Human beings produce different goods and services for the fulfillment of different needs at the individual and collective levels. This manufacture of goods and service provision is commonly called industry.
This post defines the term ‘industry’ and discusses different types of industry i.e. cottage, small scale, and large scale industry in detail.
What is an industry?
The term “industry” refers to the process of manufacturing goods and services to fulfill the different needs of human beings.
Goods are tangible substances/things we can see and touch. For example, mobile phones, a cricket ball, carpet, etc.
Service is any work that an individual or a group of people do for the benefit of other people. For example, treatment of a patient, teaching, transportation of goods, work of a tourist guide, etc.
Both goods and services have a currency value that the service givers charge directly or indirectly from the consumers.
A common mistake about industry
Students and people, in general, get confused between the concept of the industry and the term ‘factory’. It is very important to differentiate between both of these terms.
Industry and factory are interrelated but not the same. A factory is a place where the manufacturing process takes place whereas the term industry refers to the manufacturing process taking place in the factory.
When we say “the cement industry”, we mean “the manufacture” of cement whereas the place where the manufacture of cement takes place is the cement factory.
Economists classify industry into different types on basis of various factors such as manufacturing levels, raw material, the scale of operations, etc. In this article, you will read about types of industry on basis of their manufacturing levels and scale of operations.
Classification on basis of industrial levels
Industrialists divide the industry into three levels i.e. primary, secondary, and tertiary industry. Read about each of these levels of industry in the following lines:
1. Primary Industry
Primary industry is the first level of industry in which the collection of raw material takes place. To put it into simple words it is a collection of raw material. For example, mineral resources are extracted from inside the earth through mining. Similarly, petroleum or crude oil is extracted from beneath the earth through drilling. Thus, mining and drilling are examples of primary industries.
2. Secondary Industry
In the secondary industry, the processing of raw material into finished goods takes place. The industrialists purify crude oil and mineral resources through labor and the use of machinery. Once done with the separation of impurities, the mineral resources go through a process to become final goods.
3. Tertiary Industry
Industrialists manufacture goods that have a demand in the market. Here comes the distribution phase of the finished or final goods to the consumers.
Consumers will have a demand for the goods they know. For this purpose, the manufacturers employ a variety of publicity techniques in order to create a demand among people. Similarly, there is a need for a transport system to ensure the timely availability of goods in the market.
In this process, from media, transporters to shopkeepers all do some sort of work (services). This service provision by different stakeholders in the distribution of goods to the consumers is the service or tertiary industry.
Services do not include the distribution of goods only, they also include the work of laborers during the collection of raw material and their conversion into finished goods. We can infer from here that it is the services of workers that make primary and secondary industries happen.
Thus industry refers to a process of collection of raw material, its transportation to manufacturing plant, conversion of raw material into finished goods with the help of labor and machinery, and finally distribution of these finished goods to the consumers.
Classification on basis of the scale of operations
On basis of the scale of operations, the industry has three kinds i.e. cottage, small and large scale industries. The scale of operations here means the scale or size of the industrial inputs and outputs i.e. production, the number of laborers involved, and the amount of capital investment.
1. Cottage Industry
The cottage industry refers to the manufacturing of goods involving only family members with little investment and use of simple tools. Some of the examples of cottage industry are carpet making, hand-made jewelry, handicrafts, etc.
2. Small scale industry
In small-scale industries, labor employment is not more than 20 people whereas the maximum limit for capital investment is Rs.10 million rupees in the context of Pakistan. There is a simple use of technology in the small-scale industry. Some of the examples of small-scale industries are sports goods industries, surgical instruments industries, small bakeries, etc.
3. Large Scale Industry
In large Scale Industry, there is no limit to labor employment, and capital investment. Production is on a large scale whereas sophisticated technology is used. Some of the examples of large-scale industries are the cement industry, automobile industry, steel industry, fertilizer industry, etc.