Industry vs. Sector (With Differences and Definitions)

By Indeed Editorial Team

Published May 19, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The economy has several sectors, which are further subdivided into related services and goods. It's possible to comprehend the varied activity levels within an economy by segmenting enterprises into defined parts, which can be helpful to investors and economists. Understanding how this organization takes place can help you better understand the entire structure of the economy. In this article, we discover the answer to "What is industry vs. sector?", learn what industries and sectors are, and review a list of their differences.

Industry vs. sector

To understand the differences between industry vs. sector, it's important to note that an industry refers to a specific set of businesses engaged in commercial activities, while a sector is a segment of the economy where multiple businesses engage in similar activities. It's not uncommon to use the phrases industry and sector interchangeably to refer to a collection of businesses operating with a similar business model. Sector is often a more general term that refers to a greater segment of the economy, whereas industry is a more precise one. One can divide the economy into a few broad categories, while the other further divides those into more specialized commercial activities.

What is an industry?

You can form industries by subdividing sectors into distinct sub-groupings of similar products, where each sector can contain a different number of industries. For example, various diverse industries within the financial sector include banks, asset management companies, life insurance companies, and brokerage firms. Companies that operate in the same industry usually compete for clients by providing services comparable to one another. For example, banks compete for consumers who establish chequing and savings accounts, while asset management firms seek clients who invest their money.

You can subdivide these industries into specific groups based on their characteristics. For example, you can subdivide the insurance sector into separate, specialized divisions, such as house and vehicle insurance, life insurance, malpractice insurance, and corporation insurance. Investors usually find it more convenient to evaluate several companies within the same industry before deciding on an investment option. They typically do this because most companies in an industry use the same manufacturing techniques, cater to the same consumer base, or have similar financial statements. Below is a list of some common industries:

  • Hospitals

  • Commerical banking

  • IT consulting

  • Car dealerships

  • Gym, health and fitness clubs

  • Grocery stores

  • Electrical power

  • Insurance brokers

  • Apartment rentals

  • Couriers and local delivery services

What is a sector?

A sector is one of the important general economic segments in which you can classify many enterprises. You can divide an economy into many sectors, each of which practically describes the business activity taking place in that economy. Economists can undertake a more in-depth analysis of the economy by examining each specific sector. Investors can only classify some industries into sectors because of their traits and risks. For example, the telecommunication industry, the transportation industry, the healthcare industry, or the financial industry. The four different sectors in an economy include:

Primary sector

The primary sector, also known as the industrial sector, encompasses all activities that exploit or produce natural resources. This sector usually harvests and processes natural products for the secondary sector, which can sell them to enterprises that make and sell commodities to consumers. Some industries that operate within this sector include agriculture and forestry.

Secondary sector

The secondary sector encompasses all industries involved in the transformation of raw materials into finished commodities, such as manufacturing and construction. Many organizations in this sector are service providers because they deal directly with customers. Some examples include energy production, light manufacturing, oil refining, food processing, and heavy manufacturing.

Tertiary sector

This sector comprises services that provide support to the primary and secondary sectors. It usually includes any industry that interacts directly with customers. Banking, transportation, communication, advertising, and packaging are examples of industries in this category.

Quaternary sector

This sector encompasses all intellectual endeavours, such as education and research. If you're interested in intellectual development, you may find it in this area of the economy. Some examples include libraries, research institutions, and institutions of learning.

Related: What Is Job Sector and What Are the Different Types?

Differences between industries and sectors

The differences between an industry and a sector include:

Scope

An industry usually has a significantly narrower scope compared to a sector because it only has a few organizations that share comparable features. Sometimes specific geographic areas may have a high concentration of enterprises. A sector usually has a considerably broader range because it has a large economy. There are often thousands of industries within a sector's scope, and some sectors may have more industries than others.

Read more: What Is a Growth Industry (And Which Are Fastest-Growing)

Form

When several businesses produce or supply services that are quite similar to one another, they can form an industry. As a result of enterprises, technology advancements, and economic growth, these companies are capable of forming an industry rather quickly. Due to developments in the economy, industries may potentially change or disappear over time. The secondary and tertiary sectors are usually more stable during major economic changes because they include most essential industries.

Definition

Enterprises operating within a section of an economy can form an economic sector. Its most significant source of income can also characterize a company's position within an industry. For example, the financial area of an entertainment firm may contribute a certain percentage of its total profits. As a result, the company's essential product or service is what defines it as a member of the entertainment sector.

A sector often refers to a group of related areas of the economy. Examples of secondary sectors can include textiles, energy utilities, and automobile manufacturing. The primary sectors usually encompass all industries that produce commodities and provide services to the public.

Classification

You can classify industries depending on the items or services they provide. Most of the time, these classifications contain multiple restrictions and can only apply to specific businesses inside certain industries. You can categorize different industries depending on their overall degree of activity. Subclassification of the economy is often done according to how businesses are run. Sectors such as elementary, secondary, tertiary, and quaternary education mostly use general terms to describe their operations.

Related: Debt vs. Equity Financing (With Types and Example)

Hierarchy

The economy is the first and most influential in the economic hierarchy because it serves as the foundation for all company operations. Sectors rank second because they usually divide all financial practices into various categories and smaller components. The last hierarchy is the industries because they're often the most minor and most specific components within an economy.

Analysis

An industry or sector study can assist businesses in understanding competitive developments, supply and demand figures, future opportunities, and the impact of external factors on the economy. Companies comparing their performance to the economy's performance usually have a limited perspective because industry research may only give them a narrow view of the economy. A sector analysis can help provide a comprehensive picture of the entire economy. Industries may compare the performance of other industries to gauge their performance in the same economy.

Read more: What Is Industry Knowledge? (With Levels and Examples)

Policy flexibility

Government agencies frequently impose stringent restrictions on the industries they regulate because it associates each of them with a particular product or service. Sector policies are flexible because they usually encompass hundreds of industries with different criteria. Each industry can have its own set of guidelines. Government authorities frequently develop sector policies to ensure that each economic division remains resilient during industry developments. Governments may use these policies to help improve the performance of the economy.

Management

Managing a company within an industry is typically easier because the commercial operations within that area usually entail well-defined processes, goods, or services. Because there are usually fewer tasks to complete, it's easier for managers to monitor and keep track of the company's situation. In some businesses, managing a sector can be difficult because of the many industries taking part in different sectors within a specific region. It's also important to note that a higher level of competence and experience in the sector is often necessary than in the industry.

Related: Director vs. VP: What's the Difference?

Term categorization

An industry is a collection of companies and organizations engaged in related activities, such as manufacturing, producing, or providing services to customers. The term sector refers to the number of industries in a particular area engaged in similar activity. Categorization often emphasizes the likelihood of businesses executing a variety of functions within the same industry.

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