Economic Sectors (Cambridge (CIE) A Level Business): Revision Note

The four economic sectors

• Businesses can be classified according to the industrial sector in which they operate

  • This aids comparisons between firms in the same sector

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

    • Some businesses operate across more than one sector of industry

    • E.g. Large oil companies such as Shell extract (primary), refine (secondary) and sell (tertiary) fuel through a large network of gas stations

The main sectors of industry

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

  • Examples include farming, mining, forestry and fishing

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

  • Examples include 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

  • It includes a sub-sector called the quaternary sector, which is concerned with the provision of knowledge-focused services related to IT technology, consultancy or research

Public and private sectors

• Public sector firms are owned and controlled by the Government and usually funded through taxation

• Private sector firms are owned and controlled by other firms or private individuals (entrepreneurs and shareholders) and are usually funded by owners' capital, borrowing and retained profits

• Privatisation occurs when government-owned firms are sold to the private sector

• Many government owned firms have been partially privatised

  • The government retains a share in them so they can influence decision-making and receive a share of the profits, e.g. the shares of Singapore Airlines are 55% government owned & 45% privately owned 

A comparison of public and private sector organisations

The changing importance of the economic sectors

Primary sector changes

• In the UK, around 2% of the working population is employed in businesses in the primary sector

• Less developed economies are primarily 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 

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

Employment in primary industries in some countries since 1991

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

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

• Germany has a small primary sector with an economy focused on manufacturing and services well before 1991

Secondary sector changes

• In the UK, around 22% of the working population is employed in businesses in the secondary sector

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

  • 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

Employment in secondary industries in some countries since 1991

• China has the highest proportion of employment in the secondary sector, though it is declining

• Ghana and India have seen significant increases in secondary sector activity since 1991

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

Tertiary sector changes

• In the UK, around 76% of the working population is employed in businesses in the tertiary sector

• 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

• The most developed economies have a very high proportion of the workforce employed in the provision of services, increasing focus 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

Employment in tertiary industries in some countries since 1991

• Highly-developed economies such as the US and Germany have the highest proportion of their workforces employed in the service industry

• Thailand's service sector employs twice as many employees in 2019 as it did in 1991

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

Public sector changes

• In recent decades governments around the world have tended to move away from the centralised provision of services

  • In Cuba small private sector businesses are now encouraged, although a large proportion of workers remain employed directly by the government

  • Political change in Venezuela has led to a rare example of an increase in the involvement of the state in the economy