This blog post examines how well the existing industrial classification system aligns with technological advancements and market changes, and discusses the need for a more flexible approach to reflect emerging industries.
Economist John Bates Clark originally classified industries into primary, secondary, and tertiary sectors based on whether they extract raw materials from nature, process those materials, or distribute the processed goods. His classification was an innovative approach at the time and significantly contributed to understanding industrial structure. However, over time, industries have emerged that cannot be explained by this method.
For example, where does the information and communications industry, which encompasses both manufacturing and services, belong? The information and communications industry possesses unique characteristics that transcend existing industrial classifications. As technology advances and industrial structures change, new classification criteria have become necessary. Indeed, various classification criteria exist depending on the perspective and purpose from which industries are viewed.
First, there is the Standard Industrial Classification established by the state. This classification considers both the consumer perspective—how similar the characteristics of goods or services are—and the producer perspective—how similar the physical composition and processing stages of inputs or outputs are. The set of products or services classified under this standard is defined as the same industry. This classification method, consisting of five levels including major and medium classifications, is primarily used for statistical purposes. However, it does not include information for judging the technological level of each industry.
A representative classification system based on technological level is the OECD standard, which views industries with high research and development investment as high-tech industries. The indicator used to measure technological level is R&D intensity, defined as the ratio of R&D investment to total corporate sales. Industries with an average R&D intensity of 4% or higher are classified as high-tech industries. This method is useful for objectively defining high-tech industries. However, because it is based on industry averages, an industry classified as high-tech overall may still contain numerous low-tech companies.
Furthermore, technological progress sometimes gives rise to entirely new technological domains. These emerging domains, driven by the demand for rapid commercialization, often form new industries in their own right. For instance, the information technology industry, born from information technology, has already established itself as a core industry, while biotechnology, nanotechnology, and environmental technology are also emerging as promising future industries.
Industrial change can also be attributed to factors beyond technology, such as shifts in market demand. For instance, as population structures and consumption values change, numerous new industries are emerging that are not bound by past stereotypes. Industries like fashion, silver (elderly care), and leisure are not listed in standard industrial classifications but are already recognized as important industries in reality.
Considering this trend, defining or classifying industries in the future will likely rely more on flexible, practical approaches rather than fixed criteria or systems. This is because new industries, unrecognizable by past methods, will increasingly dominate. Furthermore, as technological innovation accelerates and the composition of the purchasing-power population shifts, the emergence of new industries and the disappearance of old ones will occur more dynamically. The era has arrived where defining and classifying industries must be approached from a flexible and strategic perspective.
