Service Sector

Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Service Sector Definition

The service sector or tertiary sector refers to one of the portions forming the three-sector model of the economic sector. The businesses in the service industry produce intangible goods in the form of service as output delivering to other businesses or consumers.

The tertiary sector producing intangible economic goods doesn’t hold inventory, unlike the primary economic sector producing raw materials and the secondary sector representing the manufacturing entities producing finished goods. Examples of the tertiary sector include private entities providing services like retail sales to government entities providing public protection.

Key Takeaways

  • The service sector refers to the industry producing intangible goods, the services as output. In many countries, it is the largest and fastest-growing sector.
  • It can be categorized into consumer, business, and public services.
  • Examples include hospitality, education, information technology, media, and entertainment.
  • The tertiary sector dominates the Indian economy. Liberalization and a series of economic changes in the 1990s fuelled the rise of the service industry, transforming an agriculture-dependent economy into one dominated by the service industry.

Service Sector Explained

The service sector is significant to world economic growth. It is prospering and generating employment opportunities, specifically in the countries open to trade contributing to GDPGDPGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period.read more. Per capita incomePer Capita IncomeThe per capita income formula depicts the average income of a region computed by dividing the total income of that area by the total population of the region. It is used to figure out the average income of a city, provision, state, country, etc.read more exhibits a positive association with service industry output. In the United States, the service industry accounts for a major share of employment output and national economic output.

The quality of service is a valuable measure of productivity. It comes to fruition when companies endeavor to provide higher quality service to the customers to gain fine customer satisfaction. Another important element is the labor force since the tertiary sector is personnel intensive to a great extent. Therefore, the labor or technical professional elements have great importance in the tertiary sector, similar to the importance of raw materialsRaw MaterialsRaw materials refer to unfinished substances or unrefined natural resources used to manufacture finished goods.read more and machinery in the manufacturing industry.

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Types

There are different types of tertiary sectors and classifications. Moreover, their proportion varies with countries. One of the classifications is organizing them into consumer, business, and public services.

Examples of Service Sector Businesses

Examples of tertiary sector businesses include hospitality, transportation, financial services, retail sales, real estate, banking, media and entertainment, information technology, and education. Together, these sectors generate a wide category of service sector jobs like teacher, doctor, retail sales associate, consultants, and engineers. Let’s briefly explain a few of the above tertiary sector businesses examples.

Examples of service sector Industries

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Source: Service Sector (wallstreetmojo.com)

#1 – Healthcare

The healthcare sector provides services that help people maintain and improve their health. It is critical to enhancing people’s overall physical and mental health and well-being worldwide. It is one sector that requires skilled professionals like trained professionals in medicine, dentistry, psychology, and assistive personnel. Furthermore, the need for better treatment is bringing innovation in health-related products, services, and tools.

#2 – Information Technology

The IT sector serves a broad category of other industries. It can operate in the form of an internal IT organization or an external IT services company delivering different services like cloud computing, security services, consulting, software management, and data management.

#3 – Media and Entertainment

This industry is composed of firms commercializing movies, television programs, printed publications, etc. The services in this arena focus on providing entertaining and informative content to the general public. Examples of companies from this sector include The Walt Disney Company and McGraw-Hill Company.

#4 – Education

The education sector comprises profit, nonprofit, and public entities contributing to developing the nation’s skilled human resources. Every industry requires an ample proportion of skilled labor force, and the education industry provides the environment for nurturing diverse, skilled human resources.

Service Sector in India

The tertiary sector is the largest and fastest-growing sector in India. According to World Trade Statistical Review, 2020, India is among the top 10 Leading exporters and importers in world trade in commercial services, 2019. India attracts foreign direct investmentsForeign Direct InvestmentsA foreign direct investment (FDI) is made by an individual or an organization, into a business located in a foreign country. The host nation receives job creation prospects, advanced technology, a higher standard of living, infrastructural development, and overall economic growth.read more, contributes to export, and generates employment.

Liberalization and a series of economic reforms in the 1990s spurred the growth of the tertiary industry, converting an economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more dependent on agriculture to an economy dominated by the service industry. Various factors like economic progress, the lifting of FDI restrictions, increased per capita income, education, and lifestyle changes escalated the importance of the service industry. For example, technological advancements and the availability of highly skilled labor have resulted in expanding businesses in the IT sector. Advanced countries are now outsourcingOutsourcingOutsourcing refers to contracting out specific business processes to a third-party or specialized service provider, i.e., an individual or company.read more services to developing countries such as India. It results in the growth of the industry in India. Increased government spending on community, social, and personal services has also driven expansion in the industry.

Frequently Asked Questions (FAQS)

What are the examples of service sector?

Examples include tourism, hospitality, healthcare, education, and real estate, where they provide intangible outputs in the form of services. For instance, healthcare services assist people in managing their health, whereas hospitality business includes lodging, food, and drink services.

What is service sector in India?

Meaning of the service sector explains a universal concept of providing services to the target population. In India, it is the largest and fastest-growing economic sector. The service export accounts for the major share of total exports from India, and it produces massive employment altogether. As a result, it prevails as the dominant sector in India’s GDP. Hence India has an economic model where the prime focus is on the service sector. Examples of the service industry include fintech, healthcare, and tourism.

How many service sectors are there?

Many diverse sectors and their subsectors form the tertiary industry in the world. For example, the service sector includes activities such as business services, communication services, construction services, education services, energy services, environmental services, financial services, tourism services, and transport services.

This has been a guide to the service sector & its definition. Here we discuss how does service sector work along with types and examples. You may also have a look at the following articles to learn more –