This article includes classification of businesses based on sectors of the economy.
Businesses produce a wide range of products (goods and services) to meet the needs and wants of their customers. The goods and services which enterprises produce can be used to classify all of the country’s businesses into one of five different sectors: primary sector, secondary sector, tertiary sector, quaternary sector and quinary sector.
Business organizations can also be categorized according to the stage of production that they are engaged in, as those five sectors are also the five stages involved in the production process – turning natural resources such as timber into the finished good such as table.
The five sectors combined together create an economy. A country and the world where we all live both have an economy. The economy is a measurement of all the wealth and resources in a country and the world. It includes all the things that a country and the world produce as well as all the goods and services that customers buy.
Let’s take a look at specific business activities that happen in each of the five following sectors of the economy.
Sectors of the Economy: Primary Sector
Businesses that operate in the primary sector are involved in taking natural resources from earth (land or sea), specifically, extraction, harvesting and conversion.
Examples of the extractive industries include coal mining, gold mining or oil extraction. Examples of harvesting industries include agriculture (farming rice or potatoes), fishing or forestry. Examples of conversion includes oil which is used to produce petrol or plastics.
Primary sector business activity mainly provides raw materials for secondary sector business activity – turning raw materials into products. Sometimes, companies in the primary sector also sell raw materials as final products directly to final customers – we can buy raw vegetables, fruits and fish directly from farmers.
Primary sector activities tend to account for a large percentage of output and employment in less economically developed (‘poorer’) countries. For instance, tea leaves, cocoa beans, coffee beans are sold at relatively low prices in Brazil or Ethiopia. In more developed countries, businesses that operate in the primary sector use mechanization and automation to conduct business activity – farming is done using advanced heavy machinery like tractors while enormous excavators are used for mining iron ore.
As countries develop, there is less and less reliance on the primary sector of the economy when it comes to producing the national output and employment. Meaning, less Gross Domestic Product (GDP) comes from the primary sector and less percentage of the entire population works in the primary sector. It is because developed economies are able to generate higher added value while there is very little value added in primary production.
Sectors of the Economy: Secondary Sector
Businesses operating in the secondary sector are involved in manufacturing, processing and construction of products. They take the natural resources from the primary sector activity and turn them into finished goods. Value is added to the natural resources used during the production process. The output produced in the secondary sector is then sold to customers who might be individual domestic or foreign customers, other businesses or governments
Examples of manufacturing includes clothes manufacturers, car production companies, publishing firms, furniture making or electronics manufacturers. Examples of processing include breweries and bottlers of beer, milk, cola or wine, energy production companies, food canning or oil refining. Examples of construction includes house construction, building entire apartment blocks and tall office towers, or constructing bridges, highways and railroads.
Medium-economically developed countries tend to have a dominant secondary sector that accounts for a relatively large proportion of the country’s national output and employment, for example China. China has created a lot of wealth in the secondary sector because manufactured goods were exported worldwide and earned income for the factory owners. Taiwan, where Foxconn operates (the global leader in manufacturing of consumer electronics producing iPhones for Apple) is another example of growing prosperity.
Sectors of the Economy: Tertiary Sector
Businesses operating in the tertiary sector are involved in services. They specialize in providing services to the general population (the final consumers or businesses) either locally, regionally, nationally or globally.
Examples of industries in the tertiary sector include: retailing, transportation and distribution, banking, financial services, finance, insurance, health care, nursing, leisure and tourism, transportation, entertainment, retail, etc. Retail shops, restaurants, banks, cinemas, airlines, hospitals and schools all provide services.
Tangible goods can also be transformed in the process of providing a service. This happens in a coffee shop like Starbucks or Costa Coffee when the barista prepares a cup of coffee using ingredients such as water, coffee beans and milk.
The tertiary sector is the largest in terms of both employment and as a percentage of Gross Domestic Product (GDP) in the developed countries such as the UK, Singapore or Japan where most of the people work in services, such as education services in the UK. When there is an increase of the tertiary sector in the country, it means that that country is becoming more economically developed.
Sectors of the Economy: Quaternary Sector
Businesses operating in the quaternary sector are involved in intellectual and knowledge-based activities that generate and share knowledge and information. Businesses in this sector invest for further growth and evolution.
Examples of quaternary sector include information communication technology (ICT), Research and Development (R&D), business consulting services and scientific research.
IT companies like Google or Facebook, and pharmaceutical companies like Pfizer, Merck or Astra Zeneca all belong to the quaternary sector. They heavily invest in Research and Development (R&D) to create innovative products, develop new production methods or improve productivity and effectiveness to increase their competitive advantage by being innovative. They all want to remain ahead of the game by inventing new ways of communication or curing diseases.
The quaternary sector exists mainly in very specific regions in highly developed countries, for example Silicon Valley in California where highly-skilled workforce lives. IT companies there attract world’s best engineers and IT specialists to invent highly advances technological products which are then sold worldwide – this is what Apple does.
New knowledge generation also belongs to quaternary sector, with world’s leading universities like Stanford University or Oxford University serving as examples. Boston in the US, which is a home for world’s best schools like Harvard University or Massachusetts Institute of Technology (MIT), attracts world’s best scholars and researchers to generate scientific innovations. It is the region where highly educated workforce lives.
This new knowledge is then transferred from universities into businesses – implementing theory into practice. Zhongguancun in Haidian District in Beijing, China, is also a place where quaternary sector is largely present. Zhongguancun is a home for a few of Asia’s leading universities such as Tsinghua University, Peking University and Renmin University as well as research centers of IT companies such as Tencent or Baidu. Zhongguancun is therefore called China’s Silicon Valley.
Sectors of the Economy: Quinary Sector
Business organizations operating in the quinary sector are involved in the highest levels of decision-making in the world economy.
Examples of quinary sector include main decision makers in politics, commerce and the education sector. Company executives from world’s leading businesses (the Fortune 500 list) who make decisions for large multi-national companies as well as politicians from world’s largest economies (the presidents from world’s 20 biggest countries getting together during G20 meetings) all belong to the quinary sector of the economy.
They all make very important decisions that shape the world around us and the world’s future.
