Understanding Different Types of Businesses

Different Types of Businesses

Classification by Level of Activity

Primary activity: It takes all the natural resources and makes them more useful to consumers (e.g., timber).

Secondary activity: It takes the materials provided by primary industry and processes them in order to satisfy society’s needs (e.g., process minerals). However, there are companies that are supplied by other companies from the same sector, such as assembly-line companies. If a product’s demand decreased, it would cause a domino effect on other product’s demand (e.g., construction).

Tertiary activity: It provides all the services that industry and consumers demand, with the aim to satisfy directly consumer’s needs.

Classification by Size

Turnover, capital employed, number of workers, real assets, cost of factors, gross profits, cash-flow, networks quantity.

Classification by Location

A company is not homogeneous, but it is composed by different elements which might be placed in different places (e.g., one company has different shops in different streets).

Classification by Ownership of Social Capital

Private business: Its capital belongs to particular owners. This type is very typical in the Capital Market. (e.g., Zara, SEAT)

Public business: Its capital belongs to the state or another public institution. Its principal goal is not to earn as much money as possible but meet those necessities that Private Companies don’t cover. (e.g., Correos, Loterias)

Mixed business: Part of its capital belongs to public entities and the other part to particular owners. It may be classified in the Private or Public Business. (e.g., Aena)

Classification by Type of Market

Perfect competition: It’s a market structure which follows these criteria:

• All firms sell an identical product
• All firms are price takers; they can’t control the market price of their product
• All firms have a relatively small market share
• Buyers have complete information about the product
• The industry is characterized by freedom of entry and exit

Imperfect competition: This type of market allows one company to have some kind of influence on the final price of a product because of this:

• Entrance barrier: New competitors will have difficulties getting into a new market because there are some laws. Consequently, there aren’t many companies.
• Production cost: When the production increases, companies’ production cost per unit decreases. As a result, big companies have less production costs than little ones.

Different Markets Inside Imperfect Competition:

Monopoly: It is a market containing a single firm that owns the total control of the sector. This occurs when there is only one supplier of a good or service and many consumers. Characteristics: price maker, profit maximization, one seller and producer, high barriers to entry and absolute product differentiation.

Oligopoly: A small number of firms have the large majority of market share. There is no precise upper limit to the number of firms, but the actions of one company significantly impact and influence the others.