International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 28
Step 3c. Identify the group (within specialized retail trade)
Group 474
Retail sale of information and communications equipment in specialized stores
23
Group 475
Retail sale of other household equipment in specialized stores
4
Group 476
Retail sale of cultural and recreation goods in specialized stores
15
Note: To identify the largest share, it does not matter if the original or recalculated figures for value
added are being used
Step 4. Identify the class (within group 474)
Class 4741
Retail sale of computers, peripheral units, software and telecommunications
equipment in specialized stores
8
Class 4742
Retail sale of audio and video equipment in specialized stores
15
The principal activity is therefore 4742 (Retail sale of audio and video equipment in specialized stores).
129. If value added cannot be determined for the activities involved, approxi-
mations as set out above can be used, provided that their application to the different
activities is consistent.
130. The top-down method satisfies the principle that at the lower levels the
activity classification is in conformity with the principal activity of the unit from the
point of view of the upper levels of the activity classification. At lower levels of the
classification, the share of value added of the category of ISIC, Rev.4 that results from
using the top-down method will not necessarily account for more than 50 per cent of
total valued added of that unit. The more one proceeds from the upper to the lower
levels of the hierarchical structure of ISIC Rev.4, the more often will this be the case.
Theoretically, at the highest hierarchical level of ISIC, Rev.4 no section might account
for more than 50 per cent of the value added of a unit.
131. In principle, the top-down method permits determination of the princi-
pal activity of a unit down to the lowest level of the hierarchical activity classification;
in practice, it is only necessary to apply the method to the lowest level that is actually
used in a specific application, such as the division or group level, depending on the
respective rules of the specific application. Whatever the case, the top-down method
ensures that the classification of the unit is consistent at every level.
3.
E-commerce
132. Production units receive orders and transact the sale of goods and serv-
ices produced by a variety of means, such as by telephone, fax, television or over the
Internet. Many countries have chosen to describe as e-commerce any business trans-
action that transfers the ownership of the goods or service through the Internet or by
other electronic means.
133. There are three stages in the transfer of the ownership of a good or serv-
ice: (a) the placement of the order, (b) the payment and (c) the delivery of the good or
service. E-commerce transactions may be defined to include situations where only the
first stage, only the first and second stages, or all three stages are conducted through
the Internet or by other electronic means.
134. For many production units, e-commerce is just one of a variety of means by
which sales are transacted. The rules for the classification of such units in ISIC remain
unchanged: they are classified to the industry of their principal activity. Increasingly,
Introduction 29 however, business units that sell goods and supply services exclusively through the Internet are coming into existence. Such units should also be classified to the industry of their principal activity. Production units engaged in e-commerce will therefore be found in any industry of ISIC. There is one notable exception to this rule: in retail trade, units that undertake their sales exclusively or predominantly through the Inter- net are classified within ISIC, Rev.4 class 4791 (Retail sale via mail order houses or via Internet). 4. Repair and maintenance 135. ISIC, Rev.4 now provides separate categories for the repair of all kinds of goods. However, no single high-level category exists that would cover all repair activi- ties. Based on the type of good repaired, the activities are classified as follows: Repair of motor vehicles and of motorcycles are classified in classes 4520 and • 4540, respectively. Repair of computers and communication equipment is classified in group • 951. Repair of personal and household goods is classified in group 952. • Repair of other machinery and equipment is classified in group 331. • Repair of buildings and other structures is classified in division 43. • 5. Outsourcing / activities on a fee or contract basis 136. In some cases, units sell goods or services under their own name but the actual production, such as the physical transformation process in the case of manu- facturing, is carried out fully or in part by others through specific contractual arrange- ments. This section describes how units involved in such arrangements should be classified in ISIC. 137. In this section, the following terminology is applied: (a) The principal 16 is a unit that enters in a contractual relationship with another unit (here called contractor) to carry out some part (or all) of the production process; (b) The contractor 17 is a unit that carries out a specific production process based on a contractual relationship with a principal. The activities performed by the contractor are denominated “on a fee or contract basis”. (c) Outsourcing is a contractual agreement according to which the principal requires the contractor to carry out a specific production process. The term “sub- contracting” is sometimes used as well.18 In this context, the production process also includes supporting activities. 138. The principal and the contractor may be located in the same economic territory or in different economic territories. The actual location does not affect the classification of either one of these units. (a) Classification of the contractor 139. Contractors, i.e., units carrying out an activity on a fee or contract basis, are usually classified in the same ISIC category as units producing the same goods or services for their own account. Exceptions to this rule exist for trade activities, for which separate categories for such outsourced activities exist. 16 Elsewhere sometimes known as “contractor” or “converter”. 17 Elsewhere sometimes known as the “subcontractor”. 18 Elsewhere, the terminology of “insourcing” and “outsourcing” (referring to relationships between units involved) or “offshoring” (referring to transactions between economic territories) may be used; those distinctions have no bearing on the guidelines in this section and are not used here.
International Standard Industrial Classification of All Economic Activities (ISIC), Revision 4 30 (b) Classification of the principal Outsourcing of parts of the production process 140. If only part of the production process is outsourced, the principal is classi- fied to the class that corresponds to the activity representing the complete production process, i.e., it is classified as if it were carrying out the complete process, including the contracted work, itself. 141. This applies not only to the outsourcing of support functions in the pro- duction process, such as accounting or computing activities, but also to the out- sourcing of parts of the core production process, such as parts of a manufacturing process. Outsourcing of the complete production process 142. In general, if the principal outsources the complete production process of a good or service, it is classified as if it were carrying out the production process itself. This applies in particular to all service-producing activities, including con- struction. In the case of manufacturing, however, the following special considera- tions apply. 143. In manufacturing, the principal provides the contractor with the techni- cal specifications of the manufacturing activity to be carried out on the input materi- als. The input materials (raw materials or intermediate goods) can either be provided (owned) by the principal or not. 144. A principal who completely outsources the transformation process should be classified into manufacturing if and only if it owns the input materials to the pro- duction process—and therefore owns the final output. 145. A principal who completely outsources the transformation process but does not own the input materials is in fact buying the completed good from the contractor with the intention to re-sell it. Such an activity is classified in section G (Wholesale and retail trade), specifically according to the type of sale and the specific type of good sold.19 6. Government activities 146. ISIC does not make any distinction regarding the institutional sector to which a statistical unit belongs. For instance, there is no category that would describe all activities carried out by a government as such. Activities carried out by government units that are specifically attributable to other areas of ISIC should be classified in the appropriate class of ISIC and not in division 84 (Public administration and defence; compulsory social security). For instance, public hospitals will be classified in class 8610. 147. It is true that ISIC division 84 includes activities of a governmental nature that are normally carried out by the public administration, including the enactment and judicial interpretation of laws and their pursuant regulation; the administration of programmes based on them; legislative activities; taxation; national defence; public order and safety; immigration services; foreign affairs; and the administration of gov- ernment programmes. Nevertheless, the legal or institutional status is not, in itself, the determining factor for an activity to belong in that division. 19 The final classification of the principal may also depend on other activities that are carried out in the same unit.
Introduction 31 7. Classification of enterprises 148. Since the activities of an enterprise sometimes cover a large variety of ISIC groups or classes, it may be appropriate for certain statistics to classify them at the division level only. In any case, when such a unit is to be classified at a lower level of the classification, the top-down approach, as set out in paragraphs 123–131 above, should be used. 149. The classification of a multi‑activity enterprise should be determined by the value added generated by its constituent units. In other words, the ISIC cat- egory should be selected according to the kinds of activity of the constituent units that account for the principal share of value added, following the top-down method. 8. Classification of households 150. ISIC includes a category for the classification of households when they are employers of domestic personnel. This includes households employing maids, garden- ers, cooks etc. As employment is generated, data on these units have been collected for various statistics, usually outside of general business statistics, i.e., using sample frames with households as collection units rather than businesses as collection units. 151. Outside this existing category, the need to describe activities of households for own use has emerged in data collections, such as in labour-force surveys. While market activities should generally be described according to existing rules for identi- fying the correct ISIC code for an activity, the application of these rules for activities producing goods and services for own use has proved difficult. These activities might combine a mix of activities undertaken by household enterprises, such as agricultural activities, construction, textile manufacturing, repair and other service activities. In general, it is not possible to assign value-added ratios to these activities and reasonably identify a principal activity. To provide a place for these mixed activities in the clas- sification, two groups in division 98 (Undifferentiated goods- and services-producing activities of private households for own use) have been designated. This division will not normally be relevant to business statistics but rather applies to data collections covering household and subsistence activities. 9. Changes in the classification of units 152. Units can change their principal activity either at once or gradually over a period of time. The principal activity may change within the year from one statisti- cal period to the next, either because of seasonal factors or because of a management decision to vary the pattern of output. In each case, there will have been a fairly sudden change in the balance of activities. Alternatively, a change in the pattern of output or sales may take place gradually over several years. While all these cases call for the clas- sification of the unit to be changed, if made too often such changes distort statistics to the extent of making interpretation extremely difficult. 153. To avoid frequent changes it is necessary to have a stability rule. Without such a rule, there would be apparent changes in the economic demography of the busi- ness population that would be no more than statistical artifacts. Such a stability rule is intended for units that engage in a mix of activities that are almost balanced and are thus subject to increased risk of changes for the principal activity resulting from only small changes in the ratio of the activities involved. In such cases, the ratio of activities over the past two to three years should be taken into account when determining the principal activity of the unit.