January 29, 2022

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Meaning of Industry and Key Explanations

Meaning of Industry and Key Explanations
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The word industry signifies companies that share similar workflow and functions. It also implies that the organizations experience the same challenges. In addition, the term is used to differentiate one group or company from another.

Definition of Industry

Industry can be defined as a set of companies that perform similar activities and require similar materials and/or services to make or trade goods and services.
It can also be seen as a group of companies with primary business revenue.

Key Explanations

The term industry is used to differentiate one set of business activities from another. For example, companies whose business activities involve the manufacturing and trade of foods (including drinks) are classified under the food industry. Also, businesses whose activities are about building roads, bridges, and houses fall under the construction industry.

However, a company may be involved in business activities that fall in more than one industry. To decide which industry it belongs to, the activities that give the business the most revenue become its industry. For example, if a Holding company has subsidiaries in different industries. Say, banking, insurance, and e-commerce. Assuming 68 percent of its revenue is from banking, then it can be said that the holding company belongs to the banking industry.

A good example is Jumia. It owns various online business activities. Starting from e-commerce, financial technology (JumiaPay), and logistics. Its e-commerce business activities predominate to others. Therefore, the company is known for e-commerce.

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Companies in the same industry face similar economic issues. For example, companies in the food industry face raw material issues. Getting this material from the agricultural industry or sector might be difficult. As there are not enough farmers growing the raw materials. However, if the goods are the source through import, the high volatility of foreign exchange rates will increase the cost of producing the goods. Other factors are interest rates and regulations.

In the Nigerian Exchange Group NGX Limited, companies are categorized into 11 industries or sectors. The lists are stated below: Agriculture, Conglomerates, Construction/Real Estate, Consumer Goods, Financial Services, Healthcare, ICT, Industrial goods, Natural gas, and Services.

Importance of Industry in Nigeria

Industries are important to the Nigerian economy, especially as the country faces high unemployment, underdevelopment, and foreign exchange rates. If several industries are allowed to thrive it will reduce the problems of Nigeria.

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Policies and regulations that will ease the cost of doing business in the country should be the focus of the government and not rules that prevent new firms from being established or make it difficult for current businesses to strive.

This classification helps in segregating the total Gross Domestic Product of a country. If the total GDP is known, we can easily state the contributions of each sector to the total GDP.

Meaning of Industry and Key Explanations

This is also true with Nigeria Exchange Group. The sectoral classification helps the market to know which sector contributes the most to the market capitalization each week. For example, last week (20 August 2021), the financial service sector had the highest market capitalization in the week. Contributing a whopping 51 percent. This is followed by Consumer goods that contributed 23 percent.

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Conclusion

The term Industry or sector means a group of firms that performs similar activities. It also means that the firms are more focused on specific business activities than others. In such a case, they face similar economic costs, interest rate, forex, import, export, and more. Finally, classifying business based on sector aids the measurement of Gross Domestic Product (GDP).

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