The Four Business Sectors (DP IB Business Management)

The Different Business Sectors

• Different businesses can be classified according to the type of sector in which they operate

• Classification into these sectors is a simplified way of categorising industries

  • It helps to provide a means of making comparisons between firms in the same sector

  • It does not capture the full complexity and interconnectedness of the business world

  • Many businesses operate across multiple sectors or may not fit neatly into a single category

• There are four main sectors of industry in which a business can choose to operate

The four sectors of industry 

• The primary sector

  • This sector is concerned with the extraction of raw materials from land, sea or air such as farming, mining or fishing

• The secondary sector

  • This sector is concerned with the processing of raw materials such as oil refinement, and the manufacture of goods such as vehicles

• The tertiary sector

  • This sector is concerned with the provision of a wide range services for consumers and other businesses such as leisure, banking or hospitality

• The quaternary sector

  • This sector is concerned with the provision of knowledge-focused services, often related to IT technology, consultancy or research

The chain of production

The four sectors are linked in the chain of production which is the series of steps taken to turn raw materials into a finished product that can be marketed and sold

Diagram: the chain of production

The Impact of Sectoral Change on Business Activity

• As economies grow and develop, many of the firms within that economy will change their sector of operation (sectoral change)

• Generally speaking, their are successively higher levels of profits to be made in each subsequent sector

  • The reason for this is that each sector adds more value than the previous sector

  • Higher added value equates to higher profits

Less-developed economies

• A less developed economy will primarily be focused on the primary sector – with most people employed in agriculture and the production of food

  • There has been a global trend away from employment in primary sector industries over the last two decades

  • Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high

  • This is partly as a result of lower participation rates in education and a lack of infrastructure to support manufacturing or service provision 

(Source: WorldBank)

Graph analysis

• From these countries, Malawi still retains the highest proportion of employment in the primary sector

• China has seen a significant decrease in primary sector activity

• Germany has had very low primary sector and will likely have been in manufacturing and services well before 1991

Emerging economies

• In emerging economies, improved technology enables less labour to be needed in the primary sector and more workers are involved in manufacturing

  • The proportion of workers employed in manufacturing has risen over the last few decades

  • Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies

• Emerging economies have experienced growth in the tertiary and quaternary sectors in recent years, with many businesses now focused on the provision of consumer services

(Source: WorldBank)

Graph analysis

• From these countries, China has the highest proportion of employment in the secondary sector

• Ghana and India have seen significant increases in secondary sector activity

• Brazil and Turkey's secondary sectors have remained relatively stable over the period 1991 to 2019

Developed economies

• The most developed economies have a very high proportion of the workforce employed in the provision of services, increasing focused on the quaternary sector

  • Developed economies use their wealth to fund advanced education and higher-level skills training which further supports the growth of these industries

  • Some exceptions such as Australia (viticulture, or wine production) and Norway (forestry and oil extraction) continue to have significant primary sectors

(Source: WorldBank)

 Graph analysis

• The most developed countries have the highest proportion of their workforces employed in the service industry

• Thailand's service sector employees twice the number of employees in 2019 as it employed in 1991

• Around half of Ecuador's workforce is now employed in service delivery

Traditional service economy versus the digital service economy

• The traditional services sector, including bricks-and-mortar shops and face-to-face banking services, for example, is in decline across much of the developed world for several reasons:

  • The development of the internet has provided a global platform for virtual storefronts, which are increasingly able to provide many of the features of brick-and-mortar stores

    • For example, some online clothing and accessories retailers allow customers to try on items virtually

    • Instant chat allows customers to ask questions and receive immediate responses

  • The increased use of portable devices such as mobile phones and tablet computers means that customers can access services offered by online providers anywhere

• The digital service economy is becoming more pronounced, with some businesses maintaining both an online and digital presence (E.g. clothing retailers Zara and H&M)

  • Others (e,g. Netflix) no longer have a physical presence but are providing intangible entertainment services online