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 materials, such as corn, coal, wood or iron. Miners, farmers and fishermen are all workers in the primary sect ...

s in the three-sector model (also known as the economic cycle). The others are the primary sector (

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/Intermediate goods that are feedstock for future finished ...

s) and the secondary sector (

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 the secondary sector of the economy. The term may refer ...

). The tertiary sector consists of the provision of services instead of end products. Services (also known as " intangible goods") include attention, advice, access, experience and affective labour. 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 Motion, movement of humans, animals, and cargo, goods from one location to another. Mode of transport, Modes of transport include aviation, air, land tr ...

, distribution 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 the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesal ...

pest control Pest control is the regulation or management of a species defined as a pest (organism), pest; such as any animal, plant or fungus that impacts adversely on human activities or environment. The human response depends on the importance of the da ...

financial services Financial services are service (economics), economic services tied to finance provided by financial institutions. Financial services encompass a broad range of tertiary sector of the economy, service sector activities, especially as concerns finan ...

. The goods may be transformed in the process of providing the service, as happens in the

restaurant A restaurant is an establishment 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 Delivery (commerce), food delivery services. Restaurants ...

industry. However, the focus is on people by interacting with them and serving the customers rather than transforming the physical goods. 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.

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), also known as a nonbusiness entity, nonprofit institution, not-for-profit organization, or simply a nonprofit, is a non-governmental (private) legal entity organized and operated for a collective, public, or so ...

s (such as charities or research associations), can also be seen as part of that sector. To classify a business as a service, one can use classification systems such as the

United Nations The United Nations (UN) is the Earth, global intergovernmental organization established by the signing of the Charter of the United Nations, UN Charter on 26 June 1945 with the stated purpose of maintaining international peace and internationa ...

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 em ...

standard, the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

' Standard Industrial Classification (SIC) code system and its new replacement, the North American Industrial Classification System (NAICS), the Statistical Classification of Economic Activities in the European Community (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 refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

and

market research Market research is an organized effort to gather information about target markets and customers. It involves understanding who they are and what they need. It is an important component of business strategy and a major factor in maintaining com ...

, market-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, 25 industry groups, 74 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 ICB ...

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 various nations and state (polity), states in Western Europe, Northern America, and Australasia; with some debate as to whether those in Eastern Europe and Latin America also const ...

, and is also the fastest-growing sector. In examining the growth of the service sector in the early nineties, the globalist Kenichi Ohmae noted that: Economies tend to follow a developmental progression that takes them from heavy reliance on agriculture and mining, toward the development of

(e.g. automobiles, textiles,

shipbuilding Shipbuilding is the construction of ships and other Watercraft, floating vessels. In modern times, it normally takes place in a specialized facility known as a shipyard. Shipbuilders, also called shipwrights, follow a specialized occupation th ...

, 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 Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

. 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 significan ...

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

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 "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice or services in an area of specialization (generally to medium or large-size corporations). Cons ...

and providers of

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

services, offer no guarantees of the value for the 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 c ...

is often difficult. For example, how does one choose one investment adviser 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 the two key components of brand knowledge, as defined by the associative network memory model. It plays ...

List of countries by tertiary output

References

External links