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Understanding Sector vs Industry
You’re looking to write a business plan or complete an application for your business and you’re asked about industry and sector…
You wonder: what is the difference between a sector and an industry?
Many use the words industry and sector interchangeably, but they do not mean the same thing.
Keep reading as I will provide you an overview of the main difference between a “sector” and an “industry” so you know exactly what they mean.
Before we dive into the differences between a sector and industry, let’s first define each of them.
Sector Meaning
A sector is a broad reference to a large segment of the economy.
When you look at an economy at large, a sector represents a large portion of the economy.
For example, the energy sector refers to the segment of the economy where companies focus on energy as their primary business activity ranging from exploration companies to oil and gas production.
The financial services sector is a large segment of the economy where the companies offer different financial services to their clients, from banking to insurance.
Industry Meaning
An industry refers to a specific group of companies that are similar in their primary business activities.
When you look at a specific sector, you can subdivide it into different industries.
For example, the financial services sector is composed of the banking industry, insurance industry, investment banking industry, asset management industry, and so on.
What’s particular with an industry is that the companies that operate within it have the same primary business activity.
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Difference Between Sector And Industry
What are the main differences between a sector and industry?
Although the terms sector and industry may be used interchangeably by many, they actually do not mean the same thing.
The main difference between a sector and industry is that a sector is a much broader classification of businesses than an industry.
Sector
A sector refers to a general segment of the economy.
Industries that are part of the same sector are classified together and referred to as companies within the same sector.
For example, the insurance industry, banking industry, and investment banking industry are all part of the financial services sector.
There are four sectors: primary sector, secondary sector, tertiary sector, and quaternary sector.
The primary sector is one where the companies harvest or extract raw materials.
The secondary sector is composed of manufacturing, processing, and construction companies.
The tertiary sector is made up of retailers and companies selling to end customers.
The quaternary sector is the sector that deals with knowledge and intellectual property.
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Industry
An industry refers to specific type of companies similar in nature and that have a similar primary business activity.
For example, you can have banks in the financial services industry.
The banks are grouped into an industry as they are similar in nature.
At the same time, the banking industry is part of a much broader business classification which is the financial services sector.
There are many more industries out there than sectors.
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Key Differences
The key differences between a sector and industry are as follows:
- A sector is a group of industries grouped together into a large cluster of companies whereas an industry is a group of similar companies
- A sector is a large segment of the economy whereas an industry is a specific segment
- An industry is a specific group of companies with a similar nature of business whereas a sector includes companies in different but related industries
- Industries can be classified based on the companies’ main business activity
- There are many more industries in an economy than there are sectors
- A sector is more general in nature and an industry is specific in nature
- A sector is broken down into four parters (primary, secondary, tertiary, quaternary) whereas industries do not have specific components
Sector vs Industry In Stock Market
In the stock market, most traders and financial professionals consider a sector to represent a broad classification of companies and an industry to be a more specific classification.
When evaluating different stocks and investment options, it’s useful to compare stocks in the same industry to get a better perspective of the stock’s performance.
For example, when you compare different airline companies within the airline industry, you will have a better appreciation for their performance and cyclical variations of the stocks.
On the hand, if you compare airlines to other companies in the transportation sector in general, you may not get the right perspective to make a sound investment decision.
Stocks in the same industry tend to be affected by the same economic variables, and have similar capital requirements and operating margins.
Sector vs Industry Examples
Let’s look at some examples of sectors and industries to better understand the concept.
Financial Services Sector
The financial services sector includes companies in the following industries:
- Banking
- Insurance
- Brokerage
- Asset management
- Investment banking
- Real estate investment
Energy Sector
The energy sector includes companies in the following industries:
- Coal
- Electric power
- Hydroelectric power
- Oil and gas
- Offshore drilling
Transportation Sector
The transportations sector includes companies in the following industries:
- Air transportation
- Road transportation
- Rail transportation
- Shipping
- Automobile towing
Sector vs Industry FAQ
What is the main difference between a sector and industry?
The main difference between a sector and an industry has to do with the nature of the companies that are included in them.
A sector is composed of companies in different industries whereas industry is composed of companies within the same business activity.
For example, in the energy sector, you have the coal industry, oil and gas industry, electric power industry, and so on.
Within the oil and gas industry, you have offshore drilling companies, exploration companies, refineries, and so on.
What are examples of sector vs industry?
Sectors can include:
- Basic metals
- Construction
- Education
- Financial services
- Food
- Health care
- Mining
- Transportation
- Energy
Industries can include:
- Book publishing
- Cannabis production
- Coffee
- Fast food
- Courier services
- Aircraft maintenance
- Furniture
- Home improvement
As you can see, sectors are very broad whereas industries are specific.
How are sectors and industries classified in economics?
In economics, a hierarchy starts with the economy as a whole.
The broadest hierarchy of business classification is to refer to the entire economy.
Then, the economy is segmented into different sectors.
Sectors are large portions of the economy where companies are classified into a group where they are logically related.
Then sectors can be subdivided into industries where the companies within the same industry are similar in their business nature.
Industries are smaller and most specific classification of companies within the economy.
Takeaways
So there you have it folks!
What is the difference between sector vs industry?
In a nutshell, we can say that an industry is a subset of a sector.
In other words, a sector is a much broader classification of companies where many industries can be grouped into a sector.
Comparing different sectors and industries is useful when you’re looking to compare different types of business.
Now that you know what are the main differences between sector and industry, good luck with your research!
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