Business sectors

Business Sectors

Economists classify business activity into four sectors based on the type of economic activity performed. Understanding which sector a business operates in helps to explain its inputs, its relationship with other businesses and its role in the broader economy. In practice, as economies develop, the balance between sectors shifts — and a single large business may operate across more than one.

The Four Sectors

The primary sector involves the extraction and harvesting of natural resources directly from the Earth. Examples include farming, fishing, forestry, mining and oil extraction. Primary sector output is typically an input for businesses in other sectors. The secondary sector involves manufacturing and construction — transforming raw materials from the primary sector into finished goods. Car manufacturers, food processors, house builders and clothing factories are all secondary sector businesses.

The tertiary sector provides services to businesses and consumers rather than producing physical goods. Retailing, banking, transport, healthcare, hospitality and education all belong here. The quaternary sector — sometimes regarded as a subset of the tertiary sector — involves knowledge-based and information services: research and development, information technology, consulting, media and financial analysis.

How Sectors Interact

The sectors are interdependent. Consider a smartphone: iron ore and rare earth metals are extracted by a primary sector mining company; the minerals are refined and the phone assembled by a secondary sector manufacturer; the phone is sold through a tertiary sector retailer; the software operating system and app development are undertaken by quaternary sector technology firms. Understanding this chain helps explain why disruption in one sector — a drought affecting cocoa harvests, for example — ripples through to secondary manufacturers and tertiary retailers of chocolate products.

Sector Composition and Economic Development