Businesses can be categorised in many ways. Understanding how firms are classified helps us compare them and analyse their performance in the wider economy.
Economic sectors
Production can be divided into three main sectors:
- Primary sector – extraction and harvesting of natural resources (e.g. farming, mining, fishing).
- Secondary sector – manufacturing and processing of raw materials into finished or semi‑finished goods (e.g. factories, construction).
- Tertiary sector – provision of services to consumers and businesses (e.g. retail, transport, healthcare, finance).
In some economies a quaternary sector is identified to cover knowledge‑based services such as research and development and information technology.
| Sector | Main activities | Examples of industries |
|---|---|---|
| Primary | Extraction and use of natural resources. | Agriculture, mining, fishing, forestry |
| Secondary | Manufacturing and construction. | Car assembly, textile production, house building |
| Tertiary | Provision of services. | Retailing, banking, tourism, healthcare |
| Quaternary | Knowledge‑based activities. | Information technology, research, consultancy |
Private and public sectors
The private sector consists of businesses owned and run by private individuals or groups. These aim to make a profit, though some (such as charities) have non‑profit objectives. The public sector consists of organisations owned and controlled by the state, such as public corporations and services like education or healthcare. Public sector firms often aim to provide essential services rather than maximise profit.
Changes in sector importance
As countries develop, the importance of each sector usually changes. Developing economies tend to have a large primary sector. As incomes rise and technology improves, resources shift towards manufacturing and, later, service industries. This process is called structural change. In many developed economies the tertiary sector now dominates output and employment.
Legal structure
Businesses can also be classified by ownership structure. Unincorporated businesses such as sole traders and partnerships are legally indistinguishable from their owners. Incorporated businesses such as private limited companies and public limited companies have their own legal identity and limited liability for shareholders.
Examples and applications
Think about the journey of a wooden table. A woodcutter working in the primary sector harvests timber from forests. A furniture maker in the secondary sector processes the wood into a finished table. Finally a retailer in the tertiary sector sells the table to consumers. In developed economies like the UK, most workers are employed in tertiary and quaternary services such as retailing, banking and information technology. In contrast, many developing economies still rely heavily on primary activities such as farming and mining.
A real‑world example comes from the island of Mauritius. In this small country the service sector (tourism, finance and transport) accounts for about three‑quarters of economic output while agriculture (mainly sugar) makes up only a few percent. This shows how economic structure shifts towards services as income levels rise. National airline Air Mauritius operates flights for tourists and also sells services to other airlines, demonstrating how businesses in the tertiary sector can grow as tourism expands.
