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Essay: Grouping similar industries

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  • Published: 21 June 2012*
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Grouping similar industries

An industrial sector refers to a broad way of grouping similar industries. An industry means all firms in the same type of business e.g. the Banking industry refers to all businesses involved in providing financial services.

The WYNTL refers to three industrial sectors, although other textbooks sometimes refer to a fourth one. However, as far as this unit is concerned, we have the following broad groups of industries:

  • Primary Sector made up of all those industries involved in farming or extraction industries e.g. growing crops and mining. The primary sector is the start of the chain of production.
  • Secondary Sector made up of all those industries that manufacture goods e.g. food manufacturers and metal manufacturers. This sector is the next stage in the chain of production, following on from the Primary sector.
  • Tertiary Sector

made up of all those industries that provide services e.g. financial services and retail services (shops etc). This sector either distributes manufactured goods to customers or provides services – products that are not physical goods. Tertiary industries are at the end of the chain of production

Each of these three sectors have different types of problems: businesses operating in the Primary sector face different problems than businesses operating in the Tertiary sector. In addition, the size of each sector changes over time: in the United Kingdom the Secondary sector has been falling in importance during past decades.

Industry Sectors

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The termsindustry andsector are often used interchangeably to describe a group of companies that operate inthe same segment of the economy or share a similar businesstype.Although the terms are commonly usedinterchangeably, they do, in fact,have slightlydifferent meanings. This differencepertains totheir scope; a sectorrefers toa large segment of the economy, while the termindustry describes a much more specificgroup of companies or businesses.

A sector is one of a few generalsegmentsin theeconomywithin which a large groupof companies can becategorized.An economy can be broken down into about a dozensectors, which can describe nearly allof thebusinessactivityin that economy. For example, thebasic materialssectoris the segment of the economy in which companies deal in the business of exploration, processing and selling the basic materials such as gold, silver or aluminum which are used by other sectors of the economy.

An industry, on the other hand,describes a much more specific grouping of companieswithhighly similar business activities.Essentially,industries are created by further breaking down sectors into more defined groupings. Each of the dozen or so sectors will have a varyingnumber of industries, but it can be in the hundreds. For example,thefinancial sector can be brokendown into industries such as asset management,life insurance andNorthwest regional banks. TheNorthwest regional bank industry, which is part of thefinancial sector, will onlycontain companies that operatebanks in the Northwestern states.

When breakingdown the economy, thefirst groups are sectors which describe a generaleconomic activity.Thenall of the companies thatfall into that sector are categorized further intoindustries where they are grouped only withcompanies with which they sharevery similar businessactivities. This is not the end, however.Industries can befurther sub-categorized into various, more specific groupings.

It should be noted thatyou may find situationsin whichthese two terms are reversed. However, the general idea remains: one breaks the economy down into a few generalsegments while the otherfurther categorizes those intomore specific business activities.In the stock marketthe generally accepted terminologycites asector asa broad classificationand an industry as a more specific one.

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