What is an industry?

An industry is a group of companies that do similar things for a business. There are dozens of different types of industries in today’s markets. Most of the time, industry classifications are put together into bigger groups called sectors.

Businesses are usually put into a field based on where most of their money comes from. For instance, an automaker might have a financing division that brings in 10% of the company’s total income, but most classification methods would still put the company in the automaker industry.

Getting to Know an Industry

Similar businesses are put into fields based on the main thing they make or sell. This makes industry groups, which can then separate businesses from people who do different things.

Investors and experts often look into industries to learn more about what makes companies make money and what stops them from making more. Comparisons of companies in the same industry can also be used to determine how appealing a company is.

The prices of stocks in companies that work in the same business tend to move in similar ways. Businesses in the same field deal with the same problems, gains, and setbacks.

Unique Things to Think About

Stocks in the same business often go up and down together because all of them are affected by the same big-picture economic factors. Some of these macroeconomic factors are changes in how buyers feel about the market, like how they feel about an event or news. These changes can also be aimed at the business itself, like new rules or higher costs for raw materials.

On the other hand, things that happen in one business can make its stock rise or fall without affecting other stocks in the same field. This could happen because of a new product that sets the company apart, a business scandal in the news, or a change in how the company is run.

Different types of industries

It is possible to group businesses that do similar things together using fields and industries. But sectors cover more ground than businesses.

In the North American Industry Classification System (NAICS), retail trade is an example of a business. Business types like health and personal care, clothing, and shoe stores are all in that area. Even though Rite Aid Corporation and Gap, Inc. both make and sell consumer goods, they would be placed in different industries because of the types of goods they make and sell. Gap, Inc. is in the clothing stores industry (NAICS Code 448130) and the clothing items industry (NAICS Code 448150). Rite Aid Corporation is in the health and personal care store industry (NAICS Code 44610).

One company can be in two different businesses or sectors, which is something to remember. Rite Aid is not only in the consumer goods industry but also in the personal services and photofinishing laboratory business. This company has more than one NAICS code because it sells consumer items and develops photos. For example, its photo department has NAICS Code 812921.

The United States, Canada, and Mexico developed the North American Industry Classification System (NAICS). This is how the government groups businesses when they are collecting statistics. Companies that use similar ways to make things are put into the same business in the NAICS hierarchy.

Every five years, the NAICS is looked at and changed. The most recent version came out in 2022. This new version of industry codes best shows how companies are categorized, especially in fields that have changed significantly since 2017.

“North American Industry Classification System.” Office of Management and Budget.

GICS stands for the Global Industry Classification Standard.

Another classification method that is often used is the Global Industry Classification Standard (GICS). GICS puts each public company in an industry group and economic area that best describes what it does. Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P) made the GICS in 1999. It was made to be a helpful investment tool that could show the size, depth, and change of different industry areas. Investors, researchers, and economists use the GICS method to find similarities and differences between companies in the same MSCI index.

This is a four-level, hierarchical method for classifying industries called the GICS. The GICS hierarchy lists 11 different types of economic areas. There are 24 industry groups, 69 industries, and 158 sub-industries that make up these areas. Each stock can be identified by its code at all four stages. For instance, “materials” is a business area. Different businesses work with materials, such as chemicals, building materials, containers and packaging, metals and mining, paper and forest products, and metals and mining.

What does an industry look like?

‘Finance and Insurance’ was given its top-level industry by the NAICS. Credit brokers, financial investment firms, insurance companies, funds, trusts, and other financial vehicles are just a few groups working in this area. For example, commercial banking is a separate NAICS business with its classification code (522110).

An industry is a group of businesses that work together to make things.

A sector is not the same as a business. Take consumer goods as an example of a field. Then, this area can be split up into many different consumables, like clothes or health care. So, sectors are often further broken down into industries, which are then made up of even more industries that group similar companies based on even less information about their goods and operations.

What’s the difference between a business and an industry?

A broad category that includes many businesses is called an industry. A single business can work in any field. When a group of businesses do similar things and make similar products, they may be put together and put in the same field.

How many different fields are there?

Different systems will group and report on businesses in different ways. In the past, the NAICS has divided businesses into about 20 sectors, 100 subsectors, and more than 1,000 six-digit industry numbers.

Conclusion

• Groups of companies that do similar work are called industries. Examples of industries are department stores and cars.
• The main thing that a company makes or sells determines what industry it belongs to. There are even more groups of industries called sectors.
• When the government groups businesses into sections or industries, they use the North American Industry Classification System as the standard. The Global Industry Classification Standard also gave every business an economic area and industry group.
• Companies in the same industry often do the same because the economy as a whole can help or hurt all companies with similar goods or customer bases.