Different industries are now being categorized or grouped under the new classification system known as the North American Industry classification system. (NAICS). The office of management and Budget (OBM) came up with the new system to replace the old system, which is the US Standard Industrial Classification system (SIC). The structure of NAIC taxonomy is based on a production-oriented or supply- based conceptual framework instead of an output – based framework.
The purpose of an Industrial Classification System is basically to try to group Industries and categorize firms according to common characteristics so that one can categorize specific statistical information such as import or export, employment, tax revenues, and or wage information (William and Weinstein, 2004). The OMB can classify or code any business or establishment into an industry.
Not only is the work of classifying or coding the Industry the work that NAICS does. In addition it makes it possible to compare industry statistics among international, state, and local economies. This was not the case with the US standard industrial classification system. In the SIC one cannot make direct comparison between countries. This is why the OBM decided to replace it with NAICS.
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The new classification system now caters for new and emerging industries, especially those that are considered to be highly technological and other sectors that have similar production processes. The NAICS uses a six-digit code, whereby the first two digits identify the general sector, while the third, fourth and fifth digits are more specific to the operations of the sectors. Each sector is divided into many groups and each group is further separated into specific production shown by five and six digit codes (Leo, 2005).