The North American Industry Classification System (NAICS) is a system for classifying businesses based on their economic activity. Introduced in April 1997, NAICS replaced the Standard Industrial Classification System (SIC) used since the 1930s. NAICS is based on the concept of grouping businesses that use similar processes to produce goods and SERVICES. The system allows statistical agencies in the United States to produce data that can be used for measuring productivity, unit labor cost, and capital intensity of production. Classification of industrial activity is an important component of the economic census produced by the U.S. CENSUS BUREAU. NAICS was developed in a combined effort involving the U.S. OFFICE OF MANAGEMENT AND BUDGET, Statistics Canada, and Mexico’s Instituto Nacional de Estadistica. The effort began in the early 1990s as a result of criticism claiming the SIC was outmoded and not reflective of economic changes in the United States. Increased economic integration since the passage of the NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) in 1994 added to the interest in improving measurement and reporting industrial production in North America. NAICS includes a greater number of service-based industries and greater compatibility with the United Nations—sponsored International Standard Industrial Classification System (ISIC) than the old SIC system. NAICS is a six-digit system classifying economic activity according to sector, subsector, industry group, and NAICS industry. The sixth digit is reserved for classification within respective countries. For example, in NAICS
31 = manufacturing
312 = beverage and tobacco products manufacturing
3121 = beverage manufacturing
31211 = soft-drink and ice manufacturing
312111 = soft-drink manufacturing
312112 = bottled-water manufacturing
In addition to being used by government agencies to measure input and output relationships, NAICS is an important tool for marketers looking for prospective customers. Business-to-business marketers recognize that businesses using similar production processes are likely to need similar materials, machines, and SERVICES. Lists of businesses using NAICS codes provide a basis for identifying TARGET MARKETS for a firm’s products.