of Minnesota. I would like to thank Eric Sheppard at the Uni- versity of Minnesota and anonymous reviewers for their input.

"enclave" has become an increasingly prob- lematic concept in describing the prevailing location patterns of ethnic businesses, because more and more ethnic enterprises are found outside spatially defined and cul-

turally distinct enclaves. In other words, unlike the neatly patched pattern that

presumably prevailed in the inner city before, today's locational pattern of ethnic enterprises is more complex and interwoven.

Scholars have explained overlapping ethnic residential and business districts in terms of social exclusion and discrimination or market segmentation. Little expla- nation, however, has been offered for the more dispersed and complex patterns

228

BEYOND ETHNIC ENCLAVES

found today. One may argue that the dis-

persion of ethnic businesses results from the expected process of assimilation. Yet some scholars suggest that spatial clustering of ethnic businesses need not occur in the first place. The debate indicates a general lack of research on the location strategies of ethnic enterprises and the spatial processes underlying these strategies. I argue that a sophisticated understanding of the spatial pattern of today's ethnic businesses must go beyond "ethnic" as the only adjective; we need to take into account not just the cultural identity of the owners, but also industrial sector and networks. The economic geography literature, and the New Industrial Space (NIS) thesis in particular, suggests an important link between industrial networks and territorial agglomeration. I argue that this approach can be introduced to explain the various spatial patterns of ethnic businesses. The empirical case used in this paper is the location patterns of Chinese-immigrant-owned producer services in Los Angeles. I examine the spatial distribution of Chinese firms in accounting, banking, and computer distribution sectors to illustrate the key role of transactional networks in structuring varied spatial strategies for ethnic entrepreneurs in each sector and in shaping a differenti- ated spatial outcome.

Ethnic Enclaves and Ethnic

Enterprises The term "ethnic enclave" has been the

subject of heated discussion in the social sciences, particularly in sociology. Portes defines immigrant enclaves as "immigrant groups which concentrate in a distinct spatial location and organize a variety of enterprises serving their own ethnic market and/or the general population. Their basic characteristic is that a significant propor- tion of the immigrant labor force works in enterprises owned by other immigrants" (1981, 290-91). Portes's primary concern is the occupational and labor structure within the enclaves. Yet the spatial condition in

his definition is unmistakable. Spatial concentration is also among the core conditions of enclaves identified by other scholars (Light and Karageorgis 1995; Logan, Alba, and McNulty 1994). The debate in sociology is whether the enclave economy is a viable path for underprivileged and marginalized new immigrants to gain upward mobility and to be integrated into the larger society (Light et al. 1994; Portes and Jensen 1989a, 1989b; Sanders and Nee 1987; Zhou and Logan 1989). While the debate has raised the issue of operational definitions of enclaves, either by the place of residence or place of work, the phenomenon of spatial clustering itself is frequently treated as an essential condition, but rarely as a phenomenon needing to be problematized and explained.

Recent geographic works on ethnic enclaves are rather few. A number of studies have attempted to theorize the overlap between ethnic residential and business patterns. Two main accounts have emerged: social discrimination and institutional exclusion, on the one hand, and better access to ethnic resources, such as labor, markets, and capital in the enclave area, on the other. Anderson, in her account of Vancouver's Chinatown, documents the key roles of racist ideology and discriminatory public policies in the formation and historical development of Chinatown (1988, 1990). Her account provides the most powerful proof of the ways in which discriminatory policies have cir- cumscribed the location choices of the Chinese population and businesses. Hiebert (1993), in his study of Jewish business and population, also argues that spatial concentration of Jewish immigrants was extremely important both for the formation of an ethnic enclave economy and a restructured set of class relationships within the group.

Highly structured spatial segregation, however, is more a historical than a contemporary phenomenon for Asian immigrant populations, one of the most subur- banized minorities in the United States (Allen and Turner 1989). While the barri-

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ECONOMIC GEOGRAPHY

ers of spatial mobility for Asians are reduced, a large number of Asian businesses still gravitate to residential enclaves. Comparing Korean business patterns in Los Angeles in 1975 and 1986, Lee con- cludes that the locations of Korean businesses are closely linked with the distribution of Korean populations. In particular, Koreantown remains the spatial core of Korean business, because as a Korean enclave, it offers many advantages for ethnic businesses, such as a protected market, an ethnic labor supply, and financial sup- port, as well as providing a built environment embedded with sociocultural mean- ings and shared experiences and identity (Lee 1995a, 1995b).

Although Korean immigrants became spatially dispersed while Korean businesses maintained a traditional spatial core, other groups demonstrated somewhat different patterns. Chinese businesses in Los Angeles, for example, not only established a suburban center at Monterey Park, superseding the older and much smaller downtown Chinatown, but also spilled out to more remote and frag- mented suburban areas (Fig. 1). There are also other ethnic groups that do not show any significant spatial concentration to begin with. Light et al. (1994), in a study of Iranian businesses in Los Angeles, show that despite a high rate of self-employment, both Iranian residences and firms are virtually unclustered. A similar situa- tion exists for Mexican workers in the Southwest. This has led them to question the prevailing assumption of spatial clustering. Light et al. (1994) further argue that spatially clustered ethnic enclaves are in fact infrequent phenomena of post-1965 immigrants. Instead of an enclave economy, they advocate a more universal concept of ethnic economy without the condition of having a spatial core.

It is apparent that the location strategies of ethnic enterprises are more diverse and complex than previously realized. To cap- ture the complexity, it seems that we have to go beyond the cultural identity of these enterprises, frequently identified by the

ethnicity of their owners, and pay closer attention to their industrial and network characteristics. Most studies of ethnic businesses to date treat such businesses as generically identical entities for which a mere mention of business type is sufficient. The overgeneralization may be the root of the problem, because different types of ethnic firms demand different interfirm interactions and may employ different location strategies. Recent work in economic geography has connected interfirm networks and spatial outcomes, providing a useful tool for analyzing the location strategies of ethnic firms. I propose that the location patterns of ethnic businesses can be explained through analyzing the transactional ethnic networks of these enterprises.

Ethnic networks are a common feature in most ethnic communities. Much of the research on enclaves has noted the importance of ethnic networks in various aspects of ethnic community life, and particularly among transactions and exchanges (Wilson and Martin 1982). But since most researchers rely heavily on population census information, few empirical analyses have been developed on such networks (Logan, Alba, and McNulty 1994), let alone their spatial outcomes. Making ethnic networks central enables consideration of both the ethnic and industrial dimensions of these businesses, while highlighting the similarities and differences of various types of business.

Interfirm Networks and Territorial Agglomeration

The New Industrial Space (NIS) thesis, proposed originally by Allen Scott (1988), makes an explicit link between the use of interfirm networks and spatial conse-

quences. Scott suggests that under intense and uncertain market competition, small to medium-sized firms, joined by networks of

"extremely malleable external linkages and labor market relations," provide a more efficient organizational structure to reduce transaction costs than large, vertically inte-

230

r of Chinese businesses

0 0 1300 650 130

Figure 1. Leading suburban cities of Chinese-owned businesses, San Gabriel Valley, Los Angeles County, 1991. Source: Asia System Media (1993).

ECONOMIC GEOGRAPHY

grated firms (Scott 1988, 174). The depen- dence on interfirm networks is most noticeable in high-tech manufacturing, such as computers, and in low-tech, labor- intensive industries, such as garment manufacturing and business and commercial services (Scott 1993). Intensive use of interfirm networks in turn is associated with territorial agglomeration, mainly for three reasons: first, spatial proximity can substantially reduce the transaction costs among many smaller units. Second, firms can take advantage of labor supply and pro- vision of common business and social services, and in so doing save on external economies and improve flexibility in the labor market (Scott 1988; Scott and Paul 1990; Storper and Walker 1989; Walker 1988). Third, territorial agglomeration is often associated with the formation of a unique local milieu based on sociocultural similarity and interwoven social relations, which in turn reinforces interpersonal interaction and cooperation in the region (Camagni 1991; Crevoisier and Maillat 1991).

The NIS thesis has been contested by a growing body of empirical research in various industries and locations, with researchers pointing out that the relationship between the transactional networks and their spatial outcomes is far from straightforward (Holmes 1986). The spatial agglomeration may or may not occur, depending on the types of industry, the nature of linkages, and the institutional structure of the enterprises involved (Henry 1995). Rather than rejecting the claim for spatial clustering, the debate highlights the need to examine closely the nature and configuration of established industrial networks.

The NIS thesis provides an important theoretical framework for understanding the spatial patterns of ethnic firms, by making interfirm networks the center of the inquiry. Most ethnic firms concentrate in secondary markets where intense competition and market fluctuations are common, suggesting the need to develop and utilize networks. Differing from firms in the gen-

eral market, the networks developed by ethnic enterprises often bear a strong ethnic identity-namely, ethnic firms are likely to deal with firms owned by co- ethnics. This is particularly so when ethnic members are predominantly immigrants. Shared language and culture form the bond that underlies the extensive web of ethnic networks. Social isolation and discrimination experienced by immigrants further strengthen the ties among them. Literature on ethnic communities has doc- umented the ways in which ethnic ties have been used to assist immigrants in raising capital for small businesses (Light 1972; Light and Bonacich 1988; Zhou and Logan 1989; Zimmer and Aldrich 1987), in recruiting and maintaining labor forces (Waldinger 1986; Hiebert 1993; Lee 1995a), and in enhancing access to strate- gic business information (Aldrich and Zimmer 1986; Werbner 1990; Wong 1988; Zhou and Logan 1989; Lee 1995a, 1995b). Rather than elaborating on all aspects of ethnic networks, this paper focuses on the use of ethnic networks for transactional purposes and on the spatial outcomes of such networks.

Interfirm Networks and Chinese-Owned Producer Services

Instead of focusing on consumer services and small manufacturing, in which ethnic enterprises disproportionately concentrate, I examine ethnically owned producer services. It is well known that producer services play central roles in the contemporary economy as the key coordinator and con- troller of commodities, information, and financial flows. Much less well known is that ethnically owned producer services play similar roles within ethnic economies. Language, cultural, and institutional barri- ers, as well as income limitations, make it difficult for ethnic firms to rely on mainstream producer services. The difficulty of accessing bank loans in minority areas is one well-known example, but similar cases

232


permeate other service sectors, as will be illustrated later. This service gap is often filled by ethnically owned service providers, whose close ties with their community provide a competitive edge over mainstream establishments.

Despite the centrality of producer services in ethnic economies, these sectors have rarely been studied since they are not known to provide a large employment base, which presumably is central to ethnic economies. The lack of knowledge of these sectors undermines our general understanding of the operation of ethnic economies, which is one of the reasons I chose these sectors as the subject for this study. Second, unlike traditional immigrant sectors, the producer service sectors do not depend on cheap labor. Rather, they oper- ate on the basis of intensive transactional relationships between service providers and clients. These sectors therefore offer an ideal setting to focus on transactional networks, which is the focus of the NIS thesis. Third, unlike consumer services such as ethnic restaurants, which appeal to an obvious set of customers, the operation of producer services encompasses a complex networking relationship not only within the ethnic communities, but also with the mainstream institutions and gov- ernments in these sectors. This varied and far more complex configuration of networks in producer services makes it possi- ble to examine whether different network configurations can lead to different location choices.

Since producer service is an extremely heterogeneous category, only a sample of sectors can be examined by this study. I selected three sectors, accounting, banking, and computer distribution, which singly represent professional, financial, and distribution services and together constitute a diversity of service characteristics, network configurations, and spatial strategies. Another reason for selecting these sectors is that Chinese firms have a sub- stantial presence in all three, so that there is a large enough pool of companies to study. The linkages I am particularly inter-

ested in are backward linkages with suppliers, horizontal linkages with associated firms (such as other service firms), and forward linkages with clients or customers. I hypothesize that since each sector has a somewhat different configuration of transaction networks, they should employ different location strategies, which in turn may produce different spatial outcomes.

Chinese producer service firms are identified by the ethnicity of the owners. For accounting and computer firms, the list was compiled by using Dun & Bradstreet Microcosm' of Los Angeles County, 1992, two Chinese yellow pages for 1993, and directories of Chinese associations in both sectors. The accuracy of Chinese owner- ship in these entries was confirmed by phone and mail inquiries. The listings were then geocoded to show their exact street locations within Los Angeles. The listings of accounting and computer firms also served as the framework of a mail survey of 692 firms conducted in the summer of 1993, in which all firms received a bilingual questionnaire. I obtained a 38.4 percent response rate for accounting and 25.2 percent for computer firms, discounting the nondeliverable mail.2 The survey inquires into demographic information of the owners, such as place of birth, length of residence in the United States, intensity of use of ethnic networks in backward, horizontal, and forward linkages, location preferences of firms, and locations of associated businesses, such as suppliers and clients. The survey was largely structured, but always

` I found Dun & Bradstreet Microcosm (on microfiche) far better than the printed Dun & Bradstreet directory in including even the smallest firms. However, undercounting minority firms continues to be a problem even for Microcosm. The problem is more severe for the accounting sector than for the computer sector.

2 I performed a nonparameter T-test of the sales and employee size of responding firms in the computer sector against the original listing in Dun & Bradstreet Microcosm. The result shows no apparent bias by the responding firms.

233

ECONOMIC GEOGRAPHY

provided open-ended options. Fifteen to 20 personal interviews were also conducted with firm owners and managers in each sector to gain a more in-depth understanding of locational rationales. For Chinese- owned banks, I used The Findley Reports, 1992, which publishes one of the most comprehensive analyses of California financial institutions, including a brief pro- file of each institution and its performance and evaluation. Los Angeles Chinese capital banks are identified as those banks headquartered in Los Angeles County and in which a majority of board directors have Chinese last names. No mail questionnaire was sent to banks because the total number (24) was too small to guarantee a statisti- cally significant result. Instead, intensive interviews were conducted with banking executives at various levels in a stratified sample of 9 banks, varied by the banks' sizes, years in business, and types of capital sources.

The Chinese firms identified from the survey were heavily concentrated at the smaller end of the size spectrum. Eighty- five percent of accounting firms had fewer than 4 employees, 83 percent of computer firms had less than 20 employees, and all except the top three Chinese financial institutions had less than $500 million in total assets. The vast majority of the firms were also recent creations, with 86 percent of accounting firms and more than two- thirds of the banks having been started after 1980 and 82 percent of computer firms having opened after 1986. The age of these firms indicates a significant surge of Chinese business activities resulting from Chinese immigration and financial infusion into Los Angeles starting in the 1980s.

Although the survey did not intend to concentrate on immigrant owners, the results show that small business owners in these three sectors are almost exclusively immigrants. Ninety-six percent of responding accountants and 98 percent of computer entrepreneurs were foreign-born, with a large majority from Taiwan and Hong Kong. Most moved to the United States as adults, with 85 percent having

completed high school outside the United States. Owners in the computer industry were more recent immigrants, with a median of 9 years residency in the United States, as compared to 16 years in accounting. Although well-educated and generally comfortable in an English-speaking environment, their age at the time of migration and recency in the United States imply a significant cultural gap between them and mainstream entrepreneurs in the same sector. Their bicultural and bilingual back- grounds underlie the decisions of self- employment and their orientation to the ethnic community. Before going into a detailed discussion of each sector, I provide an overview of the spatial changes of Chinese ethnic economies in Los Angeles.

Spatial Changes of the Chinese Ethnic Economy in Los Angeles

As in Chinese communities elsewhere in North America, the Chinese community in Los Angeles started from an immigrant enclave Chinatown in central Los Angeles. Compared to New York and San Francisco, Los Angeles' Chinatown has been decisively smaller. In 1960, China- town housed only one thousand Chinese, 5 percent of the total Chinese population in Los Angeles County (Waldinger and Tseng 1992). In today's Los Angeles, Chinatown is a location for inexpensive, ethnically oriented goods and leisure, import/export businesses, and sweatshops. People resid- ing in Chinatown are likely to be low- income recent immigrants or elderly and are likely to engage in menial-labor jobs in small shops operated by co-ethnics. The area has also received a heavy influx of Southeast Asian refugees, who own a growing share of small businesses (Gold 1994). Since the late 1970s, Chinatown has suf- fered from high rents, inadequate parking, intense business competition, and a high crime rate. These problems, plus the lin- guistic differences, drove largely Mandarin- speaking, better-endowed Taiwanese new- comers away from largely Cantonese-speaking

234


Chinatown (Tseng 1994b). The share of the Chinese population living in China- town peaked in 1970, but has declined ever since, while the absolute number of its residents continues to grow. By the 1990 census, only 4 percent of the Chinese population and 6 percent of Chinese businesses in Los Angeles County resided in Chinatown (Tseng 1994a)

The Chinese central business district, or CBD, is now at Monterey Park, about 13 kilometers to the east of Chinatown, immediately adjacent to the city of Los Angeles. The rapid rise of Chinese population and their businesses in Monterey Park and the surrounding communities in the western San Gabriel Valley since the late 1970s tes- tifies to the shifting tide of Chinese immi-

gration. From 1970 to 1990, not only did the Chinese population in Los Angeles grow sixfold, the newer immigrants also display far more diverse social characteristics than their predecessors prior to 1965. Two groups of immigrants are of particular concern for this study, the professionals educated either in the United States or in their home countries and the wealthy entrepreneurs who transplanted their business practices into the United States.3

The Chinese population in Los Angeles is more professionally oriented than the Chinese in other large metropolitan areas such as New York (Waldinger and Tseng 1992). According to the 1990 census, 33.1

percent of the Chinese in Los Angeles are

engaged in managerial, professional, and

specialty occupations, and another 37 percent in white-collar jobs such as techni- cians or clerks; both were overrepresented compared to the county average. Since the

professional population tends to locate in

3 Fong (1994), Tseng (1994a, 1994b), and Li (1998) are among the authors who have docu- mented in great detail the rapid changes that occurred in Monterey Park and its surrounding communities, in particular the business activities engaged in by wealthy new immigrants and the huge amount of foreign capital they brought from their origins to Los Angeles.

the suburbs, it has forcefully pulled the Chinese community economically and spatially away from its traditional niches, represented by Chinatown. Another significant flow of immigrants are the wealthy entrepreneurs or business people coming from Taiwan and Hong Kong since the late 1970s. The economic prosperity combined with political uncertainty in East Asia moti- vated many upper- and middle-class Hong Kong and Taiwan Chinese to move their families and transfer part of their wealth into the United States. Unlike the Chinese professional population who depended on their educational resources to climb the social ladder in the United States, and unlike the earlier immigrants who accumu- lated petite capital and business experience from painstaking labor, these immigrants came equipped with capital and extensive business experience from their home countries. Some are able to start large-scale businesses immediately upon arrival (Tseng 1994a). It was these investors and entrepreneurs who transformed Monterey Park from a depressed but quiet bedroom community in the 1970s into a bustling ethnic business center today.

Monterey Park is known as "Little Taipei," because it offers a wide variety of services owned and run by the Chinese that can fulfill practically any daily need, from groceries and advertising to learning deep- sea diving in Mandarin Chinese. In addition to the variety, the highest end of Chinese businesses are concentrated in Monterey Park and neighboring Alhambra. The major commercial streets are lined by banks, certified public accountant (CPA) firms, insurance and real estate companies, and international trading offices amid abundant restaurants, grocery markets, and bookstores. They also host a sizable concentration of Chinese mass media, including 15 Chinese daily newspapers, several journals, and six Chinese-language TV sta- tions. Many Chinese ethnic organizations, Chinese language schools, and social programs also are located in these two cities. The presence of these organizations defines this area as a prominent Chinese

235

ECONOMIC GEOGRAPHY

social, cultural, and entertainment center as well as a business center (Tseng 1994b). Although Monterey Park was proclaimed "America's first suburban Chinatown" by the Los Angeles Times (Arax 1987; Fong 1994), it has never become an exclusive ethnic enclave, growing to only 30 percent in its Chinese population. Before Monterey Park reached its peak in 1985, Chinese businesses quickly spread to surrounding cities such as Alhambra, San Gabriel, and Rosemead (Fig. 1).

The rapid transformation of Monterey Park and Alhambra from a quiet suburban residential community to a Chinese central business district was not without cost, however. Skyrocketing rents, traffic congestion, and a rising crime rate plagued the communities (Fong 1994). Unceasing conflicts with the reluctant original residents make these communities less attractive to new development projects (Saito and Horton 1994). The growth rate of the western San Gabriel Valley as a whole peaked in the early 1990s, and has slowed ever since. The Chinese population became further subur- banized, settling in the eastern San Gabriel Valley, in cities such as Walnut, City of Industry, Hacienda Heights, Rowland Heights, and Diamond Bar (Fig. 1). These cities are known by the Chinese as the "East District." Different from the two earlier Chinese business centers, where development was fueled by residential growth in combination with retailing and consumer services, development in the East District was led by Chinese industrial activities, particularly computer hardware manufacturing and distribution firms. Following the industrial firms, the Chinese population, especially professional Taiwanese immigrants, grew rapidly in this area, fol- lowed by Chinese consumer and business services. Li (1998) found that Chinese who located in the East District tended to be the best educated and to have the highest income in the county. Despite its rapid growth, the East District is not anticipated to replace Monterey Park and Alhambra as the Chinese business center in the near future, since the business and service mix is

far less diversified and more industry- oriented. In addition, Chinese businesses remain a small minority in the region, and the majority tend to avoid assuming a visible Chinese identity.

Monterey Park and City of Industry together represent succeeding tides of sub- urbanization of Chinese population and businesses. These suburban centers are important to this research because they present a particularly favorable milieu for the development of advanced Chinese businesses. The relatively well-off population, active business ventures, decent hous- ing and office stock, and a multicultural atmosphere together offer some necessary conditions for the growth of producer services.

Spatial Patterns of Three Producer Services

Accounting

Figure 2 overlays the location of Chinese-owned accounting firms and the distribution of Chinese population. The small insert shows the distribution of all accounting firms in Los Angeles. While accounting firms in general favor downtown and business centers in the wealthy western Los Angeles neighborhoods, Chinese accounting firms are found mainly in the San Gabriel Valley, with three clusters in Chinatown, Monterey Park/ Alhambra, and municipalities around City of Industry. This location pattern is confirmed by accountants' spatial preference. When asked hypothetically where the ideal location to open a CPA firm would be, one- third of Chinese CPAs surveyed chose Monterey Park/Alhambra. The neighboring cities of San Gabriel and Pasadena drew another 14 percent. Rowland Heights, Walnut, and City of Industry (the East District) attracted another 17 percent. Others either generally identified the city of Los Angeles or were scattered.

At first glance, this pattern seems to indicate a "natural" gravity to the Chinese population center; I argue, however, that

236

Figure 2. Distribution of Chinese-owned accounting firms and Chinese population in Los Angeles County. Source: Asia System Media (1993); Dun & Bradstreet (1992); and U.S. Bureau of the Census (1990). Inset: Distribution of accounting firms in Los Angeles. Source: Dun & Bradstreet (1992).

ECONOMIC GEOGRAPHY

such location patterns should be understood through the transactional network of accounting firms. Chinese accounting firms depend heavily on ethnic networks to recruit clients and to forge connections with other business service firms, such as banks and legal services. The personalized connections and customized services in this sector mean that the transactions are non- standardized, involving complex information exchange and requiring personal trust. These types of relations are harder to maintain crossing ethnic boundaries. The survey shows that Chinese CPAs draw an overwhelming portion of their clients from the Chinese community, with a median of 85 percent of their clients being Chinese. Concentrating their offices within the existing Chinese business center is therefore preferable since these locations provide maximum access to clients. As one interviewee suggested:

If I locate in Monterey Park, 50 percent of my clients can come to my office easily, while another 50 percent I can visit. But if I locate in Santa Monica (western Los Angeles County), only 5 percent may be willing to visit me and I have to drive to another 95 percent of clients. Obviously I will locate here. Besides, some Chinese clients like to drop in from time to time. Locating in Monterey

Park and Alhambra can catch this traffic. (Interview, July 1993)

The number of clients is not the only reason Chinese firms locate in Monterey Park. In fact, when the survey asked the

respondents to identify the location pattern of their clients, Monterey Park and Alhambra ranked second, the first being the San Gabriel Valley outside these two cities, with Los Angeles County, excluding San Gabriel Valley, a close third (Table 1). Only 29 percent of respondents suggested that they have many clients in Monterey Park and Alhambra, and 50 percent said

they have some. It appears that clients of Chinese accounting firms are in fact dis-

persed. Many interviewees suggested that

they did not have many current clients within Monterey Park and Alhambra, but chose this location nevertheless because these two cities are the Chinese CBD.

According to one accountant,

Monterey Park is the business center, no matter how far Chinese are from Monterey Park, they always have reasons to go there.

Although most of my clients do not locate here, they have little problem to make trips to my office since they have many other

things to do here. (Interview, July 1993)

Table 1

Location of Business Clients for Chinese Accounting Firms

Many Some Very None Number of Business Clients (%) (%) Few(%) (%) Responses Score"

San Gabriel Valley excluding Monterey Park, Alhambra, and Chinatown 42 42 14 3 65 2.22

Monterey Park and Alhambra 29 50 19 2 62 2.06 Los Angeles County excluding San Gabriel Valley

and Chinatown 13 59 24 4 54 1.81 Southern California excluding Los Angeles County 7 50 28 15 54 1.50 Chinatown 10 28 32 30 60 1.18 Northern California 4 8 42 46 48 0.71 Outside the United States 0 15 33 51 39 0.64 Other states 0 12 28 60 43 0.51 Source: Author's mail survey, 1993. a Score = (MANY*3)+(SOME*2)+(VERY FEW).

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In other words, while the forward link-

ages with clients is key to accounting firms, the horizontal linkages with other service firms are also essential for the effectiveness of accounting firms (Table 2). What most Chinese CPAs enjoy is actually the name recognition of "Little Taipei" and a mix of services available in the Chinese CBD, so they and their clients can have the proximity to associated businesses. According to Chinese Yellow Pages and Business Guide (Asia System Media 1993), 40 percent of all branch offices of Chinese-owned banks, 52 percent of Chinese accounting firms, and 46 percent of Chinese mortgage loan firms in the greater Los Angeles area located in Monterey Park and Alhambra (Tseng 1994a). These services are closely linked with accounting firms. Not only would clients "have many other things to do here," but CPAs also have convenient face- to-face interaction with Chinese bankers, attorneys, and other CPAs.

Chinatown, the origin of Chinese CPA firms, was ranked very low in terms of concentration of both clients and associated businesses; 63 percent of respondents had few or no clients located there. Nevertheless, Chinatown still hosts a significant cluster of accounting firms, as shown by Figure 2, mostly older firms and firms catering primarily to Southeast Asian

businesses. Some established Chinese banks also locate in Chinatown. These institutions and existing client bases were cited as the main reasons for accounting firms to stay, although for starting firms, Chinatown draws hardly any interest.

In sum, the spatial distribution of Chinese accounting firms reflects the distinct client-oriented business networks of accounting firms. Chinese firms do not prefer the center of mainstream businesses represented by downtown Los Angeles or wealthy neighborhoods such as Beverly Hills. Their concentration in Monterey Park and Alhambra shows a clear preference for a central ethnic location where they can have the best access to clients and associated businesses. The overlapping of ethnic population and accounting business is not simply a cultural identification, but results from culturally embedded accounting networks.

Chinese Banks

Banking is generally believed to be the most centrally oriented industry, since banks have a tendency to locate at the most prestigious and central locations, such as the CBD. Pollard (1996) found that Los Angeles financial institutions concentrate in downtown Los Angeles and along Wilshire Boulevard in the western part of

Table 2

Location of Business Associates for Chinese Accounting Firms

Many Some Very None Number of Business Associates (%) (%) Few(%) (%) Responses Score"

Monterey Park and Alhambra 25 50 22 3 64 1.97 San Gabriel Valley excluding Monterey Park, Alhambra,

and Chinatown 26 51 14 9 65 1.94 Los Angeles County excluding San Gabriel Valley

and Chinatown 18 43 27 12 51 1.67 Chinatown 11 32 31 26 62 1.29 Southern California excluding Los Angeles County 2 44 38 17 48 1.31 Outside the United States 2 15 28 55 47 0.64 Northern California 2 6 40 52 48 0.58 Other states 2 7 24 67 46 0:43 Source: Author's mail survey, 1993. aScore = (MANY*3)+(SOME*2)+(VERY FEW).

239

Pacific Ocean

* Bank Headquart

O Bank Branch

nta Fe Spring

Chinese Population

,II o 0 to 50 50 to 500

* 500 to 1,000 * 1,000 to 3,780

Figure 3. Chinese banks and Chinese population in Los Angeles County. Source: Findley (1992); U.S. Bureau of the Census (1990).


Los Angeles County. In contrast, Chinese financial institutions are more likely to locate along the major commercial roads in the San Gabriel Valley, especially in

Monterey Park and Alhambra, in a pattern somewhat similar to Chinese accounting firms (Fig. 3).

This location pattern can also be traced to the network and transactional structure of Chinese banks. An analysis of Chinese

banking business networks shows that they depend heavily not only on Chinese clients but also on Chinese capital sources, which are mainly from Chinese immigrants and overseas Chinese financial groups in Southeast Asia, from countries such as Taiwan, Indonesia, Hong Kong, Malaysia, and Singapore. One-third of Chinese banks are affiliated with Southeast Asia Chinese financial groups; many others received

large deposits from Asia. It is estimated that anywhere from 50 to 90 percent of customers in Chinese-owned banks are Chinese, including both depositors and borrowers (Zhou 1996a). Chinese capital banks are preferable for Chinese depositors and borrowers for a number of reasons. Chinese banks have staff who speak almost all the Chinese dialects found in Los

Angeles, have better name recognition in Chinese, have close ties with banks in

immigrants' home countries, and can tailor their savings programs to the special needs of immigrants. For borrowers in particular, Chinese capital banks are seen to understand the problems often associated with

immigrants, such as lower income, a shorter or nonexistent credit history, and a

tendency to invest in sectors of low profit margins and high risk. With an intimate

understanding of their community's financial patterns, business profitability, and

cycles, Chinese capital banks are far more

capable of predicting the return on their investments with greater certainty and

accuracy, even without the conventional credit checking instruments relied upon by mainstream banks. This is explained by one bank manager:

The advantages we have over other mainstream banks is that we are more flexible. American banks are doing [loans] mainly on cash flow. If you do not have enough cash flow, they will not loan to you. We look at the secondary sources, such as your collateral, and your character. Many of our customers are from Taiwan. Since we have many ties with banks in Taiwan, we can do credit and reference checking in the customer's bank in Taiwan. If this person has nothing here (in the U.S.), we may also use his credit in Taiwan in the form of a letter of credit to

guarantee the lending. Most of our senior managers are bankers from Taiwan, as are many of the employees. We know everything that is happening there, politically and economically. (Interview, June 1993)

In short, both the forward and backward linkages of Chinese banks are decisively ethnic in character, which leads to a spatial pattern similar to that of accounting firms. A distinction needs to be made, however, between bank headquarters and sales branches. For branches, access to customers is critical. Thus, like accounting firms, their locations reflect a client- oriented approach by deliberately corresponding to the spatial distribution of Chinese population and businesses. For headquarters, however, the main functions are information processing and decision

making, so they can afford to be somewhat distant from their clients. The critical con- siderations for the headquarters are the linkages not only with clients, but also with other financial institutions, and the symbolic value of the location.

Table 3

Location of Chinese Bank Headquarters Headquarter Location Number of Banks

Chinatown 5 Downtown 7 Western San Gabriel Valley' 10 Others 1

Total 24 aIncludes cities of Monterey Park, Alhambra, San Gabriel, Rosemead, San Marino.

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ECONOMIC GEOGRAPHY

Not surprisingly, the largest concentration of Chinese banks, branches and headquarters alike, is in western San Gabriel Valley, in cities such as Monterey Park and Alhambra (Table 3). Almost all Chinese banks either have headquarters or multiple branches in this area. Yet most larger banks establish their headquarters in downtown Los Angeles, a premier location for American and international financial institutions. A downtown location signifies the needs of Chinese banks to be connected with other national and international financial institutions as well as with financially powerful non-Chinese communities. A bank marketing manager explained their location choice:

Much of our business involves international trade and international finance. We need to do a lot of processing with other large companies. So we find this central location preferable. (Interview, June 1993)

Downtown Los Angeles is also seen as a favorable location to establish a bank's status as an international rather than an ethnic bank. Prestigious buildings in downtown Los Angeles are regarded as status symbols by Chinese banks. The vice president of another Chinese bank explained:

We have many clients other than Chinese, for example, Jewish. Their major businesses are here. Locating in downtown is convenient for reaching out to other communities. If our headquarter is in the San Gabriel Valley, we will be limited to the Chinese market. Besides, this is the best location in downtown Los Angeles. To occupy this spot shows the prestige of our bank. (Interview, June 1993)

Chinatown was the starting point for Chinese banks. As its status declined for the Chinese community, many moved their headquarters to downtown or to the western San Gabriel Valley while keeping branch offices in Chinatown. Newer banks rarely have branches in Chinatown. Yet Chinatown remains an important location, because the largest and oldest Chinese bank, along with four other banks, still

keep their headquarters in Chinatown. The value of a Chinatown location, again, is symbolic, since it represents the long- standing relationship with the local Chinese community and is a highly visible place for overseas Southeast Asian Chinese communities. Thus, for those banks depending on earlier immigrants and for those subsidiary banks of Southeast Asian Chinese financial groups, Chinatown remains a good location. Its proximity to downtown Los Angeles also helps them to connect with mainstream financial institutions.

In sum, the location of Chinese banks not only shows their deep roots in the Chinese community, but also reflects the increasing linkages with mainstream financial institutions and international capital. The locational shift of Chinese banks'

headquarters from Chinatown to downtown Los Angeles reflects the increasing sophistication of Chinese banking opera- tions, the diversification of their clients, their integration with other financial institutions, and an awareness of symbols and values in the larger financial world.

Computer Distribution

Chinese computer distribution firms show a quite different spatial distribution.

Figure 4 shows the street addresses of Chinese computer firms, which are far more dispersed in Los Angeles County than either accounting firms or banks. Even within the San Gabriel Valley, most

computer firms are found not in Chinese business centers such as Monterey Park and Alhambra, but around City of Industry, and generally in the periphery of the Chinese-concentrated area. In addition to the large concentration in the San Gabriel

Valley, Chinese firms tend to form tight local clusters in areas away from Chinese communities, such as Torrance and Santa Fe Spring. When asked the most desirable location for their computer firms, 40 percent of the survey respondents identified

City of Industry, while a total of 53 percent referred to City of Industry's vicinity. Monterey Park received only 3.8 percent of

242

Figure 4. Chinese computer firms and Chinese population in Los Angeles County. Source: Asia System Media (1993); Dun & Bradstreet (1992); Southern California Chinese Computer Association (1994); and U.S. Bureau of the Census (1990).

Santa Monica vT

Pacific Ocean

Computer wholesale firms

_ Chinese firms * Non-Chinese firms

Figure 5. Contrasting Chinese-owned and non-Chinese-owned computer wholesale firms (SIC 5045) in Los Angeles County. Source: Dun & Bradstreet (1992).


the vote, while Alhambra was not selected at all.

Chinese firms also differ markedly from their non-Chinese counterparts. Figure 5, based on zip codes of firm locations, shows a contrasting distribution of both Chinese- owned and non-Chinese-owned computer wholesale firms based on Dun & Bradstreet Microcosm. Chinese firms are likely to be in the eastern part of Los Angeles County, centered in City of Industry, stretching from Monterey Park to Diamond Bar. Non-Chinese firms domi- nate west Los Angeles, from Torrance to Santa Monica, and San Fernando Valley, around North Ridge and Van Nuys.

This spatial pattern can be attributed to the distinct network structure of Chinese computer firms. In contrast to accounting firms and banks, Chinese computer firms do not depend on the ethnic market. Very few Chinese firms claim a high percentage of Chinese business customers. The median value of sales to Chinese firms is only 15 percent of the annual sales among all surveyed firms. In order to maximize their sales, most Chinese computer firms orient their sales efforts to the U.S. mass market, where they compete directly with other mainstream firms. According to the survey, most computer firms sell nationally,

especially to out-of-state customers. The local market of Southern California is of only secondary importance. San Gabriel Valley alone, with the most Chinese- concentrated cities, is among the lowest- ranked places for computer clients (Table 4). Locating within an ethnic enclave is, therefore, disadvantageous to the Chinese firms, since they would have a more restricted clientele.

The mainstream orientation in marketing, however, does not make Chinese firms assume a similar spatial pattern with other firms in the same sector. The fact that they are far more concentrated in San Gabriel Valley indicates a close link with the Chinese community. This linkage is represented by the intense use of ethnic networks with suppliers and associated firms. In other words, unlike accounting and banking, it is the backward linkage that is essential for Chinese computer distributors. The survey shows that 60 percent of responding firms have Chinese firms as at least three out of their five top associates; 63 percent list at least three out of five top suppliers as being Chinese. These associated firms are dispersed in California. Most firms have some associates in Los Angeles County, other counties in Southern California, or Silicon Valley in Northern

Table 4

Location of Business Clients for Chinese Computer Firms

Many Some Very None Number of Business Clients (%) (%) Few(%) (%) Responses Score"

Other states 45 41 8 6 71 2.25 Los Angeles County excluding San Gabriel Valley

and Chinatown 17 51 24 8 71 1.76 Southern California excluding Los Angeles County 10 53 31 6 70 1.67 Northern California 12 45 31 12 75 1.57 San Gabriel Valley excluding Monterey Park, Alhambra,

and Chinatown 11 38 33 19 80 1.41 Outside the United States 12 29 28 32 69 1.20

Monterey Park and Alhambra 5 21 40 34 85 0.96 Chinatown 1 12 26 61 82 0.54

Source: Author's mail survey, 1993. 'Score = (MANY*3)+(SOME*2)+(VERY FEW).

245

ECONOMIC GEOGRAPHY

Table 5

Location of Business Associates and Suppliers for Chinese Computer Firms

Many Some Very None Number of Business Associates and Suppliers (%) (%) Few(%) (%) Responses Scorea

Los Angeles County excluding San Gabriel Valley and Chinatown 20 45 22 14 65 1.71

Southern California excluding Los Angeles County 12 53 26 9 68 1.68 Northern California 12 49 28 12 78 1.60 San Gabriel Valley excluding Monterey Park, Alhambra,

and Chinatown 24 23 23 18 91 1.42 Other states 23 17 31 29 70 1.34 Outside the United States 21 24 23 32 71 1.34

Monterey Park and Alhambra 5 34 38 23 87 1.21 Chinatown 4 2 20 73 83 0.36

Source: Author's mail survey, 1993. "Score =(MANY*3)+(SOME*2)+(VERY FEW).

California, but few have many associated firms in the immediate San Gabriel Valley (Table 5). What the survey did not show, but what was revealed clearly in the interviews, is the frequent use of casual suppliers within the immediate local area:

Computers have many components; no one can equip all of them. The best way to do this business is to cluster together, so that products can be traded at a fast pace from reliable associates. (Interview, July 1993)

This statement highlights one of the most important spatial strategies for Chinese small computer firms. In the vibrant personal computer industry, large firms are well-equipped, with their financial power, leading technology, reputable products, and nationwide warranty and services. Small firms have to keep up with technological change, respond to the market in a timely manner, and provide reliable service, while keeping their prices sig- nificantly lower than those of large firms. Such challenges are met with the extremely vigilant ethnic local supply networks (Zhou 1996b). Chinese firms may have major suppliers hundreds of kilometers away, but a local network can be invoked to fulfill urgent orders, which are commonplace in the computer industry.

Products are exchanged frequently and rapidly along these ethnic networks so individual firms can specialize in wholesaling certain parts, enabling them to minimize inventory, speed up the circulation, and keep up with technology changes. At the collective level, firms connected by exchange networks constitute a vast inventory reserve from which individual firms can draw at a time of emergency. Since such exchanges are irregular, and often informal, Chinese entrepreneurs resort to ethnic ties to safeguard the transactions while staying away from formal, legal pro- cedures because of time and monetary costs (Zhou 1996b). Seeking proximity to ethnic networks, many Chinese firms choose to locate close to one another, forming a semi-self-sufficient cluster that is far apart from the non-Chinese-dominated north and western Los Angeles. Firms located away from this concentration tend to maintain tight local clusters with a number of closely associated firms (Fig. 4).

The outcome is for Chinese firms to locate at the fringe of Chinese-concentrated neighborhoods (Fig. 6). Such locations are close enough to the Chinese professional labor pool, information sources, and, more importantly, to other firms engaging in various levels of computer dis-

246

Chinese Population

0 to 50 50 to 500

500 to 1,000 1,000 to 3,780

Accounting firm

0I Bank

i G! Computer firm

Figure 6. Chinese firms in three producer service sectors in the San Gabriel Valley, Los Angeles. Source: Author's list of three types of Chinese nrnd.ieer services.

ECONOMIC GEOGRAPHY

tribution activities, but distant enough to avoid being identified with an ethnic population, which may hinder their competitive- ness in the general market. Most interviewees suggested that Monterey Park is not ideal for their operation because of its high visibility as an Asian business center.4 Other factors, such as the availability of large warehouse spaces in City of Industry, may also contribute to this pattern, but could hardly count as the primary reason, as warehouse spaces are available in Monterey Park and a number of surrounding communities.

Figure 6 contrasts the location patterns of Chinese accounting firms, banks, and computer firms in the San Gabriel Valley. Unlike accounting offices and banks, the computer firms occupy the outer ring of the Chinese business region. Their empha- sis on mainstream marketing prompts them to take a less-visible presence in ethnically concentrated areas. The reliance on ethnic casual supply networks, on the other hand, draws them to locations within an arm's length of Chinese business centers.

Summary and Conclusion The location of ethnic firms is not neces-

sarily restricted to enclaves, nor do they necessarily become dispersed with the dis- persion of ethnic populations. To deter- mine whether and why spatial clustering occurs, or does not occur, it is necessary to consider both the ethnic and industrial characteristics of the business. In particular, the configuration of ethnic transaction networks can shed insight on location strategies.

Table 6 summarizes the importance of ethnic ties in each of the three sectors, the corresponding spatial strategies, and the resulting patterns. All three sectors show strong evidence that location strategies are extremely important to ethnic entrepre-

4 For a more detailed discussion of the chang- ing locations of Chinese computer firms, see Zhou (1996b).

neurs in exploiting their market niches. While a certain level of spatial clustering occurs in all three sectors, the forms and reasons for clustering differ from sector to sector because of their different transactional networks. Accounting offices concentrate in the Chinese CBD because of their Chinese-client-oriented network, as do bank branches. A number of larger bank headquarters find downtown Los Angeles a favorable location because they are seeking closer integration with non-Chinese financial institutions and also wish to gain international recognition. Computer firms cluster with other Chinese distributors to participate in a product pool so that parts can be exchanged at a faster speed. They also tend to keep some distance from the ethnic community in order not to be identified as a strictly ethnic business. Based on these findings, I argue that the different configurations of ethnic networks are the key factor, although perhaps not the only factor, in shaping different spatial patterns of ethnic businesses. Enterprises whose forward, backward, and horizontal linkages rely heavily on ethnic networks are likely to be closely tied to ethnic populations and possibly confined to ethnic enclaves. Enterprises that depend little on ethnic networks in vertical and horizontal linkages may not cluster spatially at all. Ethnically owned hotel/motel businesses are an example.

The enclave model expects all ethnic businesses to concentrate in certain neighborhoods regardless of their industrial characteristics. The NIS thesis proposes that interfirm networks attract similar or related businesses to spatial clusters, regardless of their cultural identities. This examination of Chinese producer service firms suggests that it is the interaction of cultural and industrial features of enterprises that underlies their spatial patterns. Because industrial networks among ethnic firms are deeply embedded in ethnic relations, the spatial organization of ethnic firms reflects the interaction between ethnic entrepreneurs' cultural and industrial identities.

248


Table 6

Importance of Ethnic Ties in Forward, Horizontal, and Backward Linkages of Chinese Firms Forward Horizontal Backward Spatial

Sectors Linkages" Linkages' Linkagesc Strategies Patterns

Accounting Critical

Banking

Computer distribution

Important

Critical Not important for branches, but important for large, internation-

ally oriented banks' head-

quarters

Not important Important

Not important Close to ethnic clients and associated firms

Critical

Critical

Branches close to ethnic clients; head-

quarters close to major financial institutions

Close to ethnic

suppliers and associated firms; avoids ethnic spatial core.

Major concentration in

Monterey Park and Alhambra

Branches fol- low Chinese

population, concentration in Monterey Park and Alhambra; headquarters of large banks in downtown Los Angeles

More scattered, at the fringe of Chinese

community; concentration in City of

Industry for local supply network

a Includes linkages with clients and customers. b Includes linkages with associated or related service firms. c Includes linkages with suppliers.

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Documents

Beyond Ethnic Enclaves