Cambridge (CIE) IGCSE Your notes

Business
1.2 Classification of Businesses
Contents
Classification Using the Economic Sector
Classification Using the Public & Private Sector

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 Classification Using the Economic Sector
Your notes
Primary, secondary and tertiary sectors
Businesses can be classified according to the type of business sector in which they
operate
Classification into these sectors is a simplified way of categorising industries
It helps to provide a means of making comparisons between firms in the same
sector
However, it does not capture the full complexity of the business world
Many businesses operate across multiple sectors or may not fit neatly into a single
category

Farming in the primary sector, manufacturing in the secondary sector and hairdressing in
the service sector

The primary sector is concerned with the extraction of raw materials from land, sea or air
Examples include farming, mining or fishing
The secondary sector is concerned with the processing of raw materials and the
manufacture of goods
Examples include oil refinement and vehicle manufacture
The tertiary sector is concerned with the provision of a wide range services for
consumers and other businesses
Examples include leisure, banking or hospitality businesses

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The chain of production
The chain of production is the series of steps taken to turn raw materials into finished Your notes
products that can be marketed and sold

The chain of production in the manufacture of cosmetics and computers

Changes in sector importance

As economies grow and develop, many of the firms within that economy will change
their sector of operation (sectoral change)
Generally speaking, their are successively higher levels of profits to be made in each
subsequent sector
The reason for this is that each sector adds more value than the previous sector
Higher added value equates to higher profits

Less-developed economies
A less developed economy will primarily be focused on the primary sector – with most
people employed in agriculture and the production of food
Countries with large primary sectors include Ethiopia, Laos and Afghanistan
There has been a global trend away from employment in primary sector industries over
the last two decades

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 Only in the least developed nations is the proportion of the workforce employed in
the primary sector consistently high
Your notes
This is partly as a result of lower participation rates in education and a lack of
infrastructure to support manufacturing or service provision
Employment in agriculture in a range of economies since 1991

The graph shows a comparison of levels of employment in the primary sector between
countries at varying stages of development

(Source: WorldBank)

Diagram analysis
Malawi still retains the highest proportion of employment in the primary sector
China has seen a significant decrease in primary sector activity since 1991
Germany has had very low primary sector, having built significant manufacturing and
service industries well before 1991

Emerging economies
In emerging economies, technology means that less labour is required in the primary
sector, and more workers are involved in manufacturing
The proportion of workers employed in manufacturing has risen over the last few
decades, especially in countries such as Vietnam and Cambodia
Many businesses have relocated production facilities to take advantage of the
lower average wage rates in these economies
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

Secondary sector employment in a range of economies since

1991

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 Your notes

The graph shows a comparison of levels of employment in industry between countries at

varying stages of development

(Source: WorldBank)

Diagram analysis
China has the highest proportion of employment in the secondary sector
Ghana and India have seen significant increases in secondary sector activity
Brazil and Turkey's secondary sectors have remained relatively stable over the period
1991 to 2019

Developed economies
The most developed economies have a very high proportion of the workforce
employed in the provision of services
There is an increasing focus on the quaternary sector, including the provision of
knowledge-based services such as information technology.
Developed economies use their wealth to fund advanced education and
higher-level skills training, which further supports the growth of these
industries
Some exceptions, such as Australia (wine production) and Norway (forestry and
oil extraction) continue to have significant primary sectors

Employment in services in a range of economies since 1991

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 Your notes

The graph shows a comparison of levels of employment in services between countries at

varying stages of development

(Source: WorldBank)

Diagram analysis
The most developed countries, such as the US and Germany, have the highest
proportion of their workforces employed in the service industry
Thailand's service sector employed twice as many employees in 2019 compared to 1991
Around half of Ecuador's workforce is now employed in service delivery

Examiner Tips and Tricks

As economies develop, we see a movement away from the primary sector towards
the secondary sector. Post-industrial economies are focused on the tertiary and
quaternary sectors.
It is easy to assume that tertiary sector employment is higher-paid than jobs in the
secondary sector. This is not necessarily the case. Value-added is certainly higher in
most tertiary industries than in secondary sector industries but in many tertiary
sectors (such as hospitality and healthcare) pay is very low and a cause for concern.
Portugal and Greece, whose economies depend upon tourism, as well as the UK
suffer from low pay in the tertiary sector with many workers relying on government
support to cover basic living costs.
In contrast, high-paid secondary sector engineering and construction sectors in
economies such as Germany and Norway make employees in these economies some
of the highest-paid in the world.

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 Classification Using the Public & Private Sector
Your notes
Differences between the Public and Private
sector
Public sector firms are owned and controlled by the Government
Private sector firms are owned and controlled by other firms and private individuals
(entrepreneurs and shareholders)
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. Singapore Airlines shares are 55% government owned and 45% privately
owned

The Characteristics of Public and Private Sector Firms

Public sector firms Private sector firms

Their main goal is usually to provide a The objective of most private sector
service organisations is profit maximisation
Public sector firms can operate on a This often causes the private sector to
local, regional or national government be more efficient than the public
level sector with higher levels of
productivity
E.g. Transport for London (local);
Agricultural State Service in India Types of business ownership vary from
(regional); Caribbean Airlines sole trader to partnerships to company
(national) shareholders

Reasons why public firms exist

Public firms are government-owned
They are often referred to as state-owned enterprises (SOEs) or government
corporations
Public firms exist to
Ensure public service provision of goods and services that are not profitable
enough to be provided in the private sector
Protect strategic industries and national security, such as energy production or
water supply
Create jobs

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 Encourage economic growth
Public service provision Your notes
Government-owned firms are often established to provide essential public services
such as transportation, healthcare, education, and utilities
They ensure that critical services are accessible to the public, and their operations may
prioritise social welfare over profit maximisation

Strategic industries and national security

Governments may own firms operating in strategic industries, such as defence, energy,
telecommunications, and natural resources
This ownership allows the government to exert control over sectors vital to national
security, economic stability, and long-term development

Employment and economic development

Government-owned firms can play a role in promoting employment and economic
development
By investing in and owning enterprises, governments can stimulate economic activity,
create jobs, and support industries that contribute to the overall growth and stability of
the economy

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