Introduction 11 These conditions are required in order that establishments or similar units may be classified according to kind of economic activity uniquely and easily, and in order that the units included in a given class will be as similar to each other as is feasible. 43. The two conditions set limits to the detail of classification that may be achieved in the classes of ISIC. These classes must be defined in terms of the activi- ties in which establishments customarily engage in various countries of the world. Establishments may, in practice, carry out a number of different activities, and the range of these activities will differ from one unit to another even though they engage in the same general kind of economic activity. These differences will exist in the case of establishments within one country and will be more pronounced in the case of establishments in different countries. It should be emphasized that the fact that the organization of production differs from country to country makes it likely that the classes of ISIC do not reflect the structure in each individual country. 44. Another major consideration in forming categories in ISIC was the relative importance of the activities to be included. In general, separate classes are provided for kinds of activity that are prevalent in most countries, or that are of particular impor- tance in the world economy or at regional level. 45. Unlike for ISIC classes, the actual production process and technology used become less important as a criterion for grouping activities at more aggregated levels. At the section, division and group levels, not only the general characteristics of the goods and services produced but also the potential use of the statistics, for instance in the SNA, become more important. Attention was also given to the range of kinds of activity frequently carried out under the same ownership or control and to poten- tial differences in scale and organization of activities and in capital requirements and finance that exist between enterprises. Finally, existing patterns of categories at various levels of national classifications have been used as additional criteria in establishing divisions and groups in ISIC. C. Structure and coding system of the classification 46. The fourth revision of ISIC provides substantially more detail at all lev- els than the previous versions of the classification. This increased detail responds to requests by both producers and users of statistics. However, the basic coding system of the classification has not been changed. 47. New needs that had emerged during the fourth revision have prompted the creation of more categories at the highest level—the section level—especially for serv- ice activities. Since the number of sections exceeds 10, as in the previous revision of ISIC, the use of capital letters for coding the sections was continued in order to avoid having to change the ISIC coding structure to a five-level structure. 48. While the need for more high-level categories was most prominent, it also emerged that for some specific purposes a high-level structure with less categories, presumably about 10, was necessary. While this was further pursued for the classifica- tion (see part four below), it was decided to make this high-level structure not a part of the ISIC coding structure, therefore preserving the four-level coding structure of the previous version of the classification. 49. The names given to the categories at the different levels in ISIC, Rev.4 remain unchanged from those in the previous revision. The tabulation categories, identified by letters, are called “sections”, the 2‑digit categories “divisions”, the 3‑digit categories “groups” and the 4‑digit categories “classes”. As in the previous version of
International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 12 ISIC, the use of letters for the section level of the classification is complemented by the use of a purely numerical system at the division (2-digit), group (3-digit) and class (4-digit) levels.13 50. While some of the categories in ISIC have remained unchanged from the previous revision, others have been split to give appropriate weight to new activities, often elevating the level of existing categories. 51. At the highest level of ISIC, some sections can be easily compared to the previous version of the classification. Unfortunately, the introduction of a number of new concepts at the section level of ISIC (e.g., section J, “Information and communica- tion”) make it impossible to achieve an easy overall comparison between ISIC, Rev.4 and the previous version of the classification. Correspondence tables to assist in this process will be provided separately. 52. Due to the increased number of 2‑digit categories, the divisions are coded consecutively. However, some “gaps” have been provided to allow countries to intro- duce division-level categories without a complete change of the ISIC coding. These gaps have been introduced in sections where the need for additional divisions at the national level is most likely to arise. For this purpose, the following division code numbers have been left unused: 04, 34, 40, 44, 48, 54, 57, 67, 76, 83 and 89. 53. While the sections are assigned capital letters, the Arabic numbers assigned to a given category of ISIC may be read as follows: the first and second digits, taken together, indicate the division in which the category is included; the first three digits identify the group; and all four digits indicate the class. ISIC now comprises 21 sec- tions, which are then further subdivided into a total of 88 divisions, 238 groups and 419 classes. The added detail has considerably increased the number of these catego- ries compared with ISIC, Rev.3.1. 54. Whenever a given level of the classification is not divided into categories of the next more detailed level of classification, “0” is used in the code position for the next more detailed level. For example, the code for the group “Other personal service activities” is 960 since the division “Other personal service activities” (code 96) is not divided into groups. Again, the code for the class “Manufacture of furniture” is 3100 because the division “Manufacture of furniture” (code 31) is divided neither into groups nor into classes. The class “Manufacture of pulp, paper and paperboard” is coded as 1701 since the division “Manufacture of paper and paper products” (code 17) is not divided into groups but the group “Manufacture of paper and paper products” (code 170) is divided into classes.14 13 It is recognized that the connection between sections, on the one hand, and divisions, groups and classes, on the other, is not very intuitive, but it does allow the preservation of a four-level ISIC structure. The current system uses letters only for the high-level sections, while coding and data entry are carried out completely with a numerical system. Other options considered, such as a purely numerical coding system or a system that combines section and class codes (e.g., “A0111”), would either expand the coding system to more levels, expand the code itself to a 5-digit code or create mixed alphanumerical codes that might be difficult to use in basic data entry. 14 In computer applications, the “0” could also indicate that a total of all more detailed categories is being used. Hence, the code 2810 could be used for the total 2811‑2819 and 2000 could represent the total 2011‑2030. This could of course also be achieved by using the next higher level of the classification, but in some instances it may be appropriate to use the same format (i.e., number of digits) for all code numbers.
13 Chapter III Application of the classification A. Principal, secondary and ancillary activities 55. In ISIC, the expression “activity” is used to identify productive activities. These activities are defined as the use of inputs (e.g., capital, labor, energy and mate- rials) to produce outputs. The outputs that result from undertaking activities can be transferred or sold to other units (in market or non-market transactions), placed in inventory or used by the producing units for own final use. 56. Some activities separately identified in ISIC are simple processes that con- vert inputs to outputs, such as dyeing of fabric, while other activities are characterized by highly complex and integrated steps, such as automobile manufacturing or compu- ter system integration. 57. The principal activity of an economic entity is the activity that contributes most to the value added of the entity, as determined by the top-down method (see sect. III.C below). As a result of the top-down method, it is not necessary that the principal activity account for 50 per cent or more of the total value added of an entity or even that its generated value added exceed that of all other activities carried out by the unit, although in practice it will do so in the majority of cases. Products resulting from a principal activity are either principal products or by‑products. By-products are products that are necessarily produced together with principal products (for exam- ple, hides produced when producing meat by slaughtering animals). In section III.C below, it will be explained how, in practice, the principal activity of a statistical unit should be determined when classifying according to ISIC. 58. A secondary activity is each separate activity that produces products even- tually for third parties and that is not the principal activity of the entity in question. The outputs of secondary activities are secondary products. Most economic entities produce at least some secondary products. 59. Principal and secondary activities cannot be carried out without the sup- port of a number of ancillary activities, such as bookkeeping, transportation, storage, purchasing, sales promotion, cleaning, repair and maintenance, security etc. At least some of these activities are found in every economic entity. Thus, ancillary activities are those that are undertaken to support the main productive activities of an entity by providing goods or services entirely or primarily for the use of that entity. 60. A distinction should be made between principal and secondary activities, on the one hand, and ancillary activities on the other. The output of principal and secondary activities, which are consequently principal and secondary products, is produced for sale on the market or for other uses that are not prescribed in advance; for example, they may be stocked for future sale or for further processing. Ancillary activities are undertaken in order to facilitate the principal or secondary activities of the entity.
International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 14 61. There are a number of characteristics of ancillary activities that can gen- erally be observed in practice and that help to identify them. The output is always intended for intermediate consumption within the same entity and is therefore usu- ally not recorded separately. Although most ancillary activities produce services, some goods-producing activities may, by exception, be regarded as ancillary. The goods thus produced, however, may not become a physical part of the output of the main activity (examples are tools, scaffolding etc.). Ancillary activities are usually fairly small-scale compared with the principal activity they support. 62. If an establishment undertaking ancillary activities is statistically observ- able, in the sense that separate accounts for the production it undertakes are readily available, or if it is in a geographically different location from the establishments it serves, it may be desirable and useful to consider it as a separate unit and allocate it to the industrial classification corresponding to its principal activity. However, it is recommended that statisticians not make extraordinary efforts to create separate establishments for these activities artificially in the absence of suitable basic data being available. 63. Under the definition given in paragraph 59 above, the following activities are not to be considered ancillary: (a) Producing goods or services as part of fixed capital formation. The type of units most affected are those doing construction work on the account of their parent unit. This approach is in accordance with the classification in ISIC of own‑account construction units for which data are available to the construction industry; (b) Producing output which, although also used as intermediate consumption by the principal or secondary activity, is for the greater part sold on the market; (c) Producing goods that become a physical part of the output of the principal or secondary activity (for example, the production of boxes, tin cans or the like by a department of an enterprise as packaging for its own products); (d) Research and development activities, which are considered part of fixed capital formation in the context of SNA. B. Statistical units 1. General remarks 64. Economic statistics describe the activities of economic transactors and the transactions that take place between them. In the real world, economic enti- ties engaged in the production of goods and services vary in their legal, account- ing, organizational and operating structures. To create statistics that are consistent across entities and internationally comparable, it is necessary to define and deline- ate standard statistical units (whether as observation units or analytical units) that are suitable for data compilation and aggregation. The comparability of statistics is greatly enhanced when the units about which statistics are compiled are similarly defined and classified. 65. Economic entities have numerous characteristics and a variety of data are required about them that may be classified in many ways, among the most important of which are classification by (a) institutional sector, (b) activity and (c) location. The need to classify statistical units by these characteristics requires that they be as homo- geneous as possible with respect to institutional sector, economic activity or location, and this plays an important role in their definition.