Classification of businesses

Introduction .. .
.. ........ ...... ...... ·········........... k d t the purpose of bu siness act1v1ty. In this chaptery011
In the last chapter you loo e a . . b used to classify all the businesses .
1n
Objectives · sact1v1ty can e
are going to learn how busines
an economy and why .it .is impo
• rtant to c1ass1
·ty businesses in this way.
.
In this chapter you will h ou live has an economy. It is a measure of
team about: What is an economy? The co~ntry w ere y It includes the things that your country
all the wealth and resources in your country. b y
primary, secondary and . that consumers u .
produces and the goods and services
tertiary sector business
activity
• tile changing Importance Primary, secondary
of the dasslfication of
business activity by sector
and tertiary sectors
for developing and developed How businesses are classified
economies Businesses produce a wide range of goods and
how business enterprises are services to meet the needs and wants of consumers.
classified in the private sector The goods and services they produce can be used to
and the public sector. classify all of a country's businesses into one of three
different sectors. We call these:

I
Needs and wants: see
the primary sector
the secondary sector
the tertiary sector.
....,..,.._
. .
....~"'
Chapter 1, page 9.
Primary sector
Primary sector business activity involves extracting
or harvesting natural resources from the land or
~tilttB J sea. These include agricultural products such as rice,
1
Primary sector: firms whose
business activity involves the
fish, wood, coal and oil. Examples of primary sector ,,,
business activity are: '
extraction of natural resources.
farming
fishing Harvesting in a rice field
forestry
mining.

Primary sector business activity often provides raw materials for secondary sector
business activity. An example is the extraction of oil which is used to produce
petrol or plastics. However, some primary sector business activity produces final
products. For example, consumers can buy raw vegetables, fruit and fish.

ACTIVITY 2.1 ,

Make a list of the primary sector business activi ties found in your country, incl uding the natural resou rces they produce .
 secondary sector

(rtw,4@ Secondary sector b usmes

• •
· s activity takes the natural resources produced by
fi . h d d Th
primary sector act1v1ty an d t u rns .these raw materials into ms e goo s. e
Secondary sector: firms that activities of the secondary sector mclude:
process and manufacture goods
from natural resources. refining
manufacturing
construction.

Examples of secon d ary sec to r business activity

. . include food canning, furniture
making, car manufacturing and house buildmg.

A car manufacturing plant

ACTIVITY 2.2

Make a list of the secondary sector business activities found in your country, includi ng the products they ma ke.

Tertiary sector
Tertiary sector business activity involves providing services to the final consumers
or businesses. Examples of tertiary sector businesses include:
Tertiary sector: firms that
supply a service to consumers and shops
other businesses.
restaurants
banks
cinemas
airlines.
 ' 0
ci'IR'lbrfdge IGCSE and OLevel Business Studies

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Section 1 understanding business activity

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,rnd 1rn nspnrl
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•s such as rela1 1ing,
J(l. ·
li n',nee ' c11l crl ain1nc11 1

give l'~,,n,pl,•s ol bu ,inrssrs

found 111 l'~ h 1
't rc 1O1, C.1lcu l,ll ions
Ml' ,1lso qu itr com mon on
th
is lopic in l'l<1 min,,11ons, fo1
r~.implc c,,lcul.i tinR1hr nun1brr
of employcl', in a ~0c1O1,

Fast food at a cinema

ACTIVITY 2.3
I
Make a list of the terf • · h d
,ary sector business activities found in your coun try, includi ng the services t ey prov, e.

How the sectors depend on each other

Although an economy can be divided into primary, secondary and tertiary sectors,
Chain of production: the the different sectors of business activity are often dependent upon each other. This
production and supply of goods
is known as a chain of production. Let's look at oil, for example. Oil is extracted
to the final consumer involves
activities from primary, secondary from underground and is a business activity of the primary sector. Once it has been
and tertiary sector businesses. extracted, oil needs to be refined to produce other products such as petrol or gas.
This is a process carried out by businesses in the secondary sector. Finally, tertiary
sector activity is needed to bring the petrol to your nearest petrol or gas station, fo r
sale to the final consumer.

Drilling for oil-primary sector

Refining the oil-secondary sector
Petrol or gas station-tertiary sector
Figure 2.1 Primary, secondary and tertiary sectors
 2; Classification of businesses

I Diamonds in South Africa

. . . roup in South
Petra Diamonds is a leading independent mmmgls exploring
Africa. It has eight producing mines in Afnca an I
for diamonds in Botswana.

Source: www.petradiamonds.com

Browns are a leading South

African jewellery store. They sell
For over 28 years, Mark Solomon has bee n manufacturing
.. , a wide range of diamond rin~,
tiful pieces of diamond jewellery. Breathtaking1) . bracelets, necklaces and eamngs.
beau
·
beautiful South African diamonds are set m es1d gns rangmo"
from stunning individually crafted di~mond enga.gement
rings through to highly prized tanzamte iewelleq·. Source: www.brownsjewellers.com

Source: www.marksolomonjewellers.co.za

TASK
a Using the information contained in the three articles above, defi ne:

I
i primary sector business activity
ii secondary sector business activity
iii tertiary sector business activity.
b Explain how the three businesses form a 'cha in of production'.
c Mark Solomon is also a retailer of diamond jewellery and Browns is also a manufacturer of diamond jewellery.
What do you think are the benefits to both businesses of being both manufacturers and retailers?

Changing importance of business classification

Countries are often described as developing or developed. A developing country,
or less developed country (LDC), often has a small industrial sector and a lower
standard of living compared to other countries. A developed country, or more
developed country (MDC), has high levels of industrialisation and its people have
higher average incomes and enjoy a higher standard of living compared to less
developed countries.
The classification of business activity by sector is not used to class a
country as developing or developed. However, the size of a country's different
sectors of business activity often indicates if it has a developing or developed
economy.
 uwnt..;.a_
· -·-•n,g~ IGCSE and Olevel Business Studies
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Section 1 Understan sng
d" business activity 1

d economies.
: ; Tc . '; h . in? Oe\·e'or,ing or de,,e1ooe

Country data for business activity by sector

Tertiary sector as a % of
Primary nctor as• .. of Secondary sector as• o/o the total economy
tfle total economy of tfle total economy
Developing econom ies
? ,•ra:ida 52.9
33.3 13.9

- --
Vi etn 2r, 37.7
215 40.7
54.6
Z.-nbabw"c 20.3 25.1

-8€rmuda
--
Developed economies
92.3
0.7 7.0
Japan 71.4
1.2 27.5
llorway 55.7
2.7 41.5

1 :'• · ·:: c:,, · ··I· 25 • • e 0 nest peccrF.cg": cf ;;ct 1ity in the primary sector, but the highest percentage of business activity
- E.' J ;~: "J'?
: .- :: ·~/&

7
2 :, • :· cc -·· ·1 '':'. · · '= : -- c <:5: ;:; ::rcer tage difference between primary business activity and secondary business activity
3 ,: · -: : c:Z '·o·1 · ·,, ·2:il": t0 :, :;r,0r: ;0 , r ars·11er, is it true to sa') that countries whose tertiary sector is larger th an th eir

I 4
'." ':: · :, ;, : ::::o·::; c;::: rin<:o, ;:, •· 1itJ ~r12 clv,a ; s d":vt:ioped economies?
: .- ~- -::<:: ·.r <: ::i:a ir ,1e v. :il<: "'=· JOU 2bof th'? rela tionship between primary business activity and developing and
,;4; ,~. ";;,c:---; ':':. 'J' ,,,,,, ;~s?

The importance of business classification has changed for many countries.

There are two main reasons for this:

Industrialisation - the growing importance of secondary sector business activity

and the reduced importance of primary sector business activity. The emerging
economies of both China and India are good examples.
• De-industrialisation - the growing importance of the tertiary sector and the
reduced importance of the secondary sector. The UK and the USA are good
er.ampies of this type of economic activity.
J-l1Jwcva , the changing importance of business classification may also be due to the
following:

A change in consumer behaviour as a result of both industrialisation and

de-industrialisation:
.1 Higher incomes - consumers demand better quality and a wider choice of
products .
.1 Better educa tion - consumers expect better products and know that they can
buy goods from suppliers in a different region or country through e-commerce .
.1 More leisure time - consumers work fewer hours than they used to. The demand
for leisure activities, such as cinemas, restaurants and holidays, has increased.
 2: Classification of businesses

A change '"
· b usm· e:ss behaviour resulting from :
.J markets
th e need for finance to fund expansion so that b us,. nesses can compete in global

nd
.J the need to be a_ble to communicate interna lly and externally quickl a
h
cheaply . to take advantage of the opport um•t·,es o f wi.der yma rkets
as possible as
1 1
J t h.e need
. to . provide better services for employees ' fo r examp e canteens·
t 1s_in tum increases business demand for the goods and servic
businesses.
f
es o other
' i

11

TEST YOURSELF Give ~ne example of prima ry, secondary and tertiary seeor business act , , y
1
Explain the d ifference between prima ry sector and tert iary sec to · bus -.ess
2
act1v1ty.
Define 'secondary sector business activ,ry'.
3
Using an example, explain the relatio nship betwee n busir ess acfrn iies ",~ e
4
primary, secondary and tertia ry sectors.
How might the classification of business act ivity by secto r be used :o te'.. ;-e
5 difference between a developing and a developed eco nomy'

Business enterprises in the private

and public sectors
Most countries in the world have miXed economies. These are economies that have

eFJ£)ill1ll , both private sector and public sector organisations.

In the private sector, businesses are owned and controlled by indn-iduals or
groups of individuals, for example Sony, Tata Corporation and Apple.
Mixed economy: an eco nomy
In the public sector, organisations are owned by the country as a whole
whe re the resou rces are owned
a nd controlled by both the private and controlled by the state or governroent; for e.~ample, most countries ha,·e
and the public sectors. publicly owned television and <>dio b,o,dcasting '"'"~ such " S.-\BC in
private sector: t he pa rt of the South Africa. Figure 2.2 shows the main ty pes of organisations tound in a
economy that is owned a nd
controlled by individua ls and mixed econom}'-
co m pa ni es for profit.
public sector: the part of the
economy that is controlled by the
state or governmen t. Mix:edecor'fJITlY

PriV3tesector

Figure 2.2 organisations in a mixed economy


0 Sole traders, partnerships,
private and public limited
companies, franchises
and joint ventures: see
Chapter 4, page 45.
()mHrn
Use newspapers, library
resources or the internet to
research the private and public
sectors in your country. Draw bar
charts or pie charts showing how
important each sector is to your
country's economy, for example
how many people are employed
in each sector.
Identify the different
organisations in the public sector
of your country and the products
they provide. Which of these
products are provided 'free' to
the population and which ones
•
do consumers have to pay for?
Are there any products which
are provided by both the private
sector and the public sector? Why
do you think both sectors provide
these products?
TOP TIP
Knowing your own country's
economy, and the businesses
within it, will help you to better
understand many of the key
terms and concepts you will study
in this and later chapters.
TEST YOURSELF
L
duce hoW to produce and
what to pro
,
decisions about h rivate sector and the public secto
In a mixed economy,
for whom to produce are
made by both t e p r,
public sector
see Table 2.J.
private sector The government decides
consumer choices The government decid es
What to produce t to make profit. _j-~- --.....:
Firms wan The government decid es
H,
~ o'.:
w '._'
t::,
.o !'
pr_:
..'. o:.:
du :.:
c:...
e - - ,-;: • 0 we..r_.L-_:..----
- customers' buying p -
For whom to produce
. nd public sectors
Table 2.1 Choices in the private a
. sector decision
Private .. s b y certain goods and services. Consu
ers want to u rn1
In the private sector, consum h roduce
. t d cide what t ey P ·
choices help businesses O e d d ervices that consumers want if they ca
Businesses only produce the_goo s adn _sd the best way of producing their prod n
fi f d . so Businesses ec1 e UC!
make a pro t rom omg · h make a profit when the products are sold
This is at the lowest cost.so that dt ey dcan .
by private sector businesses w1•11 only ·
Toe goods and services pro uce . h
ough money to pay the pnce c arged. Some
be bought by -peopItebwhoblehave en
to buy products they want because they do not have
consumers w1 11 no e a
enough money.
Public sector decisions
Toe decisions about what, how and for whom to produc_e in the public sector are ~
made by government.
The public sector in many countries produces goods and services that all peopl
in the population need, for example electricity, roads, education and health care.
I
Government departments make decisions about how to produce these goods
and services. The decisions are based on providing good-qual ity services to the
public rather than making profit.
Some of the goods and services
provided by the public sector are
provided free at the point of use,
for example primary and secondary
education and hospital treatment.
Other goods and services are sold to
consumers. If some consumers do
not have enough money to buy these
goods and services, the government
might sell them at a lower price, or
provide them free of charge. Asecondary school classroom
1 State.fourforms of private sector business
. organ isation
2 Explain the role of four public sector or an·
. . .
3 Explain two differences bet h g 1sat1ons in your country.
ween t e privates t
4 Defi ne 'mixed economy'. ec or and th e pu blic sector.
5 In a mixed economy how isthe de c1s1
. .on made ab
out ,what ' to prod uce7

t_t-.,,ntrEi;rw1fa
• Businesses in every country
I can_be c~a~~ified, according to
their act1v1t1es, into primary,
secondary and tertiary.
• The primary, secondary and
tertiary sector businesses are
linked because one provides
the resources required
by another.
• The classification of
businesses by activity is often
used to classify the economies
of countries into developing
I
or developed.
• Most economies have a
private sector and a public
sector.
2 Consider the following data for two countries, X and Y.
Al ffi iii·illCWJFtllllff)]WSl!T§l:liiiiE"I
Exam-style practice questions
1 Paul owns a fishing boat with his father John. They have been in business
together for over 15 years . Paul is thinking of investing money in his
friend's fish canning company - Pisces Products (PP).
PP sells most of its canned products to local supermarkets , but
about 10% of the output is sold to public sector organisations such as
schools and hospitals.
a Identify two forms of business organisation (other than
supermarkets and fish canning) found in the private sector.
[2]
b Define 'public sector'.
[2]
c Outline how the decisions about 'what to produce' and 'how to
produce' are made in the private sector of a mixed economy. [4]
d Explain two differences between primary sector and secondary
sector business activity. Use the information in the question to help
with your explanation. [6]
e Do you think Paul should invest in his friend's fish canning
company? Justify your answer.
[6]
Sectors
Primary
Secondary
Country X - size
of business activity
by sector
61%
24%
· Country V - size
of business activity
by sector
32%
3%
•
Tertiary 15%
56%
Country X Country V
Size of private sector 28
49
Size of public sector 72
51
a Country X has a working population of 40 million. How many
people work in the tertiary sector? [2]
b Define 'primary sector'. [2]
c Outline two differences between the publ ic sector and the
private sector. [4]
d Using data from the tables , explain two differences between
Country X and Country Y. [6]
e The people who live in Country Y are likely to have a higher
income and a better standard of living than people who live in
Country X. Do you agree? Justify your answer. [6]
Total available marks 40