You can classify business according to the stage of the production process that the business is involved in. There are 3 divisions; primary, secondary and tertiary. Economic sectors help categories business activities and procedures.
Primary sector; extracts raw materials from natural resources. It included farming, fishing and mining. The primary sector industries are in decline in the UK, mainly because it is often cheaper to import raw materials from other countries, and trade barriers have made it more difficult for UK companies to export raw materials. There has also been a decline in the number of people employed in farming- the number of people working in farming in the UK is now less than half what it was at the start of the 1970s.
Secondary sector; process the raw materials that come from the primary sector. Secondary industry included manufacturing and construction. Secondary sector industries have also been declining, mainly because companies are moving production to other parts of the world where manufacturing costs are lower. This increases their profits, because they can produce their products more cheaply but still their products to UK consumers at the same price.
Tertiary sector; this is the service sector which provides services to individuals and to businesses in the primary and secondary sectors. In most developed countries the tertiary sector has expanded over the last few decades- the UK economy is now mainly made up of tertiary sector companies.
In order to determine a company's size we must look at a criteria to help us to classify whether it is a small or a big business. Number of employees, number of offices etc, turnover and profit levels, stock market value- public limited companies, capital employed.
Economies of scale mean that as output increases, the cost of producing each item goes down. Internal economies of scale increase efficiency within an individual firm. There are different types of internal economies of scale.
- Technical: all about production. Production methods for large volumes are often more efficient. Large businesses can afford to pay for better, more advanced machinery, which means they might need fewer staff and wage costs will fall.
- Specialisation: large businesses can employ managers with specialist skills and separate them out into specialised departments. This is cheaper than paying external firms to do the work.
- Purchasing: large businesses can negotiate discounts when buying supplies. They can get bigger discounts and longer credit periods than smaller competitors.
- Financial: large firms can borrow at lower interest rates than smaller firms. Lenders feel more comfortable lending money to a big firm than a small firm.
- Marketing: the cost of an ad campaign is a fixed cost. A business with a large output can share out the cost over more products than a business with a low output.
- Risk-bearing: diversification into several different markets or to cater to several different market segments. Large firms have a greater ability to bear risk than their small competitors.
External economies of scale happen when industries are concentrated in small…