In macroeconomics, an industry is a branch of an economy that produces a closely related set of raw materials, goods, or services. For example, one might refer to the wood industry or to the insurance industry.
When evaluating a single group or company, its dominant source of revenue is typically used by industry classifications to classify it within a specific industry. For example the International Standard Industrial Classification (ISIC) – used directly or through derived classifications for the official statistics of most countries worldwide – classifies "statistical units" by the "economic activity in which they mainly engage". Industry is then defined as "set of statistical units that are classified into the same ISIC category". However, a single business need not belong just to one industry, such as when a large business (often referred to as a conglomerate) diversifies across separate industries.
Other industry classification systems include the North American Industry Classification System (NAICS), which was developed through partnerships with North American countries such as the United States, Canada, and Mexico, in order to standardize the comparison of business activities in North America. There is also the Global Industry Classification Standard (GICS), which is used to assign companies to specific economic sectors and industry groups.
There are many industry classifications in the modern economy, which can be grouped into larger categories called economic sectors. Sectors are broader than industry classifications. For example, the retail trade sector contains industries such as clothing stores, shoe stores, and health and personal care stores. Companies are not limited to one sector or industry. They can reside in multiple sectors and industries.
Industries, though associated with specific products, processes, and consumer markets, can evolve over time. One distinct industry (for example, barrelmaking) may become limited to a tiny niche market and get mostly re-classified into another industry using new techniques. At the same time, entirely new industries may branch off from older ones once a significant market becomes apparent (as the semiconductor industry became distinguished from the wider electronics industry).
Industry classification is valuable for economic analysis because it leads to largely distinct categories with simple relationships. Through these classifications, economists are able to compare companies within the same industry to evaluate the attractiveness of that industry. Companies within the same industry can also have similar stock price movements due to their similarity and macroeconomic factors that affect all members of an industry. However, more complex cases, such as otherwise different processes yielding similar products, require an element of standardization and prevent any one schema from fitting all possible uses.
See also edit
- Norton, Norton (26 March 2015) . "General Motors: Lost Dominance". In Tremblay, Victor J.; Tremblay, Carol Horton (eds.). Industry and Firm Studies (4 ed.). London: Routledge (published 2015). p. 271. ISBN 9781317468028. Archived from the original on 10 October 2021. Retrieved 10 October 2021.
It was noteworthy that GM's dominance was in an extremely important industry. In simplest economic terms, it is a foundational industry. [...] The motor vehicle industry is a bellwether industry—its success has long been a signal of the state of the American economy.
- Compare: "Industry". Merriam-Webster.com Dictionary. Merriam-Webster. 4 August 2020. Archived from the original on 6 January 2006. Retrieved 11 August 2020.
1 b: a distinct group of productive or profit-making enterprises [...]
c: a department or branch of a craft, art, business, or manufacture
- "'Definition of Industry' Investopedia". 2003-11-20. Archived from the original on 2017-07-22. Retrieved 2015-05-22.
Individual companies are generally classified into an industry based on their largest sources of revenue. For example, while an automobile manufacturer might have a financing division that contributes 10% to the firm's overall revenues, the company would be classified in the automaker industry by most classification systems.
- International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4 (PDF). New York: United Nations Publication. 2008. p. 3. ISBN 978-92-1-161518-0. Archived (PDF) from the original on 2022-06-22. Retrieved 2022-06-21.
6. The classification is used to classify statistical units, such as establishments or enterprises, according to the economic activity in which they mainly engage. At each level of ISIC, each statistical unit is assigned to one and only one ISIC code, as set out below. The set of statistical units that are classified into the same ISIC category is then often referred to as an industry […]
- Kenton, Will. "North American Industry Classification System (NAICS)". Investopedia. Archived from the original on 2023-05-01. Retrieved 2023-05-01.
- Hayes, Adam. "What Is the Global Industry Classification Standard (GICS)?". Investopedia. Archived from the original on 2023-05-01. Retrieved 2023-05-01.
- Gorton, David. "Industry Definition in Business and Investing". Investopedia. Archived from the original on June 3, 2022. Retrieved May 30, 2022.