Home      Discussion      Topics      Dictionary      Almanac
Signup       Login
Tertiary sector of industry

Tertiary sector of industry

Overview
The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...

) and the primary sector (agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

, fishing
Fishing
Fishing is the activity of trying to catch wild fish. Fish are normally caught in the wild. Techniques for catching fish include hand gathering, spearing, netting, angling and trapping....

, and extraction such as mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...

).

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.
Discussion
Ask a question about 'Tertiary sector of industry'
Start a new discussion about 'Tertiary sector of industry'
Answer questions from other users
Full Discussion Forum
 
Unanswered Questions
Recent Discussions
Encyclopedia
The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...

) and the primary sector (agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

, fishing
Fishing
Fishing is the activity of trying to catch wild fish. Fish are normally caught in the wild. Techniques for catching fish include hand gathering, spearing, netting, angling and trapping....

, and extraction such as mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...

).

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
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

. Services (also known as "intangible goods") include attention, advice, experience, and discussion. The production of information
Information
Information in its most restricted technical sense is a message or collection of messages that consists of an ordered sequence of symbols, or it is the meaning that can be interpreted from such a message or collection of messages. Information can be recorded or transmitted. It can be recorded as...

 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
Transport
Transport or transportation is the movement of people, cattle, animals and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations...

, distribution
Distribution (economics)
Distribution in economics refers to the way total output, income, or wealth is distributed among individuals or among the factors of production .. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income...

 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
Pest control
Pest control refers to the regulation or management of a species defined as a pest, usually because it is perceived to be detrimental to a person's health, the ecology or the economy.-History:...

 or entertainment
Entertainment
Entertainment consists of any activity which provides a diversion or permits people to amuse themselves in their leisure time. Entertainment is generally passive, such as watching opera or a movie. Active forms of amusement, such as sports, are more often considered to be recreation...

. The goods may be transformed in the process of providing the service, as happens in the restaurant
Restaurant
A restaurant is an establishment which prepares and serves food and drink to customers in return for money. Meals are generally served and eaten on premises, but many restaurants also offer take-out and food delivery services...

 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. The tertiary sector is now the largest sector of the economy in the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

, and is also the fastest-growing sector.

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
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...

 are often considered part of the tertiary sector as they provide services to people, while creating the utility's infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...

 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
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...

's International Standard Industrial Classification
International Standard Industrial Classification
The International Standard Industrial Classification of All Economic Activities is a United Nations system for classifying economic data. The United Nations Statistics Division describes it in the following terms:...

 standard, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

' Standard Industrial Classification
Standard Industrial Classification
The Standard Industrial Classification is a United States government system for classifying industries by a four-digit code. Established in 1937, it is being supplanted by the six-digit North American Industry Classification System , which was released in 1997; however certain government...

 (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
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...

 and market research
Market research
Market research is any organized effort to gather information about markets or customers. It is a very important component of business strategy...

, market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

-based classification systems such as the Global Industry Classification Standard
Global Industry Classification Standard
The Global Industry Classification Standard is an industry taxonomy developed by MSCI and Standard & Poor's for use by the global financial community. The GICS structure consists of 10 sectors, 24 industry groups, 68 industries and 154 sub-industries into which S&P has categorized all major...

 and the Industry Classification Benchmark
Industry Classification Benchmark
The Industry Classification Benchmark is an industry classification taxonomy developed by Dow Jones and FTSE. It is used to segregate markets into sectors within the macroeconomy...

 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
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...

 (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
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

. The speed at which other economies have made the transition to service-based (or "post-industrial
Post-industrial economy
A post-industrial economy refers to a period of growth within an industrialized economy or nation in which the relative importance of manufacturing lessens and that of services, information, and research grows.Such economies are often marked by:...

") economies has increased over time.

Historically, manufacturing tended to be more open to international trade
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...

 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
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

.

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
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 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




Bellow is a list of countries by service output in 2010.
Service output in 2010 (Nominal)
Rank Country Output in billions of US$
World
Gross world product
Gross world product is the total gross national product of all the countries in the world. This also equals the total gross domestic product. See measures of national income and output for more details...

39,758.661
 European Union 11,902.310
1  United States 11,156.390
2  Japan 4,028.648
3  Mainland China 2,527.651
4  Germany 2,364.053
5  Early Modern 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
Gross world product
Gross world product is the total gross national product of all the countries in the world. This also equals the total gross domestic product. See measures of national income and output for more details...

47,232.459
1  United States 11,156.390
 European Union 11,089.576
2  Mainland China 4,336.854
3  Japan 3,180.435
4  India 2,241.336
5  Germany 2,096.529
6  Early Modern 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  Republic of China 554.702
18  Netherlands 490.749
19  Poland 458.038
20  Indonesia 387.236