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Industry Write for Us

IntroductionIndustry Write for Us

An industry is a group of related companies based on their primary business activities. In modern economies, there are dozens of industry classifications. However, industry classifications remain typically grouped into more significant categories called sectors.

Individual companies remain generally classified into an industry based on their most prominent sources of revenue. So, 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.

Understanding an Industry

Similar businesses remain grouped into industries based on the primary product produced or sold. It effectively creates industry groups, which can then isolate enterprises from those participating in different activities. As a result, investors and economists often study industries better to understand the factors and limitations of corporate profit growth. Companies operating in the same industry can also remain compared to each other to evaluate the relative attractiveness of a company within that industry.

Special Considerations

Stocks within the same industry often rise and fall as a group because the same macroeconomic factors impact all members of an enterprise. These macroeconomic factors can include changes in market sentiment on the part of investors—such as those based on a response to a particular event or piece of news—as well as modifications explicitly directed towards the specific industry, such as new regulations or increased raw material costs.

However, events relating to just one particular business can cause the stock to rise or fall separately from others within the same industry. For example, it can result from certain events, including a differentiating product release, a corporate scandal in the news, or a change in leadership structures.

How Many Different Industries Are There?

Different classification systems will group and report industries differently. For example, the NAICS has historically grouped companies into roughly 20 sectors, approximately 100 subsectors, and over 1,000 six-digit NAICS industry codes.

Industries vs. Sectors

While both sectors and industries are classification systems used to group similar types of business operations, sectors are broader than industries.

For example, retail trade is a sector within the North American Industry Classification System (NAICS). Within that sector are industries such as health and personal care stores, clothing stores, and shoe stores. Rite Aid Corporation and Gap, Inc. are members of the same consumer goods sector, but each would remain listed in a different industry based on the specifics of the products they produce or sell. Rite Aid Corporation remains classified within the health and personal care stores (NAICS Code 44610). In contrast, Gap, Inc. remains classified in the clothing stores industry (NAICS Code 448130) and clothing accessories industry (NAICS 448150).

The North American Industry Classification System (NAICS), developed by the United States, Canada, and Mexico, is the standard upon which government agencies classify businesses when compiling statistical data. In the NAICS hierarchy, companies that use similar production processes remain categorized in the same industry.

Global Industry Classification Standard (GICS)

The Global Industry Classification Standard (GICS) is a commonly referenced classification system. GICS assigns every public company to an economic sector and industry group that best defines its business. The GICS was developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P) in 1999. It stood created as an efficient investment tool to capture industry sectors’ breadth, depth, and evolution. The MSCI indexes use the GICS methodology, investors, analysts, and economists to compare and contrast competing companies.

The GICS is a four-tiered, hierarchical industry classification system. According to the GICS hierarchy, there are 11 economic sectors. These sectors remain further divided into 24 industry groups, 69 industries, and 158 sub-industries. Each stock has a code to identify it at all four of these levels. For example, “materials” is an economic sector. Within materials, there are different industries: chemicals, construction materials, containers & packaging, metals & mining, and paper and forest products.

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