Classification of Businesses

Classification of Businesses

Stages of Economic Activity

Production is usually divided into three main stages, also known as the three sectors of the economy:

Stage	Sector	What it involves	Examples
Primary	Primary Sector	Using natural resources directly from the earth	Farming, fishing, mining, forestry
Secondary	Secondary Sector	Making/manufacturing things using resources from the primary sector	Car manufacturing, building, bread baking
Tertiary	Tertiary Sector	Providing services to people or businesses	Banking, transport, education, shops, hotels

Relative Importance of Economic Sectors

• Different countries have different levels of importance for each sector.

• We can compare them using:

  • The number of workers in each sector.

  • The value of output from each sector (how much they produce in money terms).

a) In developing countries (e.g., Kenya, Bangladesh):

• Primary sector is often the most important.

• Many people work in farming, fishing, or mining.

• Demand for services is lower because incomes are low.

b) In developed countries (e.g., UK, USA):

• Tertiary sector is usually the most important.

• Most people work in services (like healthcare, banking, education).

• Many manufactured goods are imported.

Changes in Sector Importance Over Time

Over time, the importance of each sector can change:

Country/Region	Change
UK	Decline in manufacturing (secondary sector) since 1970s – known as de-industrialisation
India & China	Growth in secondary and tertiary sectors
Somalia	Decrease in primary sector (e.g., due to deforestation)

Reasons for these changes:

• Natural resources run out (e.g., oil, forests).

• Cheaper manufacturing in countries like India, Brazil, China.

• Higher income levels → People spend more on services (e.g., restaurants, travel).

Mixed Economy

Most countries have a mixed economy, which includes:

Sector	Who owns the business?	Purpose	Examples
Private sector	Individuals or companies (not the government)	To make a profit	Shops, factories, banks
Public sector	Government or state	To provide services for the public	Public hospitals, schools, police, army

Privatisation

• Privatisation is when the government sells public sector businesses to private companies.

• Example: A government-owned bus company is sold to a private company.

Why do governments privatise?

• Private companies are often more efficient.

• They aim to make a profit, so they control costs better.

• They may invest more money than governments can.

Disadvantages of privatisation:

• Private companies might fire workers to reduce costs.

• They are less likely to focus on social goals (like helping the poor or protecting the environment).

Summary Definitions

Term	Meaning
Primary Sector	Uses natural resources (e.g., farming)
Secondary Sector	Makes goods using raw materials (e.g., factories)
Tertiary Sector	Provides services (e.g., shops, doctors)
Mixed Economy	Economy with both private and public sector businesses
Private Sector	Businesses owned by individuals, aiming to make a profit
Public Sector	Businesses/services owned by the government
Privatisation	Selling government-owned businesses to private companies
De-industrialisation	Decline in the importance of manufacturing (secondary sector)