tertiary industries

Learning Objectives

• What is the tertiary industry? 
• What factors are responsible for the growth of the tertiary industry?
• How is it different from the quaternary sector? 
• Two main categories of tertiary industry 
• Pros and cons of tertiary industry

The tertiary sector of the economy, generally known as the service sector, is the third of the three sectors of an economy. This is in contrast to the primary industry, which produces raw materials, and the secondary industry, which takes raw materials and uses them to produce consumer goods for selling. 

The service sector consists of the production of services instead of end products. It comprises firms offering 'intangible goods' such as entertainment, retail, insurance, tourism, and banking. The service sector will make use of manufactured goods, but there is an additional component of offering a service to customers. 

The aim of the tertiary sector relates to giving a service or helping individuals or organizations. The tertiary sector provides services to other businesses as well as end consumers. The focus is on interacting and serving the people rather than transforming the physical goods. This sector presents no tangible product.

For instance, when you fall sick, you need to see a doctor. The doctor checks your health and prescribes medicines. The doctor is not giving you any physical product but offering you his/her service. This service presents an intangible aspect (something that cannot be touched). This is an example of a tertiary sector. 

Similarly, there are several opportunities to provide service in an economy, for example, schools, restaurants, financial banks. As a country becomes more developed, it tends to shift its focus from primary to secondary and tertiary industries. 

Tertiary Industries maintain connections with the Primary as well as the Secondary Industries. For example, the shipping industry transporting goods to another country needs an update from the weather services for safety reasons. The tertiary industries form part of society’s daily lifestyle. One needs to go to school, visit the shop, withdraw cash at the bank or speak with your doctor.

The tertiary sector grows in importance with economic development – it generates employment and economic wealth.

Division of tertiary industry

The tertiary industry is split into two main categories.

• The first one focuses on the financial sectors or businesses that aim to reproduce capital.
• The second one aims to provide services in the non-profit environment for example government institutions.

Factors responsible for the growth of the tertiary sector

1. Improved labor productivity - Better technology improved labor productivity. Lesser labor is required to manufacture goods. This led to two things:

• Spare labor to be able to work in the tertiary sector
• Increased income for people to spend on services

2. Globalization and free trade - This enables countries to import more manufactured goods, which frees up economic resources to spend on the higher value service sector. 

3. Income elasticity of demand - As income increases, people spend a higher proportion of their income on luxury service items such as holidays, going to restaurants. This is in contrast to manufactured goods which are income inelastic i.e. with the rise in income, people don't spend more on household goods but they begin to eat out or pay someone to clean for them. 

4. Rising income and free time - Compared to earlier times, earnings have increase and the average work time has reduced. This leaves more time for leisure activities. 

5. Emerging of new technology - New technology has enabled new service sector industries to develop. Computers, telephones have all been developed in the past 100 years. The growth of the internet has enabled a new range of tertiary services.

Examples of tertiary industries

Tertiary industries include companies involved in the shipping and transportation industry, such as railroad, trucking, air freight, or shipping where the sole focus is on the process of moving goods. It also includes the transportation of people, such as taxi services, city bus systems, and subways.

Traditionally hospitality sectors like hotels and resorts as well as food-service providers like restaurants and food delivery services are part of the tertiary industry. All services received from financial institutions such as banks are tertiary in nature. 

Personal services, including everything from haircutting to tattooing, come under this category. Services to animals such as stray animal care facilities, pet groomers, and animal breeders fit into the tertiary industry. Hospitals, clinics, veterinarians, and other medical service facilities qualify too. 

Pros and cons of tertiary industries

Pros 

• It brings large-scale employment opportunities in different fields. 
• It enables people to specialize in their desired skills. Different individuals comprise varied talents and some people may perform better in a service environment. For instance, not everyone likes farming, someone may enjoy working as a hairstylist or chef, or want to start their own restaurant
• It does not require much inventory. So the startup cost is low. Its goal is to provide a service that solves a problem for the customers and makes their daily lives more convenient. For example, car wash facilities. 
• They are able to adapt to the changing needs of their customers much quicker than product-based companies. 

Cons

• There are pricing challenges in tertiary industries. It is easier to put a price on physical goods, but being intangible it is difficult to put a value on services.
• The quality of service depends on the quality of the person providing it, and that can vary given people’s skills and personalities. The same service is charged differently. For example, the same food will cost higher in a bigger hotel as compared to a smaller one. 
• The Tertiary Industry remains sensitive towards the occurrences of economic or social instability. If a country experiences diverse challenges, it might impact its ability to grow the primary or secondary sectors. It subsequently influences the tertiary component as well.  

Transition from tertiary to quaternary 

The production of information is long regarded as a service, but sometimes it is attributed to a fourth sector known as the quaternary sector. This includes technological services like telecommunications providers, cable companies, and internet providers.

The growth of these information-focused businesses has laid the foundation for what is known as the knowledge economy. These businesses analyze the wants and needs of the target customers, and meet those needs and wants quickly with minimal cost. Even though they are all service-oriented, like the tertiary sector, these services have been separated and classified into the quaternary industry sector. The quaternary sector is only found in the most economically advanced countries – it is largely about information and communication and makes use of the latest technology.