What is Tertiary Sector Of Industry?

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The tertiary sector of industry (also known as the service sector or the service industry) is one of the three main industrial categories of a developed economy, the others being the secondary industry (manufacturing), and primary industry (extraction such as mining, agriculture and fishing). Services are defined in conventional economic literature as "intangible goods".

The tertiary sector of industry involves the provision of services to businesses as well as final consumers. Services may involve the transport, distribution 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 or entertainment. Goods may be transformed in the process of providing a service, as happens in the restaurant industry or in equipment repair. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods.

Components

The service sector consists of the "soft" parts of the economy such as insurance, government, tourism, banking, retail, education, and social services. In soft-sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity (effectiveness), performance improvement potential (potential) and sustainability. Typically the output of this time is content (information), service, attention, advice, experiences, and/or discussion (also known as "intangible goods"). Other examples of service sector employment include:

• Franchising
• Restaurants
• News media
• Leisure industry/hotels
• Consulting
• Healthcare/hospitals
• Waste disposal
• Real estate
• Personal services
• Business services

Public utilities are often considered part of the tertiary sector as they provide services to people, while creating the utility's infrastructure is often considered part of the secondary sector, even though the same business may be involved in both aspects of the operation.

To do fact-based work in this area it is necessary to utilize the extensive data collection that takes place using classification systems such as the United Nations's International Standard Industrial Classification standard, the United States' Standard Industrial Classification (SIC) code system and its new replacement, the North American Industrial Classification System (NAICS), and similar systems in the EU and elsewhere.

The term service economy, in contrast, refers to a model wherein as much economic activity as possible is treated as a service. For example IBM treats its business as a service business. Although it still manufactures high-end computers, it sees the physical goods as a small part of the "business solutions" industry. They have found that the price elasticity of demand for "business solutions" is much less than that for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts.

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 industry (e.g. automobiles, textiles, shipbuilding, steel) and finally toward a more service based structure. Whereas the first economy to follow this path in the modern world was the United Kingdom, the speed at which other economies have later made the transition to service-based, sometimes called post-industrial, has accelerated over time.

Historically manufacturing tended to be more open to international trade and competition than services. As a result, there has been a tendency for the first economies to industrialize to come under competitive attack by those seeking to industrialize later, e.g. because production, especially labour, costs are lower in those industrializing later. The resultant shrinkage of manufacturing in the leading economies might explain their growing reliance on the service sector.

However, currently and prospectively, 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.

Attitudes toward tertiary sector

According to some economists, the service sector tends to be wealth consuming, whereas manufacturing is wealth producing.^[1] Sir Keith Joseph in his lecture Monetarism IS Not Enough, contrasted wealth-producing sectors in an economy such as manufacturing with the service sector which tends to be a wealth-consuming sector. He contended that an economy declines as its wealth-producing sector begins to shrink. ^[2]

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 consulting and investment 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. How does one choose one investment advisor over another, since they (and hotel providers, leisure companies, consultants, and others) 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

See also

• Primary sector of industry
• Secondary sector of industry
• Quaternary sector of industry
• Three-sector hypothesis
• Industrial policy

References