Explain how business establishments are classified under the North American Industry Classification System (NAICS).

Question

What will be an ideal response?

Answer 1

Answers will vary. The North American Industry Classification System (NAICS) is an industry classification system introduced in 1997 to replace the standard industrial classification system (SIC). NAICS is a system for classifying North American business establishments. The system, developed jointly by the United States, Canada, and Mexico, provides a common industry classification system for the North American Free Trade Agreement (NAFTA) partners. Goods- or service-producing firms that use identical or similar production processes are grouped together.NAICS is an extremely valuable tool for business marketers engaged in analyzing, segmenting, and targeting markets. Each classification group is relatively homogeneous in terms of raw materials required, components used, manufacturing processes employed, and problems faced. Therefore, if a supplier understands the needs and requirements of a few firms within a classification, requirements can be projected for all firms in that category. The number, size, and geographic dispersion of firms can also be identified. This information can be converted to market potential estimates, market share estimates, and sales forecasts. It can also be used for identifying potential new customers. NAICS codes can help identify firms that may be prospective users of a supplier's goods and services. The more identical digits in sequence in a NAICS code, the more homogeneous the group.