An industry is a group of companies that are related based on their primary business activities. In modern economies, there are dozens of industry classifications. Industry classification are typically grouped into larger categories called sectors. 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. Similar businesses are grouped into industries based on the primary product produced or sold. This effectively creates industry groups, which can then be used to isolate businesses from those who participate in different activities. Investors and economists often study industries to better understand the factors and limitations of corporate profit growth. Companies operating in the same industry can also be compared to each other to evaluate the relative attractiveness of a company within that industry.
What is Industry
Industry is the production of an economic good or service within an economy. Manufacturing industry became a key sector of production and labour in European and North American countries during the Industrial Revolution, upsetting previous mercantile and feudal economies. This occurred through many successive rapid advances in technology, such as the production of steel and coal. Following the Industrial Revolution, perhaps a third of the world's economic output is derived from manufacturing industries. Many developed countries and many developing/semi-developed countries depend significantly on industry. Industries, the countries they reside in, and the economies of those countries are interlinked in a complex web of interdependence.
Industries are organized under different categories. The categories are grouped as to whether they are heavy or light, domestic or foreign, durable or non-durable, or manufacturing or construction industries.
- Heavy vs Light: This category describes how much capital is required to set up a business in the industry. The heavy industry includes businesses that often employ a capital-intensive production process that requires a large initial investment, such as for operating equipment and machinery. Examples that fall under the heavy category would be most natural resource harvesting sectors, such as steel, coal, and other mining-related sectors. Other sectors that are considered heavy are the aviation sector or the automobile sector. Conversely, a light industry sector would have much lower capital requirements for a business to set up. However, these sectors usually have labor-intensive production processes. For example, the restaurant sector would be light because most of its operating processes require labor as opposed to machinery.
- Domestic vs Foreign: This category describes whether the sector operates and produces goods and services within a certain country’s borders. This classification is from the perspective of that country. A country’s domestic industries are those that are located within its borders. For example, the United States of America maintains a domestic coal sector that is composed of all coal-related production activities within the US. In contrast, foreign sectors are those that are not located within a country’s borders. Using the same example, all coal-related production activities that are outside the United States constitute the foreign coal sector.
- Durable vs Non-durable: This category describes whether the sector produces goods that last a significant amount of time and amortize over long periods. A durable industry is one that produces goods that last a long time. For example, the automobile and aviation sectors both produce goods (cars and planes) that will be used regularly and maintained over many years. Alternatively, a non-durable sector produces goods that usually do not last very long, require immediate consumption, and are perishable. The agricultural industry would be a good example of a non-durable sector, as they produce food that easily perishes if it is not stored appropriately.
- Manufacturing vs Construction: This category describes whether the sector produces a final product or raw materials and intermediate goods that are used in other sectors’ production processes. Manufacturing industries are those that produce final consumption goods. These are the products that end up in the customers’ hands for consumption. Using two previous examples, both the pizza sector and the automobile sector would be classified as manufacturing sectors, despite being very different. Conversely, companies that produce intermediate goods – goods to be used by other companies to produce final consumption goods – would be considered a “construction” industry. Note that, in this context, construction industry is not about companies that build houses or other buildings.
Levels of Industry
Although generally four levels of industry are discussed, advanced books classify industry into five levels. The terms for each level originate from Latin words referring to the numbers one to five.
- Primary (first): Primary industries are those that extract or produce raw materials from which useful items can be made. Extraction of raw materials includes mining activities, forestry, and fishing. Agriculture is also considered a primary industry as it produces “raw materials” that require further processing for human use.
- Secondary (second): Secondary industries are those that change raw materials into usable products through processing and manufacturing. Bakeries that make flour into bread and factories that change metals and plastics into vehicles are examples of secondary industries. The term “value added” is sometimes applied to processed and manufactured items since the change from a raw material into a usable product has added value to the item. *Tertiary (third): Tertiary industries are those that provide essential services and support to allow other levels of industry to function. Often simply called service industries, this level includes transportation, finance, utilities, education, retail, housing, medical, and other services. Since primary and secondary levels of industry cannot function without these services, they are sometimes referred to as “spin-off” industries. Much of the city of Thompson, for example, is made up of tertiary or service industries to support the primary industry of mining.
- Quaternary (fourth): Quaternary industries are those for the creation and transfer of information, including research and training. Often called information industries, this level has seen dramatic growth as a result of advancements in technology and electronic display and transmission of information.
- Quinary (fifth): Quinary industries are those that control the industrial and government decision-making processes. This level includes industry executives and management and bureaucrats and elected officials in government. Policies and laws are made and implemented at this level.
How Industry Benefits a Country
- Better utilization of natural resources: Thanks to the high volumes of resource consumption by large industries.
- A decrease in levels of underemployment: Development of new industries will always require a lot of human resources, with the consequent increase in employment percentages.
- Improvement in capital cumulation: Industries contribute in a good portion with the total national income of any country, but also in the level of income and saving capacity of people in general.
- Support of other economic sectors: The industrial sector also helps with the development of other economic sectors when industries collect different raw materials to transform them. This also helps in the development of different markets based on raw materials and finished products, so diversifying the economy, but also promoting foreign trade.
- Improvement of several countries’ key sectors: Industrialization helps with the development of many strategic sectors like energy, transport, building, chemical, defense, etc. On the other hand, industries greatly contribute to government revenue due to the collection of different taxes that will then be used for public infrastructure.
- Greater economic independence: Production of several key goods helps with the implementation of import substitution measures that at the same time, helps any country to minimize its dependence on foreign imports, but also saving a great amount of foreign exchange.
Countries by Industrial Output 2020
Industry Life Cycle
Industrial Control System (ICS)
Industrial Internet of Things (IIoT)
Economic Capital (ECAP)
Gross Domestic Product