Originally published: June 2011
Sorting Out the Sorting Systems
When we received an inquiry from a potential foreign client requesting our ISIC number, I was stumped. I've recorded SIC and NAICS classification codes – but ISIC was a new one on me.
I did some research and discovered there are actually four national, multi-national and global industrial classification systems that finance and credit managers should be aware of. Here's a summary of each of them. There are also some links at the end of the article for those of you who want to dig deeper.
SIC – Standard Industrial Classification
Before the SIC code was put in place, each agency defined industrial categories differently, making statistical comparison impossible. The SIC gave a standardized system of industrial categorization to be used by all government agencies, thus bringing focus and uniformity to the gathering of data and the preparation of statistics.
The SIC groups all forms of industry and services into ten broad divisions (01 to 91). The original code had only four digits: the broad division represented by the first two digits; the industry group and type represented by the last two digits. (Ex. Book printing is classified under SIC 2732. “27” represents Printing and Publishing and “32” represents “Book printing”.)
Over the years, various entities have expanded the standard four digits to six and eight digits. In the 8-digit system used by Dun and Bradstreet:
- first two digits represent major groups within the broad definitions
- digits three and four - specific industries within the major groups
- digits five and six – sub-industries within the specific industries
- digits seven and eight – lines of business within the sub-industries
NAICS – North American Industry Classification System
The primary objectives of the NAICS are to:
- classify establishments based on similar production processes (the SIC classified by products and services)
- pay special attention to emerging and service industries and advanced technology
- maintain continuity with existing coding systems, where possible, to enable time-based data comparisons
- conform to the two-digit level of the United Nations’ ISIC classification system
The NAICS classifies all economic activity into twenty industry sectors: five primarily goods-producing sectors and fifteen services sectors. It employs a six-digit code. Digits 1 and 2 designate the largest business sector; digit 3 the subsector; digit 4 the industry group; digit 5 the specific industry; and digit 6 designates national industries.
It groups organizations into industries based on similarity in the processes used to produce goods or services. It is important to note that it is an industry classification system, not a product classification system. Some agencies and organizations, however, have begun using the NAICS as a basis for their procurement programs, a use for which the NAICS is not well suited.
NAPCS – North American Product Classification System
The purpose of the NAPCS is to develop a comprehensive list of products, product definitions, and product codes that classify goods and services according to how they are used. The long-term objectives are:
- the development of a market-oriented classification system for products and services that is linked to the NAICS industry structure
- to develop a system that is consistent across the three NAICS countries
- to promote improvements in the identification and classification of service products across international classification systems
ISIC – International Standard Industrial Classification of All Economic Activities
“ISIC is a basic tool for studying economic phenomena, fostering international comparability of data, providing guidance for the development of national classifications and for promoting the development of sound national statistical systems.”
Initially adopted in 1948, most countries have either used ISIC as their national classification system or have developed their own national codes based on ISIC.
Revision 4 of the ISIC has 21 major classifications (A through U) which are divided into a total of 99 sub-categories (2-digits 01 through 99), which are further sub-divided (single digits 1-9).
Other Industry Classification Systems
Further Resources on the above-mentioned Classification Systems
U.S. Census Bureau