Last Updated on January 21, 2023 by Administrator
Industry and Sector are two commonly used words in everyday conversation. Trying to define these words however, or much more identify their differences, can be more challenging than one might expect. A quick scan of popular online sources will flood you with confusing and inconsistent opinions about their meaning and differences, with some sources suggesting the difference lies in the size of the market; i.e., a sector being bigger than an industry, but that is actually a wrong.
An industry is an area or field of production consisting of closely related and interdependent fields.
The keyword here is interdependent.
An industry is also not limited to an area in terms of location, nor defined by any size for that matter. I.e. it doesn’t need to be “a group of businesses IN an area (location),” they could be dispersed, as long as we are talking about a certain area of production where things work together. An example would be the Fashion Industry which includes players such as Fashion Designers, Photographers, Models, Boutiques and Shops, and several others, all working together to ultimately sell clothing to people.
That brings us to another characteristic of an industry; its players work toward an ultimate product offering or experience. Another example of an industry would be the hospitality industry (which includes hotels, restaurants and food vendors etc.) or the auto (car manufacturing) industry. The name of the industry highlights what the ultimate product offering is.
A sector is a division of a market or economy along a given line of categorization.
The point here is that you are trying to group various elements within an economy along clear lines that you have predetermined or agreed on for whatever purposes; often along lines of similar activities.
What this means is you can have different [kinds of] sectors based on different kinds of categorisations or groupings, and within each sector you can have smaller sectors or groupings which become sub-sectors of the bigger sector, and you can have as many levels of sub-sectors as you require.
A sector may consist of fields or activities that are unrelated in the sense that they do not directly work together or rely on each other, except that they may be similar in nature.
For e.g. you can you can divide a market into Public and Private Sector, thereby categorising them along lines of ownership, or you can divide them into Primary, Secondary and Tertiary Sector thereby categorising them according to the stage of production they handle, or you can divide them according to nature of business and have say Agricultural, Financial, Housing, ‘Business, Trade & Industry,’ Creative etc. sectors. Many government ministries are based on sectors.
Taking from examples above, players in the Fashion Industry like Photographers, Fashion Designers and Boutiques may belong to different sectors being the Creative, Industrial and Trade sectors respectively. Similarly Real Estate Developers and Restaurants both from the Hospitality Industry may belong to the Housing and Food & Agricultural sectors respectively.
Here one might also observe that activities may belong to multiple sectors depending on how they are categorised, but given any line of categorisation an activity must belong to only one sector; it cannot belong to multiple sectors at the same time within a given line of categorisation. For e.g. a government owned transport company may belong to the public sector, if you are grouping sectors according to ownership, and also belong to the transportation sector if you’re looking at the nature of business. It is however not advisable, no matter how tempting it may be, to have it belong to both say the transportation sector and the business sector, when grouping sectors according to nature of business; this creates problems with organisation for most purposes that they would be needed i.e. administrative, library-style catalogues or filing systems etc..
In certain fields like office/secretarial work, or web design, for those that are familiar with these, a sector would be like a category, whereas an industry would be a tag.
With respect to industries however an activity, although often belongs to one industry, is NOT limited to a single industry; an activity may belong to multiple industries at the same time in any context. For e.g. semiconductor companies may belong to both the Auto Industry and the Tech industry as both industries begin to share technologies, with the former adopting Artificial Intelligence and computers in self driving electric cars with various smart features.
Industries evolve more easily in terms of which activities constitute them as times change, whereas sectors are more likely to remain the same in terms of which activities make up the sector.
The issue of size as a way of differentiating between the two words also becomes apparently conflicting through this text. The Global Fashion Industry could for example can be bigger than the Industrial Sector of a given country, and you can also have a sector bigger than an industry within the same country and vice versa; so size is really not a defining factor nor a practicable way of comparing the two words.
Summary of Key Differences
Table 1: Differences between an industry and a sector
|Consists of interdependent activities||May not consist of interdependent activites|
|Has an ultimate product offering||Has no ultimate product offering|
|Not limited to a country||Often limited to a country|
|Typically has no smaller groupings||Has smaller groupings (sub-sectors)|
|An activity may belong to different groupings (industries)||Each activity must be exclusive to one grouping (sector)|
|Evolves more easily||Evolves less easliy|
An Ecosystem (Economics)
Another word we should look at, as it’s often used in the startup space, is an ecosystem. This is similar to although often smaller than or a subset of an industry.
An ecosystem consists of fields work that are working more closely together toward a common goal. The difference between an ecosystem and an industry is that with the former actors are working toward a common goal or shared interests rather than a common product offering, and often do so in much closer proximity with each other.
For e.g. startup ecosystems include incubators and co-working spaces, training programs, funding institutions and entrepreneurs working on different products ultimately, yet all working closely together toward a common goal of economic progress, social impact and/or investment returns.