the reasons for and consequences of the changing relative importance of these sectors

1.2 Business Structure – Economic Sectors

Objective

To understand the reasons for, and the consequences of, the changing relative importance of the primary, secondary, tertiary (and, where relevant, quaternary) sectors in an economy, and to link these changes to other areas of the Cambridge Business (9609) syllabus.

Key Concepts

• Primary sector: extraction of raw materials – agriculture, forestry, fishing, mining, quarrying.
• Secondary sector: manufacturing and construction – transformation of raw materials into finished goods.
• Tertiary sector: services – distribution, retail, finance, education, health, tourism, transport, hospitality, etc.
• Quaternary sector (optional extension): knowledge‑based services such as information technology, research & development, consultancy, media and data‑processing. Example: a software‑development firm in Bangalore.

Development Path of Sectoral Dominance

Cambridge expects students to recall the typical sequence that economies follow as they develop:

1. Early stage – primary‑dominant (agriculture, mining).
2. Intermediate stage – secondary‑dominant (manufacturing, construction).
3. Advanced stage – tertiary‑dominant (services).
4. Most‑advanced economies – emergence of a quaternary component (knowledge‑intensive services).

This “sectoral shift” is a core part of the syllabus and should be memorised.

Public vs. Private Sector (≈150 words)

The public sector consists of organisations owned and operated by the state or local authorities (e.g., NHS hospitals, public schools, utilities, defence). Its main objectives are service provision, social welfare and economic stability rather than profit.

The private sector comprises businesses owned by individuals, partners or shareholders (e.g., Tesco, Toyota, a family farm). Its primary aim is profit maximisation, although it must also consider stakeholder expectations.

Why the distinction matters:

• Funding sources – taxes & government grants vs. private capital.
• Regulatory environment – public bodies face stricter accountability and public‑service obligations.
• Strategic choices – pricing, investment and employment decisions are shaped by differing objectives and stakeholder pressures.

Reasons for Changing Relative Importance of Sectors

1. Technological advancement
   • Automation and robotics reduce labour demand in manufacturing (secondary sector).
   • Digital platforms, cloud computing and AI create new service‑based business models (tertiary & quaternary).
2. Stage of economic development
   • Low‑income economies rely heavily on the primary sector for livelihoods and export earnings.
   • As per‑capita income rises, demand shifts to manufactured goods and later to services such as health, education and leisure.
3. Globalisation
   • Off‑shoring moves labour‑intensive secondary activity to lower‑cost regions.
   • International trade and digital connectivity expand markets for services (finance, IT, tourism).
4. Policy and regulation
   • Agricultural subsidies or renewable‑energy incentives can sustain primary activity.
   • Trade agreements, tax regimes and labour laws influence where manufacturing and service centres locate.
5. Consumer preferences and lifestyle changes
   • Higher disposable income leads to greater demand for health, education, entertainment and travel services.
   • Growing environmental awareness shifts demand toward “green” services and products.

Consequences of Sectoral Shifts

• Employment patterns
  • Decline in primary‑sector jobs; growth of service‑sector employment.
  • Skill mismatches often require retraining, up‑skilling and lifelong‑learning programmes.
• Composition of economic growth
  • GDP contribution typically moves from agriculture → manufacturing → services.
  • Higher‑value‑added activities raise per‑capita income and tax revenues.
• Regional development
  • Urbanisation as manufacturing and services concentrate in cities.
  • Rural depopulation can reduce public services and increase regional inequality.
• Environmental impact
  • Primary sector can cause resource depletion; secondary sector contributes to pollution and carbon emissions.
  • Service‑based economies have a lower direct environmental footprint but may increase indirect impacts (e.g., travel, data‑centre energy use).
• Business‑strategy implications
  • Firms may diversify into new sectors to mitigate risk (e.g., a car manufacturer expanding into mobility services).
  • Investment shifts toward technology, R&D and human capital to stay competitive.

Measuring Sector Contribution to GDP

Note: figures are illustrative. Replace with the latest data from the World Bank, ONS or a comparable source before teaching.

Analytical Tools Linked to Sectoral Change

1. PESTLE analysis – explains why the tertiary sector expands (technological, social, economic, etc.).
2. SWOT analysis – helps a firm assess internal strengths/weaknesses when moving from manufacturing to service provision.
3. Porter’s Five Forces – evaluates competitive pressures in a shifting sector (e.g., low entry barriers in digital services, high buyer power in retail).
4. Break‑even analysis – calculates the viability of relocating production from a secondary to a tertiary activity (e.g., outsourcing logistics).

Cross‑Topic Connections

• Business growth: Organic growth is common in expanding service markets; external growth (acquisitions) is often used to enter new sectors.
• Ownership choices: Service‑oriented firms frequently adopt limited‑liability structures (Ltd, PLC) to attract finance, whereas many primary‑sector enterprises remain family‑owned.
• Objectives and stakeholders: Shifts from local farmer‑community interests to a broader stakeholder base (customers, regulators, investors) in a service‑driven economy.

Typical Diagram (suggested)

Sample Examination Question

“Discuss the reasons why the tertiary sector has become the dominant sector in the UK economy and evaluate the consequences of this shift for employment and regional development.”

Suggested Answer Structure

1. Briefly define the three sectors and present the latest UK sector‑GDP figures.
2. Explain the key reasons for the rise of services (technology, income levels, globalisation, policy, consumer preferences). Use PESTLE where appropriate.
3. Analyse the consequences:
   • Employment – growth of service jobs, skill mismatches, need for retraining.
   • Regional development – urban concentration of finance and IT, decline of manufacturing towns, policy responses (e.g., “Northern Powerhouse”).
4. Conclude with a balanced judgement, noting any mitigating actions (skills programmes, regional investment funds) and the likely future trajectory.

Key Revision Points

• Remember the typical sequence of sectoral dominance: Primary → Secondary → Tertiary (with Quaternary emerging in advanced economies).
• Link each reason for change to a specific consequence (e.g., automation → job displacement → retraining).
• Use real‑world examples: UK de‑industrialisation, growth of financial services in London, tourism boom in Spain, IT hub in Estonia.
• Practice applying PESTLE, SWOT and Porter’s Five Forces to case studies that illustrate sectoral shifts.
• When using the GDP table, verify the latest percentages from a reliable source before the exam.