Understanding Business: Sectors of Industry 1
Understanding Business
All businesses in the United Kingdom can be split into four main sectors:
• Primary
• Secondary
• Tertiary
• Quaternary
PRIMARY SECTOR
Businesses that are involved in exploiting or extracting natural resources are said to
belong to the primary sector. Businesses involved in farming, coal mining, fishing, forestry
and oil exploration belong to this sector of industry. Some of the output from businesses
in the primary sector is simply sold to businesses in the secondary sector. For example,
a lumberjack business (primary sector) produces wood which is sold to furniture
manufacturers (secondary sector) to enable them to produce their products.
SECONDARY SECTOR
Businesses that are involved in manufacturing and construction are said to belong to
the secondary sector of industry. They often use the natural resources produced in
the primary sector and change them into things consumers need and want. Businesses
involved in house construction, car manufacturing, food production, clothing, electronics
and household goods belong to this sector of industry.
TERTIARY SECTOR
Businesses that are involved in providing a service, rather than the production of physical
goods, are said to belong to the tertiary sector. Shops, banks, hotels, gyms, supermarkets,
airline operators, transport operators (bus and train services) and film makers are
examples of businesses that would be included in the tertiary sector.
QUATERNARY SECTOR
The quaternary sector consists of those industries specifically providing information
services, such as computing, ICT (information and communication technologies),
consultancy (offering advice to businesses) and R&D (research, particularly in scientific
Employment structure for the primary,
secondary and tertiary industries in the UK industries). It is now acknowledged that ‘information’ is a very valuable resource to
business organisations, and indeed a business can gain a competitive edge if it has access
to good business information and advice.
Tertiary
Secondary
Primary
It can be clearly seen that the
number of people employed
in the primary and secondary
sectors is declining.
The quaternary sector is sometimes included with the tertiary sector, as they are both
sectors of industry providing a service. The tertiary and quaternary sectors make up the
largest part of the UK economy employing 76% of the workforce.
The diagram shown to the left provides an overview of employment trends within each
industrial sector in the UK.
The UK has a low proportion of people working in the primary and secondary sectors.
The tertiary sector is the main growth area with most people being employed in shops,
schools, hospitals, public services, tourism and hospitality.
contd
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SAMPLE PAGES – CFE HIGHER BUSINESS MANAGEMENT
SECTORS OF INDUSTRY 1
What have been the main causes of this trend in employment?
•
There has been increased competition from abroad, where many products can be
produced more cheaply.
•
Changes in consumer lifestyles. People have become wealthier, have more free time
and so there has been a greater demand for leisure services.
•
•
Lack of investment in manufacturing.
There are 4 main sectors of
industry in the UK!
VIDEO LINK
Many primary resources have become exhausted, for example, coal.
ACTIVITY: RESEARCH TASK
The secondary (manufacturing) sector in the UK has been in decline for a number
of years. Despite this there are a number of Scottish businesses still operating in the
secondary sector. Some of these firms are shown below:
•
•
•
•
•
DON’T FORGET
Go online and watch the
video on sectors of industry
at www.brightredbooks.
net/HigherBM. For each
of the sectors of industry
identified in the video, you
should try to identify three
businesses in the UK.
Linn Products
Thomas Taylor
Weir’s
Howden’s
Pentland Engineering
Try and find out what goods or services each of these businesses manufacture.
ACTIVITY: HEADLINES
Study the table shown below. The first column shows a number of news headlines from
daily newspapers. Copy the table into your workbook and complete the second column,
indicating which sector of industry would be affected by each headline. The first one has
been done for you.
NEWS HEADLINE
SECTOR
“More people in the UK wish to own their own home”
Secondary
“UK citizens are opting to holiday in the UK rather than abroad”
“A Government backed campaign to reduce obesity has seen an
increase in gym memberships throughout the UK”
“UK supermarkets will adopt a policy of sourcing vegetables locally”
“As more people opt for self-employment, there has been an
increase in demand for advice on business start-up”
THINGS TO DO AND THINK ABOUT
Read the following passage:
Salmon – a Fishy Business
ONLINE
Head to www.
brightredbooks.net/
HigherBM for another great
activity about the sectors
of industry.
ONLINE TEST
How well have you learned
about this topic? Take the
test at www.brightredbooks.
net/HigherBM
Farmed salmon is known to be a major food export for Scotland where it is
exported to over 60 countries worldwide. However it’s not a new phenomenon.
The Victorians had a tradition of cultivating salmon eggs for restocking their
rivers and it is thought the Romans also bred fish in ponds.
Aquaculture, or aquafarming as it is also known, is becoming an increasingly
significant business for Scotland in the fight to maintain our marine environment.
The Scottish Government supports the Scottish aquaculture industry in
achieving their growth targets which include increasing shellfish production to
13,000 tonnes (from 6,525 tonnes in 2012) by 2020.
Can you think of any factors that may arise with farmed fish which may impact positively
and negatively on the fishing industry?
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Understanding Business: The Growth of Firms: Methods Of Growth 1
Understanding Business
A strategic or long term aim of a business organisation may be to achieve growth. Achieving growth
enables a business to:
• increase sales and or profits
• reduce the risk of business failure
• dominate the market by becoming a
• avoid the threat of takeover from rival firms
market leader
• develop a well-known business name
• take advantage of large scale production,
• push competitors out of the market.
i.e. economies of scale
A business can grow internally or externally.
Internal Growth
External Growth
This is often referred to as organic growth and means that the
business develops over a period of time by increasing output,
opening new branches/stores, developing new products, entering
new markets and employing more staff.
This is when a business integrates with another business to
become a larger and more powerful organisation. External growth
is usually achieved by means of a merger or takeover. This is
often considered a quicker method of achieving growth.
INTEGRATION: OVERVIEW
Integration is the term used to describe a situation when two firms combine in order to
become larger and more powerful in the market.
Mergers
If the integration is on equal terms (50:50) it is described as a merger.
For example, Orange and T-Mobile merged their UK operations to create the country’s
largest mobile phone operator, with 28.4 million customers or 37% market share.
Another example of a merger in the UK was when the Bank of Scotland merged with
Halifax to create the organisation commonly known as HBOS.
Takeovers
However, if integration is a result of one firm taking control of another so that the latter
completely loses its identity, it is called a take-over. Such take-overs may be friendly,
where both firms realise that this is the best way to survive, or hostile, where a predatory
firm swallows up another one in order to gain market share by destroying the opposition.
In such a situation the predatory firm may simply sell off the assets of the firm being
taken over – often referred to as asset-stripping.
For example, UK based drugs giant AstraZeneca is facing a hostile take-over by American
drugs giant Pfizer.
HORIZONTAL INTEGRATION
This is the combining of two firms operating at the same stage of production, for example,
the two supermarkets Walmart and Asda engaged in horizontal integration in 1999.
Other examples of horizontal integration include:
• Dixons Retail and Carphone Warehouse
• Fyffes and Chiquita
• Glaxo Wellcome and Smith Kline Beecham, both UK drugs companies merged
horizontally to form a larger and more powerful organization.
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SAMPLE PAGES – CFE HIGHER BUSINESS MANAGEMENT
THE GROWTH OF FIRMS:
METHODS OF GROWTH 1
The advantages of horizontal integration are:
• elimination of competitors
• increased market share
• achieving greater economies of scale, such as greater discounts as a result of now
being able to buy inputs in larger quantities
• acquiring the assets of other firms
• becoming more powerful and therefore more secure from future hostile take-over bids.
Disadvantages of horizontal integration are:
• often very large firms are created that can dominate a market
• when competitors are eliminated, the business has more opportunity to exploit
consumers and raise prices in order to earn higher profits
• they can also under-cut competitors and push smaller, more vulnerable businesses
out of the market.
DON’T FORGET
If it is found that the
public would suffer as a
result of a proposed merger
like those described here,
the government has the
power to stop the merger
going ahead!
ONLINE TEST
VERTICAL INTEGRATION
Want to test yourself on
this topic? Head to www.
brightredbooks.net/HigherBM
This is the joining together of firms operating at different stages of production.
Backward vertical integration
This is when a firm takes over another at an earlier stage of production – for example, a
jam manufacturer taking over a fruit farm. This enables the take-over firm to be sure of
the availability and quality of its input.
Forward vertical integration
This is when a firm takes over another at a later stage
– for example, an oil refinery taking over a chain of
petrol stations. The main reason for this is to control
the distribution outlets for the product.
Backward vertical integration and forward vertical
integration are outlined in the diagram shown right:
Advantages of vertical integration are:
• eliminates the ‘middleman’ and his profit
• gives the firm greater economies of scale
• allows the firm to link processes more easily
• secures a source of supply
• secures outlets in which to sell their products
Bakers or
Bread shop
Wine
shops
ONLINE
Head to www.
brightredbooks.net/HigherBM
for more great activities.
Forward
Bread making
factory
Wine making
company
Backward
Wheat farm
Vineyards
Backwards Vertical
Oil refineries
Forwards Vertical
British petroleum
Petrol stations
THINGS TO DO AND THINK ABOUT
Read the short passage shown below:
Merger – Disney and Pixar
In 2006, Walt Disney agreed a £4.1bn deal which saw them merge with Pixar. At
that time the late Steve Jobs was the Chief Executive of Pixar and reportedly claimed
“Disney and Pixar can now collaborate without the barriers that come from two
different companies with two different sets of stakeholders”. It’s fair to say that his
claims made perfect sense. Disney has benefited from the creative and innovative
Pixar who in turn have benefited from Disney’s commercial clout and wealth of
experience of marketing and advertising.
1 Define what is meant by ‘merger’.
2 Explain the difference between a merger and a takeover.
3 In your opinion, do you think this has been a successful merger.
Give reasons for your answer.
4 Describe a stakeholder you think will benefit greatly from a merger such as this
explaining the influence this stakeholder can have on the newly merged organisation.
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