Tertiary sector of the economy

Tertiary sector of the economy
Economic sectors
Three-sector hypothesis
Primary sector: raw materials
Secondary sector: manufacturing
Tertiary sector: services
Theorists
Colin Clark · Jean Fourastié
Additional sectors
Quaternary sector · Quinary sector
Sectors by ownership
Business sector · Private sector · Public sector · Voluntary sector
v · secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining).

The service sector consists of the "soft" parts of the economy, i.e. activities where people offer their knowledge and time to improve productivity, performance, potential, and sustainability. The basic characteristic of this sector is the production of services instead of end products. Services (also known as "intangible goods") include attention, advice, experience, and discussion. The production of information is generally also regarded as a service, but some economists now attribute it to a fourth sector, the quaternary sector.

The tertiary sector of industry involves the provision of services to other businesses as well as final consumers. Services may involve the transport, distribution and sale of goods from producer to a consumer, as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. The goods may be transformed in the process of providing the service, as happens in the restaurant industry. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods.

For the last 30 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector in industrialised countries. This shift is called tertiarisation.[1] The tertiary sector is now the largest sector of the economy in the Western world, and is also the fastest-growing sector.

Contents

Examples

Examples of service sector employment include:

Difficulty of definition

It is sometimes hard to define whether a given company is part of the secondary or tertiary sector.

For example, public utilities are often considered part of the tertiary sector as they provide services to people, while creating the utility's infrastructure is often considered part of the secondary sector, even though the same business may be involved in both aspects of the operation.

In order to classify a business as a service, it is necessary to use classification systems such as the United Nations's International Standard Industrial Classification standard, the United States' Standard Industrial Classification (SIC) code system and its new replacement, the North American Industrial Classification System (NAICS), and similar systems in the EU and elsewhere. These governmental classification systems have a first-level hierarchy that reflects whether the economic goods are tangible or intangible.

For purposes of finance and market research, market-based classification systems such as the Global Industry Classification Standard and the Industry Classification Benchmark are used to classify businesses that participate in the service sector. Unlike governmental classification systems, the first level of market-based classification systems divides the economy into functionally related markets or industries. The second or third level of these hierarchies then reflects whether goods or services are produced.

Theory of progression

Economies tend to follow a developmental progression that takes them from a heavy reliance on agriculture and mining, toward the development of manufacturing (e.g. automobiles, textiles, shipbuilding, steel) and finally toward a more service-based structure. The first economy to follow this path in the modern world was the United Kingdom. The speed at which other economies have made the transition to service-based (or "post-industrial") economies has increased over time.

Historically, manufacturing tended to be more open to international trade and competition than services. However, with dramatic cost reduction and speed and reliability improvements in the transportation of people and the communication of information, the service sector now includes some of the most intensive international competition, despite residual protectionism.

Issues for service providers

Service providers face obstacles selling services that goods-sellers rarely face. Services are not tangible, making it difficult for potential customers to understand what they will receive and what value it will hold for them. Indeed some, such as consultants and providers of investment services, offer no guarantees of the value for price paid.

Since the quality of most services depends largely on the quality of the individuals providing the services, it is true that "people costs" are a high component of service costs. Whereas a manufacturer may use technology, simplification, and other techniques to lower the cost of goods sold, the service provider often faces an unrelenting pattern of increasing costs.

Differentiation is often difficult. For example, how does one choose one investment adviser over another, since they often seem to provide identical services? Charging a premium for services is usually an option only for the most established firms, who charge extra based upon brand recognition.

List of countries by service output

Main article: List of countries by GDP sector composition
Service output as a percentage of the top producer (USA) as of 2005

Bellow is a list of countries by service output in 2010.

Service output in 2010 (Nominal)
Rank Country Output in billions of US$
—   World 39,758.661
—  European Union 11,902.310
1  United States 11,156.390
2  Japan 4,028.648
3  China 2,527.651
4  Germany 2,364.053
5  France 2,053.109
6  United Kingdom 1,741.778
7  Italy 1,496.123
8  Brazil 1,408.872
9  Canada 1,125.446
10  Spain 996.832
11  India 900.847
12  Russia 874.577
13  Australia 872.341
14  Mexico 659.842
15  South Korea 586.123
16  Netherlands 567.887
17  Turkey 473.302
18  Switzerland 372.402
19  Belgium 360.433
20  Sweden 326.387
Service output in 2010 (PPP)
Rank Country Output in billions of US$
—   World 47,232.459
1  United States 11,156.390
—  European Union 11,089.576
2  China 4,336.854
3  Japan 3,180.435
4  India 2,241.336
5  Germany 2,096.529
6  France 1,697.278
7  United Kingdom 1,690.628
8  Brazil 1,463.967
9  Russia 1,313.768
10  Italy 1,291.142
11  Mexico 995.343
12  Spain 967.630
13  Canada 951.144
14  South Korea 849.281
15  Australia 623.830
16  Turkey 612.806
17  Taiwan 554.702
18  Netherlands 490.749
19  Poland 458.038
20  Indonesia 387.236

References

Emblem-money.svg Economics portal
  1. ^ Definition by the European Foundation for the Improvement of Living and Working Conditions

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