Classification Using the Economic Sector (Cambridge (CIE) O Level Business Studies)

Primary, Secondary and Tertiary Sectors

The Three Main Business Sectors

• Businesses can be classified according to the type of business 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

• However, it does not capture the full complexity of the business world

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

• The primary sector is concerned with the extraction of raw materials from land, sea or air

  • Examples include farming, mining or fishing

• The secondary sector is concerned with the processing of raw materials and the manufacture of goods

  • Examples include oil refinement and vehicle manufacture

• The tertiary sector is concerned with the provision of a wide range services for consumers and other businesses

  • Examples include leisure, banking or hospitality businesses
     

The chain of production

• The chain of production is the series of steps taken to turn raw materials into finished products that can be marketed and sold

Changes in Sector Importance

• 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

  • Countries with large primary sectors include Ethiopia, Laos and Afghanistan

• 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 

Diagram: employment in agriculture in a range of economies since 1991

(Source: WorldBank) 

Diagram analysis

• Malawi still retains the highest proportion of employment in the primary sector

• China has seen a significant decrease in primary sector activity since 1991

• Germany has had very low primary sector, having built significant manufacturing and service industries well before 1991

Emerging economies

• In emerging economies, technology means that less labour is required 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, especially in countries such as Vietnam and Cambodia

  • 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

Diagram: secondary sector employment in a range of economies since 1991

(Source: WorldBank) 

Diagram analysis

• 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

  • There is an increasing focus on the quaternary sector, including the provision of knowledge-based services such as information technology.

    • 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 (wine production) and Norway (forestry and oil extraction) continue to have significant primary sectors
       

Diagram: employment in services in a range of economies since 1991

(Source: WorldBank) 

Diagram analysis

• The most developed countries, such as the US and Germany, have the highest proportion of their workforces employed in the service industry

• Thailand's service sector employed twice as many employees in 2019 compared to 1991

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