Industry

An industry is a group of companies that produce or offer something similar. BMW, Volkswagen and Toyota belong to the automotive industry. Rewe, Edeka and Aldi belong to the grocery retail sector. The term thus sorts the economy into areas, much like a supermarket divides its shelves into departments. Anyone wanting to know whether a company is doing well or poorly usually compares it to other firms from the same industry. A profit of 500 million euros can be outstanding for one sector and disappointing for another.

Why figures only make sense in an industry comparison

Individual figures say little on their own. A supermarket might earn 2 euros for every 100 euros of revenue, a software maker 30 euros. Yet the supermarket is not automatically the worse company. Both operate under completely different conditions. Only a comparison within an industry shows who is managing well.

Risks, too, depend heavily on the industry. Airlines suffer from high oil prices, construction firms from rising interest rates. When the oil price rises, the share prices of several airlines often fall at the same time. News outlets then write about an industry trend, not the problem of a single company.

For AI coverage, the term is especially important. Almost every week it is said that artificial intelligence will transform this or that industry. What is meant is never a single company, but an entire economic sector with all its competitors, suppliers and customers.

How the classification comes about

The assignment does not happen by feel, but according to fixed catalogs. In Germany, there is the Classification of Economic Activities of the Federal Statistical Office. It assigns a number to every activity, from crop farming to software development. On the stock market, international systems are used that divide companies into roughly eleven major sectors. These include technology, health care, energy and finance, among others.

These sectors are further divided into finer levels. The technology sector, for instance, breaks down into semiconductors, software and hardware. The finer the level, the more similar the companies within it are. Anyone wanting to compare companies chooses the narrowest level possible.

However, the classification has its limits. Amazon sells goods but also operates huge data centers. Retail or technology? Such mixed conglomerates are usually placed wherever they generate the largest share of their revenue. In Tesla's case, experts still argue to this day whether it is a car maker or a technology company. The answer immediately changes who the company is compared with.

The term in headlines and investment products

The word constantly appears in the news. Sentences like “The chip industry expects a record year” sum up the situation of many companies in a single sentence. That saves space, but it blurs differences. Within a booming industry, an individual company can still make losses.

The classification also plays a major role in investing. There are funds that invest specifically in just one industry, for example renewable energy or defense. Such products fluctuate more than broadly diversified funds. If the entire sector performs poorly, it hardly helps that one owns several companies.

Don’t confuse industry with market. A market describes where buying and selling takes place, such as the German market for electric cars. An industry describes the supply side, i.e. the group of producers. And a company can be active in several industries at once, while serving many different markets.