1. Purpose and Scope of the Classification
In the study of economic phenomena, taking all elements into account simultaneously is not always possible. For purposes of analysis, certain elements need to be chosen and grouped according to particular characteristics. Thus, all economic processes that are to be described in the form of statistics require systematic classification.
The Philippine Standard Industrial Classification (PSIC) is intended to be a standard classification of productive economic activities in the country. Its main purpose is to provide a set of activity categories that can be utilized for the collection and presentation of statistics according to such activities. Therefore, PSIC aims to present this set of activity categories in such a way that entities can be classified according to the economic activity they carry out. Defining the categories of PSIC is as much as possible linked with the way the economic processes are organized in units and the way this process is described in economic statistics.
PSIC is a classification according to kind of economic activity, and not a classification of goods and services. The activity carried out by a unit is the type of production in which it engages. This is the characteristic of the unit according to which it will be grouped with other units to form industries. An industry is defined as the set of all production units engaged primarily in the same or similar kinds of productive economic activity.
In principle, it is not possible to establish a one-to-one correspondence between activities and products. The PSIC is not designed to measure product data at any detailed level. It does not draw distinctions according to kind of ownership, type of legal organization or mode of operation because such criteria do not relate to the activity itself. Units engaged in the same kind of activity are classified in the same category of PSIC, irrespective of whether they are part of incorporated enterprises, individual proprietors or government, and whether or not the parent enterprise consists of more than one establishment. Similarly, manufacturing units are classified according to the principal kind of economic activity in which they engage, whether the work is performed by power-driven machinery or by hand, or whether it is done in a factory or in a household.
The 2009 PSIC covers all economic activities grouped accordingly in the following 21 sections: (a) agriculture, forestry and fishing; (b) mining and quarrying; (c) manufacturing; (d) electricity, gas, steam and air-conditioning supply; (e) water supply; sewerage, waste management and remediation activities; (f) construction; (g) wholesale and retail; repair of motor vehicles and motorcycles; (h) transportation and storage; (i) accommodation and food service activities; (j) information and communication; (k) financial and insurance activities; (l) real estate activities; (m) professional, scientific and technical activities; (n) administrative and support service activities; (o) public administration and defense; compulsory social security; (p) education; (q) human health and social work activities; (r) arts, entertainment and recreation; (s) other service activities; (t) activities of households as employers; undifferentiated goods-and-services-producing activities of households for own use; and (u) activities of extraterritorial organizations and bodies. It takes into account changes in the relative importance and organization of various types of economic activities that have taken place since 2002 or for the last seven years. Careful attention has been given to the emerging potential industries which, though in the process of development, are expected to be stable and to play an important role in the economy within the immediate future.
Criteria for Grouping
This 2009 PSIC made use of the International Standard Industrial Classification Revision 4 issued by the United Nations Statistics Division as the main reference and basis in order to meet international comparability. Consistency with the structure of ISIC has been maintained as far as being practicable with some modifications introduced to reflect national situation and requirements. Such modifications involved: a) further subdivision of certain ISIC groups (3-digit categories) and classes (4-digit categories), and providing separate codes for industries of importance to the national economy; (b) upgrading important industry groups or classes to higher levels of classification and downgrading those that contribute insignificantly to the national economy; and (c) extension of the classification to five-digit level by further subdividing the classes into subclasses.
As in the 1994 PSIC and ISIC, Rev. 3, the characteristics of the economic activities of the producing units were given primary consideration in delineating the groups of the 2009 PSIC. These are: a) the nature of the goods and services produced, b) the uses to which the goods and services are put, and c) the inputs, the process, and the technology of production. Attention was also given to the usual combination of economic activities customarily carried out under the same ownership or control, differences in scale and organization of activities, and the relative importance of the activities in the national economy. The latter was the major consideration in elevating certain groups or classes to higher levels of classification.
In applying the nature of the goods and services produced as a criterion, account was taken of the physical composition and stage of fabrication of the items and the needs served by them. The nature of goods and services produced provided the basis for grouping producing units according to similarities in, and links between, the raw materials consumed, and sources of demand and markets for the items produced. The criterion relating to the economic agents, (e.g., producers, financial institutions, households, etc.) and the purpose to which the goods and services are disposed of (e.g., intermediate consumption, capital formation, final consumption and the like) reinforce the first criterion regarding the stage of fabrication of, and the needs served by these items. This second criterion enhances the value of the PSIC in distinguishing producing units according to sources of demand and markets for their output and in tracing the ties among producing units, and between them and the rest of the economy. The third criterion relating to the process, technology and organization of production reinforces the consideration for grouping producing units according to degrees of similarity in cost-structure, relative magnitude of fixed capital and labor employed, and relative productivity and scale of operations.
The manner in which activities are combined and allocated among establishments and the relative importance of the economic activities in the national economy were the main criteria used in defining the classes and subclasses of the present edition of PSIC. The former criterion ensures that the units falling into each class or subclass will be as similar as feasible in the kinds of economic activity they are engaged in. The latter criterion (relative importance of economic activities) is designed to ensure that the resulting classification reflects the local conditions and requirements. In general, separate classes and subclasses were provided for activities that significantly contribute to the national economy based on the following criteria: a) value of production, b) number of establishments engaged in the activity; and c) export winning capability.
The classes and subclasses of the 2009 PSIC were defined such that as far as possible the following conditions were met: a) the production of the category of goods and services which characterizes a given class/subclass accounts for the bulk of the output of the corresponding production units and b) the class contains the units which produce most of the categories of goods and services which characterize it. The first condition is required in order that the units included in a given class/subclass will be homogeneous or as similar to each other as possible. The second condition reinforces the first condition. These two conditions set the limit to the detail of the classification since classes and subclasses must be defined in terms of the usual combination of activities customarily engaged in by the establishments.
3. Statistical Units of Classification
The unit classified in an industrial classification is not the product but the production organization which could be an establishment, an enterprise or a firm, a household or an activity unit. While different statistical units are used depending on the kind of statistics to be collected, the ideal statistical units of classification should meet the following requirements: a) homogeneity in terms of economic activity, b) separate data on its activities are available and can be compiled meaningfully, and c) it has some degree of autonomy. Autonomy must not be taken to be absolute. For example, if a unit or its management is allowed to set its own goals and to buy and sell freely at the market, it is perceived as a distinct unit.
The following are the different types of statistical units:
a) Establishment-type unit is defined as a recognizable economic unit under a single ownership or control, i.e., under a single legal entity, which engages in one or predominantly one kind of economic activity at a single physical location.
b) The kind-of-activity unit is an enterprise or part of an enterprise which engage in one or predominantly one kind of economic activity without being restricted to the geographic area in which that activity is carried out. Kind-of-activity unit differs from establishments in that there is no restriction in respect of geographic area, i.e., it can be heterogeneous concerning its location.
c) The technical unit can be a section or department of the establishment which engages directly in the production of the class of goods made, or services rendered, by an establishment, or in a stage in the production of these goods and services. Sections or departments of meat packing plants which produce lard, cured bacon or canned meat (i.e., horizontally integrated) are examples of the former type of technical units. The departments of a textile mill which spin yarn, weave cloth, etc., (vertically integrated) are examples of the latter type of technical units.
d) Local unit covers all economic activities carried out by an enterprise from one location. Local units differ from establishments in that they may be heterogeneous in its economic activities. The main requirements are that it falls under one ownership and must be at one location.
e) The ancillary unit provides non-durable goods or services primarily or entirely, for the use of the parent producing unit(s). These goods and services do not become a physical part of the output of parent units and are customarily provided as subsidiary and supporting activities for establishments of the same enterprise. The following types of units are not to be considered ancillary units but should be treated as separate establishments to be classified to their own activity if separate data on their activities are available.
i. Units producing goods or doing work which are part of fixed capital formation
ii. Units which, in addition to producing goods or services for the use of their parent unit, sell a significant portion of their product or service to others; and,
iii. Units producing goods which become physical part of the output of the parent unit, e.g., making boxes, tin cans or the like, by a department of an enterprise packaging its own products.
Examples of ancillary units are the central administration offices, warehouses, garage, repair shops or electric power plants which primarily serve other establishments of the same enterprise.
f) The enterprise-type unit is a legal entity or family of legal entities that encloses and directly or indirectly controls all necessary functions to carry out its economic activities. The former may be a corporation, a joint stock company, a cooperative association, incorporated non-profit association, partnership, individual proprietorship and the like. The latter, i.e., family of legal entities, consists of a group or combination of entities which are owned or controlled by the same interest. Thus, the main requirement of this unit is that it has one ownership or control. It can, however, be heterogeneous with respect to its economic activity as well as its location.
4. Some Rules in the Classification of Statistical Units
4.1 General rule
In general, the activity classification of a statistical unit is determined from its principal activity or range of activities. Secondary activities are not to be considered when classifying a unit. The principal activity of the unit in general can usually be determined from the goods that it sells or ships or the services that it renders to other units or consumers. However, the descriptions and explanatory notes of the individual classes in PSIC should be used to determine the activities carried out in terms of PSIC categories, using not only the output structure but also the input structure and the production process. Ideally, the principal activity should be determined with reference to the value added of the goods sold or the services rendered. In practice, however, it is often impossible to obtain the information on value added of the different activities. In such case, the principal activity should be determined by using substitute criteria such as:
1. Substitutes based on output, such as :
1.1 The gross output of the unit that is attributable to the goods and services associated with each activity;
1.2 The value of sales or shipments of those groups of products falling into each category of activity.
2. Substitutes based on input, such as:
2.1 Wages and salaries attributable to the different activities;
2.2. Hours worked attributable to the different activities;
2.3 Employment according to the proportion of people engaged in the different activities of the unit.
Treatment of independent multiple activities
If a unit is engaged in several types of independent activities but cannot itself be segregated into separate statistical units (when, for example, manufacture of bakery products is combined with manufacture of chocolate confectionery), the unit should be classified in PSIC class with the largest share of value added by using the “top-down method. In this case, the appropriate highest classification (one-digit) level should be determined first, then the succeeding two-digit (division) and three-digit (group) levels and finally the four-digit (class) or five-digit (subclass) level.
Treatment of vertical integration
Vertical integration of activities occurs wherever the different stages of production are carried out in succession by the same unit and the output of one process serves as input to the next. A unit should be classified in the class indicated by the nature of its final products unless the context of a specific category requires otherwise. For example, mining of clay combined with brickworks should be classified to brick making and the felling of timber trees combined with saw-milling is classified to saw-milling.
Repair and maintenance
The PSIC now provides separate categories for the repair of all kinds of goods. However, no single high-level category exists that would cover all repair activities. Based on the type of goods repaired, the activities are classified as follows: (1) Repair of motor vehicles and of motorcycles are classified in classes 4520 and 4540, respectively; (2) Repair of computers and communication equipment is classified in group 951; (3) Repair of personal and household goods is classified in group 952; (4) Repair of other machinery and equipment is classified in group 331 and (5) Repair of buildings and other structures is classified in division 43.
Outsourcing/activities on a fee or contract basis
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 manufacturing, is carried out fully or in part by others through specific contractual arrangements. This section describes how units involved in such arrangements should be classified in PSIC.
The following terminology is applied :
a) The principal is a unit that enters in a contractual relationship with another unit (contractor) to carry out some part (or all) of the production process;
b) The contractor 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 free 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 “subcontracting” is sometimes used as well. Production process also includes supporting activities.
5. Structure and Coding System
The 2009 PSIC provides substantially more details at all levels compared with the 1994 PSIC. Creation of more categories at the highest level (section level) was done especially for service activities. The use of capital letters for coding the sections was continued in order to avoid having to change the PSIC coding structure.
The five levels of disaggregation are maintained, however there was a change in the nomenclature of the levels. The first level of disaggregation (identified by letters) formerly designated as major division is now called the section. The sections are assigned capital letters, the Arabic numbers assigned to a given category of PSIC 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; the fourth digits identify the class and all the five digits indicate the subclass. The 2009 PSIC comprises of 21 sections, which are then further subdivided into a total of 88 divisions, 245 groups, 520 classes and 1,271 subclasses. The hierarchy of classification are: section, division, group, class and subclass.
Major changes adopted in the 2009 PSIC
The 2009 PSIC was patterned after the United Nations’ International Standard Industrial Classification (ISIC) Revision 4.
To align the existing PSIC with the ISIC Rev. 4, the following major changes were adopted and incorporated in the 2009 PSIC.
Section A – Agriculture, forestry and fishing
Major Divisions A (Agriculture, hunting and forestry) and B (Fishing) in the 1994 PSIC were combined to form Section A (Agriculture, forestry and fishing).
Section C – Manufacturing
New divisions in manufacturing were created in the 2009 PSIC, such as Division 21 (Manufacture of pharmaceuticals, medicinal, chemical and botanical products) and Division 26 (Manufacture of computer, electronic and optical products). The scope of the latter differs from Division 30 (Manufacture of office, accounting and computing machinery) in the 1994 PSIC. Other new divisions, such as division 11 (Manufacture of beverages) and division 31 (Manufacture of furniture) resulted from splitting existing divisions and thus elevating their components to the division level which in the 1994 PSIC existed at the group level.
Most of the remaining divisions in Section C (Manufacturing) have no changes, except for Division 22 (Publishing, printing and reproduction of recorded media) and Division 37 (Recycling), which are now transferred to Section J (Information and communication) and Section E (Water supply; sewerage, waste management and remediation activities), respectively.
The repair and installation of machinery and equipment, formerly classified under the manufacturing of the corresponding type of equipment, is now separately identified in division 33 (Repair and installation of machinery and equipment) in Section C (Manufacturing) of the 2009 PSIC.
Section E - Water supply; sewerage, waste management and remediation activities
A new Section E was created, consisting of: (a) the “sanitation” activities (division 90) from Major Division O (Other community, social and personal service activities), (b) the water collection and distribution activities (division 41) from Major Division E (Electricity, gas and water) and (c) recycling (division 37) from Major Division D (Manufacturing) in the 1994 PSIC.
Section G – Wholesale and retail trade; repair of motor vehicles and motorcycles
The repair of household goods (formerly Division 52 in the 1994 PSIC) was removed from Section G (Wholesale and retail trade; repair of motor vehicles and motorcycles) and transferred to Division 95 of Section S (Other service activities) in the 2009 PSIC. On the other hand, the repair of motor vehicles and motorcycles (formerly Division 50 in the 1994 PSIC) is retained as Division 45 of Section G in the 2009 PSIC, for comparability and continuity reasons.
Section J – Information and Communication
A new Section J (Information and communication) was created in the 2009 PSIC, combining the following: (a) activities of the production and distribution of information and cultural products, (b) provision of the means to transmit or distribute these products, data or communications, (c) information technology activities, and (d) processing of data and other information service activities. The main components of this section are the following: (a) publishing activities (Division 58), (b) software publishing, motion picture and sound recording activities (Division 59), (c) radio and TV broadcasting and programming activities (Division 60), (d) telecommunication activities (Division 61), (e) information technology activities (Division 62), and (f) other information service activities (Division 63). These activities were previously under Major Division D (Manufacturing), Major Division I (Transport, storage and communications), and Major Division K (Real estate, renting and business activities) in the 1994 PSIC.
Section L – Real estate activities
In the 1994 PSIC, Major Division K (Real estate, renting and business activities) was split up into three (3) sections. Real estate is now represented as a stand-alone section (Section L). The remaining activities were separated into Section M (Professional, scientific and technical activities) and Section N (Administrative and support service activities). Computer and related activities previously under Division 72 in the 1994 PSIC are no longer included in this section. Computer repair activities were grouped with repair of household goods in Section S (Other service activities) while software publishing and IT activities were grouped in the new Section J (Information and communication).
Section P - Education
The scope of education (Section P) was changed to explicitly include specialized sports (Class 8551), cultural education (Class 8552), other education (Class 8559), and educational support services (Class 8560).
Section Q - Human health and social work activities
More details were created under Section Q, resulting in the creation of three (3) divisions instead of one in the 1994 PSIC. (1) Human health activities (Division 86); (2) Residential care activities (Division 87); and (3) Social work activities without accommodation (Division 88). Veterinary activities were deleted from this section and transferred as division (Division 75) in Section M (Professional, scientific and technical activities.