IB Business Management Unit 1/Section 1.1 Introduction to Business Management

Business Sectors 1.1

The 4 sectors of Business Activity Businesses can be classified according to the stage of production that they are engaged in SERVICES GOODS PRIMARY: All raw materials are acquired in the primary sector i.e. mining, farming, fishing, hunting, trapping, extraction. SECONDARY: Where raw materials are processed/manufactured. Can be durable or non-durable goods. TERTIARY: Most services (financial, leisure, healthcare, education, transport, security, retail and wholesale, insurance, restaurants) QUATERNARY: A subgroup of Tertiary, this sector provides services focused on knowledge, involving IT, media, and web-based services.

Business sectors Business Sectors are interdependent because each sector relies on the others to remain in existence. Production Chain or Chain of Production: The steps through the different sectors that must be made to turn raw materials into a consumer good that is marketed. tracks the stages of an items production from the extraction of raw materials all the way through to it being delivered to the consumer.

Growth and integration Horizontal Integration Vertical Integration Horizontal Growth refers to a business acquiring or merging with another business engaged in more or less the same activity. Examples: two airlines merge, a grocery store purchases another grocery store. Outcome: new business will have increased market share. Vertical Growth occurs by acquiring other businesses involved in earlier or later stages in the chain of production o beginning operations in an earlier or later stage through internal growth. >Backward vertical integration (lumber seller buys forest to harvest on trees) >Forward vertical integration (farmer opens store to sell his own products)

Sectors and integration-why? PRIMARY Backwards vertical SECONDARY Horizontal Integration Horizontal TERTIARY QUATERNARY Forwards vertical To lower cost, ensure supply, avoid government regulation, increase market power, weaken competitors. Sectors and integration-why?

REASONS FOR INTEGRATION Reasons for H integration: increased market share, market power and advantage of economies of scale, becoming more profitable. Reasons for V Integration: lowering transaction costs, ensuring reliable supply, avoiding government regulations (price controls, taxes, or explicit regulation), increasing market power (if it lowers costs + flexibility for setting prices), eliminating or weakening the market power of other businesses, becoming more profitable.

Sectorial change refers to a shift in the relative share of national output and employment that is attributed to each business sector over time. Countries grow and develop producing sectoral change. countries develop by shifting the majority of national output being contributed by the primary sector (low added value), to manufacturing and eventually to the tertiary and the quaternary sector (higher added value). This process is known as industrialization. Economists measure the size of a sector in terms of the # of people employed.

KEY TERMS/DEFINITIONS Primary Sector: Acquisition of raw materials (extraction, harvesting and conversion). Secondary Sector: Raw materials are processed usually to create a product. Manufacturing or Construction (consumer durable and non durable goods, capital goods). Tertiary Sector: Most services (financial, leisure, healthcare, education, transport, security, retail and wholesale, consultancy, insurance, restaurants) Quaternary Sector: A sub-group of the tertiary sector. Provides services especially focused on intellectual, knowledge based activities that generate and share information. Production Chain or Chain of Production: The steps through the different sectors that must be made to turn raw materials into a consumer good that is marketed. Horizontal integration: merging with another business in more or less the same activity. Vertical integration: acquiring other businesses involved in earlier or later stages in the chain of production Sectoral Change refers to a shift in the relative share of national output and employment that is attributed to each business sector over time.

In- class Workshop – ( Stimpson pg. 8)

In- class Workshop – ( Stimpson pg. 8)

In- class workshop ( 10 marks) Explain how does the size of sectors change as countries grow from less developed, developing and developed countries. AO2 - 3 Define Sectoral Change. AO1 - 1 Explain what is meant by the chain of production. AO2- 2 Give two examples of tertiary sector businesses, explaining why they are classified in this sector. AO2 - 2 Describe the four business sectors of the economy. AO1-2 In- class workshop ( 10 marks)