NACE, ISIC and other classifications of economic activities
Classifications of economic activities, such as NACE or ISIC, help us navigate the jungle of companies, fields and industries. But how exactly do they work? Where do they excel and where do they hit their limits? And is there a more efficient alternative in today's era of digitalization and automation?
Why do classifications of economic activities even exist?
If you are running a business, analyzing the market, or looking for new business partners, you have probably come across NACE, ISIC, and other classification systems. They are not just boring official codes – they are tools that bring some order to the chaotic world of business by:
- they allow for the effective collection and analysis of economic data at both national and international levels.
- they facilitate market segmentation and precise targeting of marketing campaigns.
- they provide a framework for comparing business environments across countries.
As we will show, even the best classification is not perfect. But now we will take a closer look at the individual systems you may encounter.
NACE: European Classification of Economic Activities
NACE (from the French Nomenclature générale des Activités économiques dans les Communautés Européennes ) is a classification system used in the European Union. In the Czech Republic, we will encounter its national version, known as CZ-NACE. We will get to it later.
The NACE structure consists of:
- Sections (labeled A–U, e.g. C = manufacturing)
- Departments (two-digit codes, e.g. 10 = food production)
- Groups (three-digit codes, e.g. 10.1 = meat processing and preserving and meat product manufacturing)
- Classes (four-digit codes, e.g. 10.12 = processing and preserving of poultry meat)
Advantages of NACE
- Standardization across the EU – allows data to be easily compared between individual Member States.
- It facilitates market analysis and segmentation of companies by industry.
- It helps in tracking economic trends and making forecasts .
Disadvantages of NACE
- Too general categories – some fields are not divided into sufficient detail.
- Often outdated information – companies may change their focus, but their classification remains the same.
- Inability to capture emerging industries – modern and specific fields sometimes do not fit into existing categories.
ISIC: International Standard Classification of Economic Activities
ISIC ( International Standard Industrial Classification ) is a globally used classification of economic activities administered by the United Nations.
Benefits of ISIC
- A truly international standard – allowing comparisons of economic activities between countries around the world.
- A recognized system used in many statistics, analyses, and international studies.
Disadvantages of ISIC
- Less detailed than some regional classifications (e.g. NACE).
- Different countries may have different interpretations of the categories, which complicates international comparisons.
CZ-NACE: Czech version of the European classification
CZ-NACE is a modified version of NACE adapted to Czech conditions. Compared to the “pure” NACE classification, it is more detailed in some specific areas that are relevant to the Czech economy.
Advantages of CZ-NACE
- It is better adapted to the Czech market and its specificities.
- It offers a more detailed breakdown in some sectors important to the Czech economy.
Disadvantages of CZ-NACE
- It may be partially incompatible with other international systems.
- It has to be updated frequently when changes occur at EU level, which leads to time delays .
Other classifications of economic activities
In addition to ISIC, NACE and its national variants, there are other classifications that focus on specific aspects of economic activities – for example, specific products, trade or customs. These systems often operate in parallel and are interconnected.
CPA – Classification of Products by Activity
While NACE categorizes companies according to their main economic activity, CPA (Classification of Products by Activity) focuses on the products and services that arise from these activities.
This means that if two companies operate in the same industry (e.g., furniture manufacturing), CPA will help distinguish what specific products or services they offer (e.g., wooden furniture vs. metal furniture).
The importance of the CPA lies in its connection with NACE – each CPA category corresponds to a specific NACE category. This facilitates:
- market analysis
- compiling economic statistics
- creating business strategies
HS – Harmonized System
When goods enter the international market, classification according to NACE or CPA is no longer sufficient. This is where the Harmonized System (HS) comes in – a globally used customs nomenclature managed by the World Customs Organization (WCO).
This system:
- allows for uniform labeling of products in international trade
- is key for customs and trade statistics
- provides the basis for international trade agreements
- makes it easier to compare data between countries
The HS is used in over 200 countries and economies and covers over 5,000 categories of goods . It assigns a six-digit code to each product, which serves as the basis for further national or regional classifications.
CN – Combined Nomenclature
In the European Union, customs and trade statistics are not only governed by the HS, but by its extended variant – the Combined Nomenclature (CN) .
This system combines the HS with other specifics relevant to the EU and serves mainly to:
- calculation of customs rates
- monitoring trade flows within the Union and with third countries
- implementation of EU-specific trade regulations
The CN adds two additional digits to the six-digit HS codes, allowing for more detailed classification of products . The system is updated annually to reflect changes in trade, industry, and regulations.
PRODCOM – Production Communautaire
The PRODCOM system, managed by Eurostat, focuses specifically on industrial production statistics in the EU. Its main benefits:
- It also captures production sold on the domestic market.
- It provides a more comprehensive view of the industrial performance of Member States.
- It allows you to monitor production trends in individual sectors.
SITC – Standard International Trade Classification
SITC (Standard International Trade Classification) is also often used for macroeconomic analysis and studying international trade trends.
This system, administered by the UN, classifies products according to:
- the material from which they are made
- processing stages
- economical use
- importance in international trade
This makes it possible to identify structural changes in economies and the development of international trade relations.
Where are traditional classifications not enough?
NACE, ISIC and other systems are clearly useful tools. However, in practice we often encounter their limits:
- Insufficient detail – some fields are covered by too broad categories, which complicates precise targeting.
- The problem with timeliness – companies can change their main activity, but their classification in the registers remains the same.
- Inability to search by product – if you want to find the manufacturer of a specific product, standard classification often cannot help you.
Practical example
Imagine you need to find fuse manufacturers in Germany or bearing distributors in Poland.
If you rely solely on the NACE classification, you will likely end up with a list of companies that is too broad, many of which will not meet your needs, and manual sorting may take several days.
Are you interested in the details? You can find them in the article When NACE is not enough .
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NACE, ISIC? Yes, but…
Standard classifications of economic activities are a useful basis for orientation in the business world, but in the era of digitalization and the specific needs of modern business, they are often not enough.
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