1.2 – Classification of Businesses

Primary, Secondary and Tertiary Sector

Businesses  can be classified into three sectors:

Primary sector: this involves the use/extraction of natural resources. Examples include agricultural activities, mining, fishing, wood-cutting, oil drilling etc.

Secondary sector: this involves the manufacture of goods using the resources from the primary sector. Examples include auto-mobile manufacturing, steel industries, cloth production etc.

Tertiary sector: this consist of all the services provided in an economy. This includes hotels, travel agencies, hair salons, banks etc.

Up until the mid 18th century, the primary sector was the largest sector in the world, as agriculture was the main profession. After the industrial revolution, more countries began to become more industrialized and urban, leading to a rapid increase in the manufacturing sector (industrialization).

Nowadays, as countries are becoming more developed, the importance of tertiary sector is increasing, while the primary sector is diminishing. The secondary sector is also slightly reducing in size (de-industrialization) compared to the growth of the tertiary sector . This is due to the growing incomes of consumers which raises their demand for more services like travel, hotels etc.

Private and Public Sector

Private sector: where private individuals own and run business ventures. Their aim is to make a profit, and all costs and risks of the business is undertaken by the individual. Examples, Nike, McDonald’s, Virgin Airlines etc.

Public sector: where the government owns and runs business ventures. Their aim is to provide essential public goods and services (schools, hospitals, police etc.) in order to increase the welfare of their citizens, they don’t work to earn a profit. It is funded by the taxpaying citizens’ money, so they work in the interest of these citizens to provide them with services.

Example: the Indian Railways is a public sector organization owned by the govt. of India.

In a mixed economy, both the public and private sector exists.

Notes submitted by Lintha

Click here to go to the next topic

Click here to go to the previous topic

Click here to go back to the Business Studies menu