Chapter 2 – Business structure
Learning Outcomes:
Classify industries into levels of economic activity: primary, secondary, tertiary
Understand the difference between two economic sectors – public and private
Identify the different forms of legal structure of both sectors (advantages &
disadvantages)
Classification of business activity
Firms produce a vast range of different goods and services - classify these into three broad
types of business activity
These broad categories - three stages involved in turning natural resources - the stages are
the primary, secondary and tertiary sectors of industry
Primary sector business activity
o Firms engaged in – farming, fishing, oil extraction
o Other industries – extract natural resources
Secondary sector business activity
o Firms that manufacturing & process products from natural resources
Computers, brewing, baking, clothes making and construction
Tertiary sector business activity
o Firms that provide - services to consumers & other businesses
Retailing, transport, insurance, banking, hotels, tourism &
telecommunications
Changes in business activities
1. The importance of each sector in an economy change over time
Industrialisation
Describes the growing importance of secondary sector manufacturing
industries in developing countries
The relative importance of each sector is measure: employment levels/output levels
as a proportion of the whole economy
Many countries in Africa and Asia, the relative importance of secondary-sector
activity is increasing - brings many benefits as well as problems
Benefits Problems
Total national output (in GDP) increases Housing and social problems
raises average standards of living Chance of work in manufacturing
encourage a huge movement of people from
countryside to town
, Increase the country’s import costs
Output of goods increase lower imports
Imports of raw materials and components
and higher exports
are often needed
Manufacturing businesses expand Growth of manufacturing industry – due to
more jobs being created the expansion of MNCs (consequences cover
later in the chapter)
Firms expand and more profitable more
tax to the government
Value is added to the countries’ output for
raw materials (rather than just exporting
these as basic, unprocessed products)
2. Developed economies – situation is reversed
increase in the tertiary sector
general decline in the importance of secondary sector activity
De-industrialisation
Example: UK
The proportion of total output accounted for by secondary industry has fallen by 15% to
23% in 25 years.
The reasons:
1. Rising income: higher living standards spend much incomes on services rather
than more goods
(Substantial growth: in tourism, hotels and restaurant services, financial services)
2. Manufacturing businesses in developing countries
a. face much more competition and these rivals tend to be more efficient
and use cheaper labour
b. using imports of goods are taking the market away from the domestic
secondary-sector firms
3. The importance of each sector varies significantly between different economies
Learning Outcomes:
Classify industries into levels of economic activity: primary, secondary, tertiary
Understand the difference between two economic sectors – public and private
Identify the different forms of legal structure of both sectors (advantages &
disadvantages)
Classification of business activity
Firms produce a vast range of different goods and services - classify these into three broad
types of business activity
These broad categories - three stages involved in turning natural resources - the stages are
the primary, secondary and tertiary sectors of industry
Primary sector business activity
o Firms engaged in – farming, fishing, oil extraction
o Other industries – extract natural resources
Secondary sector business activity
o Firms that manufacturing & process products from natural resources
Computers, brewing, baking, clothes making and construction
Tertiary sector business activity
o Firms that provide - services to consumers & other businesses
Retailing, transport, insurance, banking, hotels, tourism &
telecommunications
Changes in business activities
1. The importance of each sector in an economy change over time
Industrialisation
Describes the growing importance of secondary sector manufacturing
industries in developing countries
The relative importance of each sector is measure: employment levels/output levels
as a proportion of the whole economy
Many countries in Africa and Asia, the relative importance of secondary-sector
activity is increasing - brings many benefits as well as problems
Benefits Problems
Total national output (in GDP) increases Housing and social problems
raises average standards of living Chance of work in manufacturing
encourage a huge movement of people from
countryside to town
, Increase the country’s import costs
Output of goods increase lower imports
Imports of raw materials and components
and higher exports
are often needed
Manufacturing businesses expand Growth of manufacturing industry – due to
more jobs being created the expansion of MNCs (consequences cover
later in the chapter)
Firms expand and more profitable more
tax to the government
Value is added to the countries’ output for
raw materials (rather than just exporting
these as basic, unprocessed products)
2. Developed economies – situation is reversed
increase in the tertiary sector
general decline in the importance of secondary sector activity
De-industrialisation
Example: UK
The proportion of total output accounted for by secondary industry has fallen by 15% to
23% in 25 years.
The reasons:
1. Rising income: higher living standards spend much incomes on services rather
than more goods
(Substantial growth: in tourism, hotels and restaurant services, financial services)
2. Manufacturing businesses in developing countries
a. face much more competition and these rivals tend to be more efficient
and use cheaper labour
b. using imports of goods are taking the market away from the domestic
secondary-sector firms
3. The importance of each sector varies significantly between different economies
