The four Business Sectors (SL IB Business Management)

• 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 is concerned with the extraction of raw materials from land, sea or air such as farming, mining or fishing
  
  
• The secondary sector is concerned with the processing of raw materials such as oil refinement, and the manufacture of goods such as vehicles
  
  
• The tertiary 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 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

The chain of production in two different industries

• 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 
      

Employment in Agriculture in a Range of Economies since 1991

(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

Employment in Industry in a Range of Economies since 1991

(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

Employment in Services in a Range of Economies since 1991

(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 – 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 bricks 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 having a physical presence but are providing intangible entertainment services online