The four Business Sectors (HL 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 as it helps to provide a means of making comparisons between firms in the same sector
• However, this type of classification 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
     

All businesses operate in one of four sectors
 

• There are four main sectors of industry in which a business can choose to operate
  • 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 have likely 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 incoved 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 & digital service economies

• The traditional services sector consists of bricks and mortar shops which provided face to face customer services
  • This is in decline across much of the developed world

 

• 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
  • This has generated a digital service economy 
  • The digital service economy is becoming more pronounced with some businesses maintaining both an online and physical 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