1. ECONOMIC CLASSIFICATIONS Advanced course Day 2 – first morning session Statistical units and classification rules
Zsófia Ercsey - KSH – Hungary
Marie-Madeleine Fuger - INSEE – France
Hans Van Hooff - CBS - Netherlands
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Activity classification-rules
Agenda
Activity classification-rules
Principal, secondary and ancillary activities
Statistical units
General classification rules
Top down method
Specific classification rules for some activities
Classification rules in practice

3. Example: BlaBla Ltd -1 Blabla describes its activities as:
- production of basic BlaBla and of different kinds of Blabla specialities from the basic BlaBla, promotion and sale of the Blabla- specialities, administration of the BlaBla-building, transport of the BlaBla to the customers, running 21 BlaBla-shops, giving BlaBla workshops and courses, trade in special BlaBla-accessories.

4. Type of activity First question:
Are activities producing for the market
or only for the unit itself?
For the market  Main (principal) or secondary activity
Internal (for the own unit)  ancillary (they facilitate the main or secondary activities)
Not sold on the market
Just performed for the unit
Generally performed in all similar units
In most cases services

5. What is the main activity:
Classification rules
What is the main activity:
the activity that contributes most to the value added (=sales – production costs)
If an activity > 50% of value added main activity.
in other cases: the top down method:
Start with the highest NACE-level, determine the activity with most value added,
then the same for the second level,
and so forth, until the lowest level.

6. The « top-down » method: the activities of enterprise “Manutrade”
100
section 8 52 40
man
trade
agr
division 38 2 8 28 24 2 3 35 8 20 24
group 2 35 3 8 20 24
class
subclass 2 35 3 8 24 20 20

7. The « top-down » method to order the secondary activities
100 8
32 (52-20) 40 38 2 8
8 (28-20) 24 2 3 35 8 24 2 35 3 8 24 2 35 3 8 24 20
First secondary activity

8. The « top-down » method to order the secondary activities
100 8 32
5 (40-35) 3 2 8 24 2 3 8 24 2 3 8 24 2 35 3 8 24 20
Second secondary activity

9. The « top-down » method Why??
the classification of a unit at the lowest level must be consistent with the classification of the unit at the higher levels of the structure.

10. The « top-down » method
100 8 52 40
man
trade 38 2 8 28 24 2 3 35 8 20 24 2 35 3 8 20 24 2 35 3 8 24 20 20

11. The « top-down » method
For wholesale and retail trade more refined on class level (=lowest)
Why?
Additional levels that are not part of the NACE structure itself, e.g.
Own-account vs. fee-based
Specialised vs. non-specialised
Shops vs. on-line, market
(practical reasons, lack of code numbers)
Similar distinctions do not exist for other activities, such as manufacturing.

12. Top-down method in NACE 2 retail sale
Following traditional coding system: not enough room for all levels needed
Division 47
in stores not in stores
in non-specialised stores in specialised stores on markets elsewhere
Vegetables, meat

13. Top-down method in NACE 2 retail sale
Division 47
47.1 – 47.9
in stores not in stores
47.1 – – 47.9
in non-specialised stores in specialised stores on markets elsewhere – …
Vegetables, meat

14. Top-down method in NACE 2 wholesale
Chart for wholesale currently in use
Top-down method in NACE 2 wholesale
Division 46
46.1 – 46.9
Specialised and non specialised wholesale trade
46.2 – 46.9
Wholesale on a fee or
contract basis
46.1
Non specialised
46.9
Specialised
46.2 – 46.7
46.2
46.3
46.4
46.5
46.7
46.6
Further subdivided according to the corresponding classes

15. Top-down method in NACE 2 wholesale
Specialised
Wholesale of food, beverages and tobacco
Non-specialised wholesale of food, beverages and tobacco

16. Top-down method in NACE 2 wholesale
Amended chart for wholesale
Top-down method in NACE 2 wholesale
Division 46
46.1 – 46.9
Specialised and non specialised wholesale trade
46.2 – 46.9
Wholesale on a fee or contract basis
46.1
Specialised
46.2 – 46.7 except 46.39
Non specialised
46.39
46.90
46.2
46.3
Except 46.39
46.4
46.5
46.6
46.7 ……
……………
Further subdivided according to the goods traded

17. Value added and proxies
If data on value added are missing, use the best approximates possible:
based on outputs
gross output (sales - purchases) or
just sales (turnover)
based on inputs
wages and salaries or
employment

18. Frequent Change of Activity of a Unit
Units pingponging from
activity A  B vice versa:
Seasonal business (beach-skating; agriculture)
Main activity for the whole year.
Borderline cases: 49%-51%51-4949-51 etc.
 The stability rule: after two years stabilitychange

19. Additional classification rules
Classification rules for specific production phenomena
vertical integration
production on a fee or contract basis / outsourcing

20. Treatment of vertically integrated activities
Different stages of production in succession by the same unit;
The output of one process is input for the next.
Examples:
tree felling and sawmilling
production of wearing apparel in a textile mill

21. Together one activity: NACE-code of the most important step
Vertical integration
Slaugthering pigs
Producing meats
Together one activity:
NACE-code of the most important step

22. Treatment of vertically integrated activities
like any other unit with several activities: via value addedtop-down the main activity
value added (or proxies) may be difficult (intermediate products don’t come on the market) comparisons with similar units or estimation of intermediate products based on market prices
or number of persons employed on the activities

23. Outsourcing - manufacturing
Output of outsourced activities:
If principal owns the materials:
Principal
=manufacturing
Contractor =manufacturing
Service (done to a good of the principal)
Good

24. Outsourcing - manufacturing
Output of outsourced activities:
If principal doesn’t own the materials:
Principal
Contractor =manufacturing
Good

25. Outsourcing – services
if the whole service process is outsourced  both the principal and the contractor in the same NACE class
if only a portion is outsourced, the principal remains classified as if carrying out the whole process
If a separate class exists for the outsourced portion, the contractor is classified there, otherwise in the same class as the principal (call center)

26. Outsourcing – ancillary activities accounting, computer services etc.
The principal is classified as if carrying out the whole core process ancillary activities do not influence the classification of a unit.
The contractor is classified to the specific support function carried out.
These and many other outsource-cases:
Eurostat -->Outsourcing manual

27. Activity descriptions of enterprises
Tips for assigning a NACE code to an activity description given by an enterprise
Too little no 4th digit code
Too much  may be difficult to find the core activity
Irrelevant (for NACE)  no 4th digit code
Wrong (exception)  wrong code

28. Find the core/main activity which comes on the market!!!!
The only thing to do:
Find the core/main activity which comes on the market!!!!

29. First: combine the items which are the same for NACE
Trade in cabbage, brocoli, beet, endive, spinach, beans …..= vegetables
Sometimes mix leads to a general code:
- supermarket

30. Hotel and restaurant and bar “Sleeping for eating for drinking”
Priority rules
Hotel and restaurant
Restaurant and bar
Hotel and restaurant and bar
“Sleeping for eating for drinking”
Production and trade in same good..

31. Attention for descriptions like:
“management”
“exploitation of a website”
“..a solution for……”

32. Example: BlaBla Ltd -1 Blabla describes its activities as:
- production of basic BlaBla;
- production of different kinds of Blabla specialities from the basic BlaBla;
- promotion and sale of the Blabla specialities;
- administration of the BlaBla-building;
- transport of the BlaBla to the customers;
- 21 BlaBla-shops;
- giving BlaBla workshops and courses;
- trade in special BlaBla-accessories.

33. Ancillary activities are no part of the main activity, only the activities for others count.
No market transactions (exception sales department)
No part of the final product
Administration
Own transport
Canteen
Maintenance machines
Etc.

34. Example: BlaBla Ltd -2 - production of basic BlaBla;
- production of different kinds of Blabla specialities from the basic BlaBla;
- promotion and sale of the Blabla specialities;
- administration of the BlaBla-building;
- transport of the BlaBla to the customers;
- 21 BlaBla-shops;
- giving BlaBla workshops and courses;
- trade in special BlaBla-accessories.

35. Refinishing furniture
Vertical integration
Slaugthering pigs
Producing meats
Sawing wood
Producing furniture
Refinishing furniture
Together one activity:
NACE-code of the most important step

36. Example: BlaBla Ltd -3 - production of basic BlaBla;
- production of different kinds of Blabla specialities from the basic BlaBla;
- promotion and sale of the Blabla specialities;
- administration of the BlaBla-building;
- transport of the BlaBla to the customers;
- 21 BlaBla-shops;
- giving BlaBla workshops and courses;
- trade in special BlaBla-accessories.

37. Usual combination
Two activities (for others!) which are very often combined:
And support each other
Repair and trade
Assortments in trade
(cigarettes and lighters)

38. Example: BlaBla Ltd - 4 index - production of basic BlaBla;
- production of different kinds of Blabla specialities from the basic BlaBla;
- promotion and sale of the Blabla specialities;
- administration of the BlaBla-building;
- transport of the BlaBla to the customers;
- 21 BlaBla-shops;
- giving BlaBla workshops and courses;
- trade in special BlaBla-accessories.

39. Thank you!