IGCSE® Business

Studies
5 Edition
th

Karen Borrington; Peter Stimpson

Lecturer: Mohamed Sharif Abdulle

Chapter 2

Classification of Businesses
Learning Objectives
1. The differences between primary, secondary and
tertiary production
2. The reasons for the changing importance of business
classification, for example, in developed and
developing economies
3. The differences between public sector and private
sector business enterprises in a mixed economy.

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Economy
• To understand the classification of business we need to
understand what economy means.
• In simple and easy words it means the resources, riches
and wealth of a country.
• The bigger the economy, the better it is for the country.
• The economy may rise or fall at any time so it is very
important that businesses and the government
maintain a balanced economy.

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Economy
• When we say economy we mean the production,
distribution, trade, and consumption of goods and
services of a country.
• It is all the things a company produce and we as
customers or business sell or buy.
• The main focus of the economy is on how the
company’s economic affairs are organized and
conducted

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Stages of economic activity
• As you read this book you are probably sitting at a desk
or table.
• How many different types of businesses might have
been involved in converting the wood into a finished
table ready to be sold to a final consumer?
• What stages of production has the wood passed
through to arrive at the finished table?
• The diagram below shows the most likely stages in the
production and sale of a wooden table.

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Stages of economic activity

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Stages of economic activity
• You will notice that there are three main stages from
the cutting down of the timber to the sale of the
completed table.
• These stages are typical of nearly all production and
they are called the levels of economic – or business –
activity.

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Stages of economic activity
• Stage 1 is called the primary stage of production. This
stage involves the Earth’s natural resources.
• The primary sector of industry extracts and uses the
natural resources of Earth to produce raw materials
used by other businesses.
• Activities include farming,
fishing, forestry, and the
extraction of natural
materials, such as oil and
copper ore.

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Stages of economic activity
• Stage 2 is called the secondary stage of production.
• The secondary sector of industry manufactures goods
using the raw materials provided by the primary sector.
• Activities in the secondary sector of industry include
building and construction, aircraft and car
manufacturing, computer assembly, bread baking.

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Stages of economic activity
• Stage 3 is called the tertiary stage of production.
• The tertiary sector of industry provides services to
consumers and the other sectors of industry.
• Activities in the tertiary sector of industry include
transport, banking, retail, insurance, hotels and
hairdressing.

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Stages of economic activity

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Stages of economic activity

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Stages of economic activity

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Relative importance of economic sectors
• Which sector of industry is most important in your
country? This depends on what is meant by
‘important’.
• Usually the three sectors of the economy are
compared by:
• percentage of the country’s total number of workers
employed in each sector or
• value of output of goods and services and the proportion
this is of total national output.

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Relative importance of economic sectors
• In some countries, primary industries employ many more
people than manufacturing or service industries.
• In countries which started up manufacturing industries
many years ago, the secondary and tertiary sectors are
likely to employ many more workers than the primary
sector.
• In economically developed countries, it is now common
to find that many manufactured goods are bought in from
other countries. Most of the workers will be employed in
the service sector.

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Relative importance of economic sectors

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Relative importance of economic sectors

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Changes in sector importance
• In the UK and other developed economies there has
been a decline in the importance of manufacturing
industry since the 1970s.
• The tertiary sector in the UK now employs well over 75
percent of all workers.
• Many workers who lost jobs as factories closed have
found it difficult to obtain work in the service
industries.
• De-industrialisation occurs when there is a decline in
the importance of the secondary, manufacturing sector
of industry in a country.
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Changes in sector importance
• In China and India, the relative importance of the
secondary sector has increased since the 1980s,
compared to the primary sector.
• However, in both countries, many of the tertiary
sector industries are now expanding more rapidly
than those in both the primary and secondary
sectors.

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Changes in sector importance
• Homework Assignment:
• List the disadvantages and advantages of de-industrialization.

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Changes in sector importance
• There are several reasons for changes in the relative
importance of the three sectors over time:
• Sources of some primary products, such as timber, oil and
gas, become depleted. This has been true for Somalia with
the cutting down of most of its forests.
• Most developed economies are losing competitiveness in
manufacturing to newly industrialised countries such as
Brazil, India and China.
• As a country’s total wealth increases and living standards rise,
consumers tend to spend a higher proportion of their
incomes on services such as travel and restaurants than on
manufactured products produced from primary products.

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Changes in sector importance

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Changes in sector importance

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Mixed economy
• Nearly every country in the world has a mixed
economy with private sector and a public sector:
• Private sector – businesses not owned by the government.
These businesses will make their own decisions about what
to produce, how it should be produced and what price
should be charged for it.
• Public sector – government (or state) owned and
controlled businesses and organisations. The government,
or other public sector authority, makes decisions about
what to produce and how much to charge consumers.

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Which business activities are usually in
the public sector?
• In many countries the government controls the
following important industries or activities:
• Health
• Education
• Defence
• Public transport
• Water supply
• Electricity supply.

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Which business activities are usually in
the public sector?

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Mixed economies – recent changes
• In recent years, many governments have changed the
balance between the private sector and the public
sector in their economies.
• They have done this by selling some public sector
businesses – owned and controlled by government – to
private sector businesses. This is called privatisation.
• In many European and Asian countries the water
supply, electricity supply and public transport systems
have been privatised.

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Mixed economies – recent changes
• Why have governments done this?
• It is often claimed that private sector businesses are
more efficient than public sector businesses. This might
be because their main objective is profit and therefore
costs must be controlled.
• Also, private sector owners might invest more capital in
the business than the government can afford.
• Capital is the money invested into a business by the
owners.
• Competition between private sector businesses can help
to improve product quality.
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Mixed economies – recent changes
• However, a business in the private sector might make
more workers unemployed than a public sector
business in order to cut costs.
• A private sector business is also less likely to focus on
social objectives.
• Changes in the balance between the private sector and
the public sector are likely to continue in many mixed
economies.

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Mixed economies – recent changes

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International Business Focus

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Copyright
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All rights reserved. Reproduction or translation of this work beyond that permitted.

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