External business environment |
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| Subject: External environment | ||||
| Topic: Economic sectors | ||||
Business activity is the process of transforming inputs into outputs by adding value. There are three main sectors of business activity: Primary sector Involves the extraction and production of raw materials, such as coal, wood and steel. A coal miner and a fisherman would be workers in the primary sector. Secondary sector Involves the transformation of raw materials into goods e.g. manufacturing steel into cars. A builder and a dressmaker would be workers in the secondary sector. Tertiary sector Involves the provision of services to consumers and businesses, such as cinema and banking. A shopkeeper and an accountant would be workers in the tertiary sector. Goods move through a “chain of production”. The chain of production follows the construction of a good from its extraction as a raw material through to its final sale to the consumer. So a piece of wood is cut from a felled tree (primary sector), made into a table by a carpenter (secondary) and finally sold in a shop (tertiary). Some businesses have elements of all sectors in their chain of production. Others businesses choose to specialise. Specialisation occurs when a producer concentrates on making a small number of products, or on providing a narrowly defined service. Examples of specialisation:
Advantages of specialisation Producer becomes more efficient because they learn the best way (all the short cuts) to produce at the lowest cost A producer may be able to charge a higher price from a customer – the customer is prepared to pay more for expert/specialist knowledge (e.g. a cosmetic surgeon) How Business Activity is Changing In the UK the tertiary industry has grown in importance due to:
The main changes in household behaviour are:
In terms of changes in business behaviour: New and existing businesses need more sophisticated forms of support Money and finance – cash is needed for expansion. Banks and other lenders offer many different ways for businesses to borrow money that best suit their needs. E.g. an overdraft for a short period, a loan for a longer period. Telecommunications – the ability to communicate internally and externally is vital for business success. Speed, cost and flexibility are all factors in determining the use of the type of wiring a business may need. A number of businesses are now using wireless networks. Local services – businesses will need the support of local amenities and shops to service their workers and their day-to-day needs (e.g. food for canteens). |
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