Another important concept in industry research is industry classification systems.

Transcription

1 Another important concept in industry research is industry classification systems. There are several industry classifications using different approaches to grouping similar companies into industries. The two classifications used by the U.S. government are NAICS, the North American Industry Classification System, and SIC, the Standard Industrial Classification system. NAICS uses a 6-digit code, developed by the U.S., Canada and Mexico in 1997, to provide comparability in business statistics and to replace SIC. NAICS is based on similar processes for production activities, with special attention given to emerging industries, service industries and advanced technologies. NAICS is compatible with the United Nations International Standard Industrial Classification (ISIC). It is updated every five years for each Economic Census. SIC uses a 4-digit code to classify establishments by their primary activity focusing on similar products and services. Established in 1937, it was replaced by NAICS in Last updated in 1987, SIC is still used by some government agencies and in many databases. That is why it is important to understand the relationship between the two systems and effects it has on the comparability of data. From the U.S. Census Bureau website (1) point at Business and (2) click on NAICS. 1. HOVER OVER BUSINESS This is the main NAICS page: 2. CLICK

2 On the left-hand menu, you may search by keyword or 2-6 digit code. You can also browse the classification with the 2007 NAICS link under Downloads. Go ahead and click on the 2007 NAICS link. CLICK

3 As you can see, manufacturing, wholesale trade and retail trade are different sectors under NAICS. Click on the 2-digit sector Manufacturing and scroll down to 312 Beverage and Tobacco Product Manufacturing. Soft drink manufacturing is part of beverage manufacturing and, at a more general 3-digit level, part of beverage and tobacco product manufacturing.

4 Industry Scope As we have already discussed, defining your industry scope is important. Is your data for soft drink manufacturing which falls under NAICS , or is it for a broader 4-digit sector Beverage manufacturing NAICS 3121? Check your source to clarify at what level your data is collected, and whether different elements from multiple reports may be compared. You may always check what kinds of establishments are included in a NAICS code. Just search for the code, or click on the link from a browse screen.

5 SIC & NAICS This table compares the structure of SIC and NAICS: SIC NAICS NUMBER OF DIGITS DESCRIPTION EXAMPLE NUMBER OF DIGITS DESCRIPTION EXAMPLES 1. Division 5. Retail Trade 2. Sector 72. Accommodation and Food Services (NEW) 2. Major Group 58. Eating and Drinking Places 3. Industry Group 581. Eating and Drinking Places 3. Subsector 722. Food Services and Drinking Places 5. Industry Limited Service Eating Places 6. U.S. Industry Snack and Nonalcoholic Beverage Bars While many NAICS industries directly correspond with SIC industries, a number of SIC industries were split or combined to form a new NAICS industry. In addition, a number of new technology and service industries in NAICS don t have a direct correlation in SIC. For example, under SIC restaurants were classified under the Retail Trade division. The narrowest distinction you could make is between eating only and eating and drinking places. Under NAICS, a new Accommodation and Food Services sector was created. With 6-digits, we can now distinguish among limited service eating places, cafeterias, and snack and nonalcoholic beverage bars, such as coffee shops. The data is now collected at a narrower level. It becomes useful when, for example, you are creating a business plan to open a neighborhood coffee shop and would like to know how many other coffee shops are within a 2-mile radius from your location. You could not find data at this level of granularity under SIC.

6 Learn more about industry classification in the Industry Research Guide: