Chapter 2 -- Business Classification - Pearson Schools

What is business activity?
Chapter 2
Business classification
Getting started…
Businesses operate in different sectors. In developed countries, such as the US and the UK, most businesses
provide services. They may be fitness centres, insurance brokers or retailers, or provide services for businesses
such as market research or IT support. In some countries, such as China, there are large numbers of
manufacturers. Finally, in less developed countries most businesses will concentrate on producing agricultural
goods. Look at the businesses below.
Figure 2.1
Examples of business activity in
different sectors
(a) Which of the businesses above are concerned with (i) agriculture; (ii) manufacturing; (iii) services?
(b) Which of the above businesses are most likely to be common in (i) Africa; (ii) Western Europe?
Primary sector
Business activity is classified into three sectors. In the primary sector
business activity involves extracting raw materials from the earth.
Examples include:
• Mining and quarrying where raw materials such as coal, iron ore,
copper, tin, salt and limestone are dug out of the ground. This sector
also includes the extraction of oil and gas. Saudi Aramco, the largest oil
producer in the world, is an example of a business that extracts oil.
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• Fishing, which involves netting, trapping, angling and trawling fish.
It also includes catching or gathering other types of sea food such
as mussels, prawns, lobsters, crabs, scallops and oysters. China is the
world’s largest fish producer.
• Forestry, which involves managing forests to provide timber for wood
products. It also involves protecting the natural environment, providing
access and facilities to the public and managing wildlife habitats.
• Agriculture, which involves a range of farming activities. This is
probably the most important primary sector activity for most countries.
Most agriculture is concerned with food production, but other examples
include ornamental or exotic products such as cut flowers, nursery
plants and tropical fish.
Secondary sector
In the secondary sector business activity involves converting raw materials
into finished or semi-finished goods. Examples include metal working,
car production, textile production, chemical and engineering industries,
aerospace manufacturing, energy utilities, engineering, food processing,
construction and shipbuilding. In many countries this sector has declined
in recent years.
Key terms
De-industrialisation – the
decline in manufacturing.
Primary sector – production
involving the extraction of raw
materials from the earth.
Secondary sector – production
involving the conversion of raw
materials into finished and semifinished
goods.
Tertiary sector – the provision
of services in the economy.
Tertiary sector
The tertiary sector involves the provision of services. There is a wide
variety of services and some examples are given below:
• Professional services such as accountancy, legal advice and medical care.
• Transport such as train, taxi, bus and air services.
• Household services such as plumbing, decorating, gardening and house
maintenance.
• Leisure services such as television, tourism, swimming pools and
libraries.
• Financial services such as banking, insurance, and pensions.
• Commercial services such as freight delivery, debt collection, printing
and employment agencies.
Question 1
Jill and Ronnie Sanchez have owned a farm for 40 years. They grow a range of root vegetables such as carrots,
swedes, turnips and parsnips. They have a contract to supply two local supermarkets and also sell to other
shops in the area. In the 1970s, Jill and Ronnie employed up to 12 workers; however, because of mechanisation
they now just employ three.
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Business classification
(a) Using examples from this case, explain the
difference between the primary and the
tertiary sectors.
(b) Look at Figure 2.2. What has happened
to the number of people employed in
agriculture in the UK since 1960?
(c) Explain one possible reason for the pattern
described in (b).
Employees in UK Agriculture
(000s)
1200
1100
1000
900
800
700
600
500
1118
952
654
564
400
419 402
300
1960 1970 1980 1990 2000 2007
Year
Source: adapted from www.bls.gov/fls/lfcompendium.pdf
Figure 2.2 Employment in agriculture, UK 1960-2007
Changes in sectors
The number of people employed in each sector
does not stay the same. Different sectors grow and
decline over time. In the UK, before the Industrial
Revolution began in the late 18th century, most
production was in the primary sector. During the
19th century secondary production expanded rapidly
as manufacturing grew as a result of the Industrial
Revolution. However, in the last 60 years the tertiary
sector has started to expand at the expense of
manufacturing. The decline in manufacturing is
called de-industrialisation. Figure 2.3 shows the
pattern of employment in manufacturing and services
in the UK between 1960 and 2007. Similar patterns
can be identified in other developed nations. Why has
manufacturing declined in developed countries while
services have grown?
• People may prefer to spend more of their income
on services than manufactured goods. There
has also been a decline in demand for the goods
produced by some of the traditional industries in
manufacturing, such as shipbuilding and textiles.
• Recently there has been fierce competition in the
production of manufactured goods from developing
countries such as India, China and Brazil.
• As countries develop the public sector grows. Since
the public sector mainly provides services, this adds
to the growth of the tertiary sector.
• Advances in technology means employment in
manufacturing falls because machines replace
people.
Employees in Manufacturing
(000s)
Employees in Services (000s)
10 000
9000
8000
7000
6000
5000
4000
3000
24 000
22 000
20 000
18 000
16 000
14 000
12 000
10 000
8517 8465
1960
11 642
7081
5992
1970 1980 1990
Year
13 066
15 291
17 811
1960 1970 1980 1990
Year
4617
3728
2000 2007
20 296
22 476
2000 2007
Figure 2.3
The numbers of people employed in manufacturing and
services in the UK 1960–2007
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Chapter review – Business sectors
Banco Santander
In 2008, Banco Santander, the third largest bank in the world, made a
profit of €8,876 billion. The Spanish-based bank also has operations in
Europe and Latin America. It has grown rapidly recently since buying
other banks such as the UK’s Abbey, Alliance & Leicester and Bradford &
Bingley. In 2008, it doubled its number of retail outlets.
VT Garments
Source: adapted from www.santander.com
Thailand is one of the world’s largest textile manufacturers and VT
Garments is one of the largest producers in the country. It produces a
range of clothes such as ski jackets and pants, shorts, jogging suits and
T-shirts. Its customers include The North Face, Nike, Patagonia and
Nautica. The business has grown rapidly in the last
20 years. In 1981 it employed 120 people. By 2007 this had increased
to 3,500.
Spain
3%
29%
68%
Thailand
10%
44%
46%
Source: adapted from www.vtgarment.com
Wagagai Ltd
Wagagai Ltd is a flower farm in Uganda. The company began in 1998
exporting roses to the Netherlands. Soon after the farm diversified into
chrysanthemum cuttings. Today, about 260 million chrysanthemum
cuttings are produced in more than 22 acres of greenhouses. In 2005
the owners stopped producing roses and approached German company
Selecta First Class about producing cuttings. This was a success and Selecta
and Wagagai formed a joint venture to supply international markets.
Source: adapted from www.greenhousegrower.com
Uganda
33%
42%
25%
(a) Using examples from the case above explain what is meant by
(i) secondary production; (ii) tertiary production.
(b) Look at Figure 2.4. Which nation relies most on the
secondary sector for its output? Explain your answer.
(c) (i) What is meant by de-industrialisation?
(ii) Which of the countries in Figure 2.4 have been subject
most to de-industrialisation?
(d) How do you think VT Garments has been affected by
de-industrialisation in western countries?
(4 marks)
(2 marks)
(2 marks)
(2 marks)
(2 marks)
(e) What do you think are the main causes of de-industrialisation? (8 marks)
Agriculture
Industry
Services
Source: adapted from World Development
Report, World Development Indicators,
World Bank
Figure 2.4
Sector output in Uganda, Thailand
and Spain (GDP %). GDP (Gross
Domestic Product) is the total output
in the economy
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