Reviewed by Sep 30, 2020| Updated on
An industry comprises of a number of companies/factories performing business activities with a focus on a particular audience/customer base, also called as a sector. A sector is generally wide and can comprise of various industries. Companies are categorized into a particular industry based on their primary revenue segments.
Industries are identified or are formed on the basis of the contribution of similar products or services manufactured or provided by companies/enterprises. The classification is based on the primary product or service offered by the companies. For example, the pharmaceutical industry comprises of the healthcare services, biotechnology companies, speciality chemicals, among others.
The grouping of companies into an industry helps in peer comparison, process comparison, and revenues from the sale of the product or service. In many cases, a particular company acts as the industry leader who has the major market share and sets the policies and trends for the industry.
For example, Maruti Suzuki is the industry leader in the automobile industry, having the largest market share in passenger cars. The policies, such as price rise and discounts, are set by the market leader.
Companies within an industry are affected by the same set of macroeconomic factors such as shortage of raw materials, low consumer demand or government’s policy, among other factors. The stock prices of the listed companies in an industry also show a similar impact from the macroeconomic factors.
The services industry comprises of various technology companies, such as information technology, fintech companies, financial services, and others. For example, information technology companies developing software products are grouped together. Their margins, hiring policies, estimated turnover and other factors become comparable.
A grouping of enterprises or companies into an industry helps identify the broad operating structures within the industry. It also helps companies identify broader issues in production or due to market forces like low demand and raise their concerns with the government. The industry can act in unison and co-ordinate or do business with its peers too.