Classification of Business

Classification of business means grouping businesses by the type of activity they carry out. This grouping helps us understand each business's role in the chain of production — from raw materials right through to the final consumer.

Extractive business

An extractive business takes natural resources directly from the earth, sea or forest. Examples include mining, fishing, farming and logging. It is classed as a primary activity.

Manufacturing business

A manufacturing business turns raw materials into finished or semi-finished goods through processing. For example, a factory processes rubber into tyres. This is a secondary activity.

Construction business

A construction business builds structures such as houses, bridges, roads and buildings. It uses materials from manufacturing businesses and is also classed as a secondary activity.

Services and commerce

A services business offers intangible services such as banking, transport and education, while commerce involves buying and selling goods (wholesalers and retailers). Both are tertiary activities.

Why classification matters. Understanding classification helps traders and the government make better decisions. For example, the government can channel different assistance to the agriculture, manufacturing and services sectors according to each one's needs. A trader, in turn, can identify its suppliers and customers within the chain of production. Note that one large business may carry out more than one activity; for instance a company might own an estate (extractive), a factory (manufacturing) and a chain of shops (commerce) all at once. A business like this is said to practise integration. Classification also helps students and investors understand each sector's contribution to the national economy and the kinds of jobs found within each sector.