![Product’s lifecycle](https://upload.wikimedia.org/wikipedia/commons/d/d7/Product%E2%80%99s_lifecycle.jpg)
The tertiary sector of the economy, generally known as the service sector, is the third of the three
economic sector
One classical breakdown of economic activity distinguishes three sectors:
* Primary: involves the retrieval and production of raw-material commodities, such as corn, coal, wood or iron. Miners, farmers and fishermen are all workers in the ...
s in the
three-sector model
The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials ( primary), manufacturing ( secondary), and service industries which exist to facilitate the transport, distribution and sale ...
(also known as the economic cycle). The others are the
primary sector
The primary sector of the economy includes any industry involved in the extraction and production of raw materials, such as farming, logging, fishing, forestry and mining.
The primary sector tends to make up a larger portion of the economy in de ...
(
raw material
A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feedst ...
s) and the
secondary sector
In macroeconomics, the secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in constructi ...
(
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
).
The tertiary sector consists of the provision of
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
instead of
end products. Services (also known as "
intangible goods") include attention, advice, access, experience and
affective labor
Affective labor is work carried out that is intended to produce or modify emotional experiences in people. This is in contrast to emotional labor, which is intended to produce or modify one's own emotional experiences. Coming out of Autonomist fe ...
. The
production of information has been long regarded as a service, but some economists now attribute it to a fourth sector, called the
quaternary sector
The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based serv ...
.
The tertiary sector involves the provision of services to other businesses as well as to final consumers. Services may involve the
transport
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, an ...
,
distribution Distribution may refer to:
Mathematics
*Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
* Probability distribution, the probability of a particular value or value range of a vari ...
and sale of goods from a producer to a consumer, as may happen in
wholesaling
Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...
and
retailing
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
,
pest control
Pest control is the regulation or management of a species defined as a pest; any animal, plant or fungus that impacts adversely on human activities or environment. The human response depends on the importance of the damage done and will range ...
or
entertainment
Entertainment is a form of activity that holds the attention and interest of an audience or gives pleasure and delight. It can be an idea or a task, but is more likely to be one of the activities or events that have developed over thousa ...
. The goods may be transformed in the process of providing the service, as happens in the
restaurant
A restaurant is a business that prepares and serves food and drinks to customers. Meals are generally served and eaten on the premises, but many restaurants also offer take-out and food delivery services. Restaurants vary greatly in appearan ...
industry. However, the focus is on people by interacting with them and serving the customers rather than transforming the physical goods.
Difficulty of definition
It is sometimes hard to determine whether a given company is part of the secondary or the tertiary sector. It is not only companies that have been classified as part of a sector in some schemes, since governments and their services (such as the police or military), as well as
nonprofit organization
A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...
s (such as charities or research associations), can also be seen as part of that sector.
In order to classify a business as a service, one can use classification systems such as the
United Nations
The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and international security, security, develop friendly relations among nations, achieve international cooperation, and be ...
'
International Standard Industrial Classification The International Standard Industrial Classification of All Economic Activities (ISIC) is a United Nations industry classification system. Wide use has been made of ISIC in classifying data according to kind of economic activity in the fields of emp ...
standard, the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
'
Standard Industrial Classification
The Standard Industrial Classification (SIC) was a system for classifying industries by a four-digit code as a method of standardizing industry classification for statistical purposes across agencies. Established in the United States in 1937, it ...
(SIC) code system and its new replacement, the
North American Industrial Classification System
The North American Industry Classification System or NAICS () is a classification of business establishments by type of economic activity (process of production). It is used by government and business in Canada, Mexico, and the United States of A ...
(NAICS), the
(NACE) in the EU and similar systems elsewhere. These governmental classification systems have a first-level of hierarchy that reflects whether the economic goods are tangible or intangible.
For purposes of
finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
and
market research
Market research is an organized effort to gather information about target markets and customers: know about them, starting with who they are. It is an important component of business strategy and a major factor in maintaining competitiveness. Mark ...
,
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
-based classification systems such as the
Global Industry Classification Standard
The Global Industry Classification Standard (GICS) is an industry taxonomy developed in 1999 by MSCI and Standard & Poor's (S&P) for use by the global financial community. The GICS structure consists of 11 sectors, 24 industry groups, 69 industrie ...
and the
Industry Classification Benchmark The Industry Classification Benchmark (ICB) is an industry classification taxonomy launched by Dow Jones and FTSE in 2005 and now used by FTSE International and STOXX. It is used to segregate markets into sectors within the macroeconomy. The I ...
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
For the last 100 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector in industrialized countries. This shift is called tertiarisation.
[Definition by the European Foundation for the Improvement of Living and Working Conditions]
The tertiary sector is now the largest sector of the economy in the
Western world
The Western world, also known as the West, primarily refers to the various nations and state (polity), states in the regions of Europe, North America, and Oceania. , and is also the fastest-growing sector.
In examining the growth of the service sector in the early nineties, the
globalist Kenichi Ohmae
is a Japanese organizational theorist, management consultant, Former Professor and Dean of UCLA Luskin School of Public Affairs, and author, known for developing the 3C's Model.
Biography
Born in 1943 in Kitakyūshū, Ohmae earned a BS in ...
noted that:
Economies tend to follow a developmental progression that takes them from heavy reliance on agriculture and mining, toward the development of
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
(e.g. automobiles, textiles,
shipbuilding
Shipbuilding is the construction of ships and other floating vessels. It normally takes place in a specialized facility known as a shipyard. Shipbuilders, also called shipwrights, follow a specialized occupation that traces its roots to befor ...
, 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 United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
. 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
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy)
In most countries, such trade represents a significant ...
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, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
.
Issues for service providers
![Automatic Telephone Exchange- Communications in Wartime, London, England, UK, 1945 D23700](https://upload.wikimedia.org/wikipedia/commons/7/7c/Automatic_Telephone_Exchange-_Communications_in_Wartime%2C_London%2C_England%2C_UK%2C_1945_D23700.jpg)
Service providers face obstacles selling services that goods-sellers rarely face. Services are intangible, 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
A consultant (from la, consultare "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice and other purposeful activities in an area of specialization.
Consulting servic ...
and providers of
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
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, "people costs" are usually a high fraction 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.
Product differentiation
In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others to make it more attractive to a particular target market. This involves differentiating it from com ...
is often difficult. For example, how does one choose one
investment adviser
A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
over another, since they are often seen 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
Brand awareness is the extent to which customers are able to recall or recognize a brand under different conditions. Brand awareness is one of two dimensions from brand knowledge, an associative network memory model. Brand awareness is a key consi ...
.
Examples of tertiary sector industries
Examples of tertiary industries may include:
*
Telecommunication
Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...
*
Hospitality industry
The hospitality industry is a broad category of fields within the service industry that includes lodging, food and drink service, event planning, theme parks, travel and tourism. It includes hotels, tourism agencies, restaurants and bars.
Sector ...
/
tourism
Tourism is travel for pleasure or business; also the theory and practice of touring (disambiguation), touring, the business of attracting, accommodating, and entertaining tourists, and the business of operating tour (disambiguation), tours. Th ...
*
Mass media
Mass media refers to a diverse array of media technologies that reach a large audience via mass communication. The technologies through which this communication takes place include a variety of outlets.
Broadcast media transmit information ...
*
Healthcare
Health care or healthcare is the improvement of health via the prevention, diagnosis, treatment, amelioration or cure of disease, illness, injury, and other physical and mental impairments in people. Health care is delivered by health profe ...
/
hospitals
A hospital is a health care institution providing patient treatment with specialized health science and auxiliary healthcare staff and medical equipment. The best-known type of hospital is the general hospital, which typically has an emerge ...
*
Public health
Public health is "the science and art of preventing disease, prolonging life and promoting health through the organized efforts and informed choices of society, organizations, public and private, communities and individuals". Analyzing the det ...
*
Pharmacy
Pharmacy is the science and practice of discovering, producing, preparing, dispensing, reviewing and monitoring medications, aiming to ensure the safe, effective, and affordable use of medicines. It is a miscellaneous science as it links heal ...
*
Information technology
Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology system (I ...
*
Waste disposal
Waste management or waste disposal includes the processes and actions required to manage waste from its inception to its final disposal.
This includes the collection, transport, treatment and disposal of waste, together with monitoring ...
*
Consulting
A consultant (from la, consultare "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice and other purposeful activities in an area of specialization.
Consulting servic ...
*
Gambling
Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...
*
Retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
sales
**
Fast-moving consumer goods
Fast-moving consumer goods (FMCG), also known as consumer packaged goods (CPG), are products that are sold quickly and at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, cand ...
(FMCG)
*
Franchising
Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses some or all of its know-how, procedures, intellectual property, use of its busine ...
*
Real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
*
Education
Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty. Va ...
*
Financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
**
Banking
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
**
Insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
**
Investment management
Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
*
Professional services
Professional services are occupations in the service sector requiring special training in the arts or sciences. Some professional services, such as architects, accountants, engineers, doctors, and lawyers require the practitioner to hold professi ...
**
Legal services
In its most general sense, the practice of law involves giving legal advice to clients, drafting legal documents for clients, and representing clients in legal negotiations and court proceedings such as lawsuits, and is applied to the professi ...
**
Management consulting
Management consulting is the practice of providing consulting services to organizations to improve their performance or in any way to assist in achieving organizational objectives. Organizations may draw upon the services of management consultant ...
*
Transportation
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, ...
List of countries by tertiary output
![2005gdpServices](https://upload.wikimedia.org/wikipedia/commons/1/18/2005gdpServices.png)
Below is a list of countries by service output at market exchange rates in 2016:
See also
*
Economic sector
One classical breakdown of economic activity distinguishes three sectors:
* Primary: involves the retrieval and production of raw-material commodities, such as corn, coal, wood or iron. Miners, farmers and fishermen are all workers in the ...
*
Indigo Era The Indigo Era (or Indigo economies) is a concept publicized by businessman Mikhail Fridman, describing what he views as an emerging new era of economies and economics based on ideas, innovation, and creativity, replacing those based on the possess ...
*
Post-industrial society
In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy.
The term was originated by Alain Touraine and is closely related to si ...
*
Quaternary sector of the economy
The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based servi ...
*
Voluntary sector
The voluntary sector, independent sector, or civic sector is the realm of social activity undertaken by organizations that are non-governmental nonprofit organizations. This sector is also called the third sector, community sector, and nonprofit s ...
References
External links
*
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