Service Sector

Involves intangible services exchanged between the buyer and the seller

Author: Parul Gupta
Parul Gupta
Parul Gupta
Working as a Chief Editor, customer support, and content moderator at Wall Street Oasis.
Reviewed By: Aditya Murarka
Aditya Murarka
Aditya Murarka
Aditya Murarka is a proactive finance professional pursuing a Bachelor of Commerce (Hons) at St. Xavier's College, Kolkata. Aditya has excelled in financial management, clearing CFA Level-1, and securing accolades in Chartered Accountancy. His diverse professional experience spans private wealth management, strategy consulting, and live projects in sectors like customs, manufacturing, and food delivery. Aditya, was a Financial Research Analyst and Chief Editor at Wall Street Oasis, exhibits expertise in statistical analysis, data analytics, and valuation. His leadership roles in the Consulting Club of his college and TEDx showcase strong team management and strategic skills. Aditya is well-versed in regression analysis, portfolio management, and has technical proficiency in Python, MS PowerBI, and more. Aditya is a versatile professional with a solid foundation in finance, strategic consulting, and leadership.
Last Updated:February 26, 2024

What is the Service Sector?

The service sector, also known as the tertiary sector, is one of the three traditional economic sectors, following the primary and secondary sectors. It involves intangible services exchanged between the buyer and the seller.

This sector focuses on providing services rather than manufacturing or producing commodities, as in the case of primary and secondary sectors.

Some of the activities covered in this sector are retail, hotels, banks, real estate, health, education, social work, recreation, computer services, communication, media, gas, electricity, and water supply.

Over the past century, there has been significant expansion in this sector, making it one of the largest sectors in the economy of the 21st century in most developed economies.

There has also been an exponential increase in knowledge, which has led to a massive explosion in the sector. As a result, a noticeable shift has shifted away from a manufacturing-based economy, partly attributed to increased automation.

Automation has led to improved performance and quality of service delivery to the nation's consumers as it helps businesses to remain competitive by contributing to greater output at a lower cost.

Key Takeaways

  • The service sector, or tertiary sector, offers intangible services, distinct from manufacturing, and encompasses diverse fields like retail, finance, healthcare, and communication.
  • Rapid expansion characterizes the modern economy service sector, driven by technological advancement, automation, and increased demand for specialized services.
  • Services are intangible and often personalized, falling into categories such as business services (banking, transportation), personal services (hospitality, healthcare), and social services (education, housing).
  • The service sector significantly contributes to national income, facilitates industrialization, supports agriculture, and reduces regional disparities, enhancing overall market growth and improving living standards.
  • Government policies, societal changes, business trends, technological advancements, and globalization play pivotal roles in shaping the dynamic growth of the service sector.

Service Sector Features

It can be characterized as:

  • Intangibility: It is not a physical product that can be either touched or seen. The receiver or the buyer experiences it. Quality assessment typically occurs after consumption, though not exclusively
  • Inconsistency: The absence of perfect standardization and quality differences sometimes makes it inconsistent
  • Inseparability: It typically refers to the close association between services and their providers, although exceptions exist
  • Storage: It is limited compared to physical goods, as they are typically not held in inventories, though some services can be stored or reserved in advance

Service Sector Significance

Some of the important aspects are:

  1. Share in Net National Product: The service sector contributes significantly to a country's net national product or national income.
  2. Helps Industrialization: The development of industries is based on the performance and improvement of electricity, banking, transport, etc., which provides a broader industrial goods market and flourishes initiatives in remote areas. 
  3. Expands Agriculture: The service sector contributes to the development of agriculture by facilitating the movement of resources and goods, among other factors.
  4. Removes Regional Imbalances: The problem of regional imbalances and disparities in an economy is resolved with the expansion of medical facilities, education, communication, and transportation in the backward regions of the country.
  5. Growth of Market: The tertiary sector provides different types of services to both the agricultural and industrial sectors, helping the markets grow appropriately for finished goods, semi-finished goods, and raw materials.
  6. High Quality of Life: This sector's efficiency helps a country lay down the path for economic development by enhancing the quality of life or the standard of living of the people within a country, thereby improving the Human Development Index.
  7. Increase Productivity: The service sector enhances productivity by providing access to proper medical facilities and technical education. Additionally, well-organized communication and transportation networks encourage increased mobility and access to information.


Facilities provided to the laborers make them more efficient and skillful, thereby simultaneously increasing the productivity of a country.

Types of services

Let's understand the different types of services. There are three basic types of services:

1. Business services

In the most basic terms, it supports any business's daily activities and functioning. It helps any business enterprise to function smoothly and manage its activities. It is a recognizable subset of economic services.

Business services focus on delivering value to their customers. It includes banking, warehousing, insurance, transportation, communication, etc.

Business services align information technology assets with the needs of the company's employees and customers, supporting business goals and enhancing profitability.

2. Personal services

These are commercial activities provided to individuals with their individual needs in mind. These are non-uniform, as the provider alters them according to the needs of each customer. It includes hotel and accommodation, catering, medicines, etc.

3. Social services

The government or nonprofit organizations provide these to achieve social equality by providing help to the backward section of society. This includes the educational sector, sanitation, medical facilities, housing, etc.

Factors contributing to the growth of the service sector

Some of the major factors are:

1. Government policies

Privatization, a government policy aimed at transforming companies such as telecom and airlines, has led to restructuring costs and increased market focus. This leads to an increase in efficiency and profits. 

2. Social changes

The need to hire individuals for tasks previously handled by household members, such as child care, laundry, and food preparation, has increased due to changing family dynamics, including more members entering the workforce.

These changes result from shifting lifestyles, including higher incomes, widespread mobile phone usage, increased globalization, and declining prices of high-technology products designed for consumers.

3. Business Trends

The widespread adoption of franchising in various industries has expanded the service sector by enabling rapid business growth and market penetration.


Licensing of independent entrepreneurs to sell and produce according to tightly specified procedures.

4. Advances

Changes in the service sector result from the integration of communication technology, enabling enhanced connectivity and efficiency. Power software enables firms to create databases about customers, predict new trends, and segment the market and new market opportunities.

Sales and customer service personnel get in touch with the creation of wireless networks and the transfer of electronic equipment.

5. Internationalization and Globalization

An expansion on an international level may be driven by the need to respond to existing customers or a sector of new markets. When companies expand operations internationally, they often engage with a limited number of international suppliers.

As a result, competition intensifies, fostering the transfer of innovation in processes and products across borders.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources: