V. ESTABLISHMENTS AND INDUSTRIES
B. Productive activities
| 5.4. | Production in the System, as will be discussed in detail in chapter VI, consists of processes or activities carried out under the control and responsibility of institutional units that use inputs of labour, capital, and goods and services to produce outputs of goods and services. Any such activity may be described, and classified, with reference to various characteristics, for example:
Type of goods or services produced as outputs
Type of inputs used or consumed
Technique of production employed
Ways in which the outputs are used.
The same goods or services may be produced using different methods of production so that there can be no one-to-one correspondence between activities and the goods or services they produce. Certain types of goods may be produced from quite different inputs; for example, sugar may be produced from sugar cane or from sugar beet, or electricity from coal, oil or nuclear power stations or from hydroelectric plants. Many production processes also produce joint products, such as meat and hides, whose uses are quite different. |
1. The classification of activities in the System
| 5.5. | The classification of productive activities used in the System is ISIC (Rev.3). The criteria used in ISIC to delineate each of its four levels - Class, Group, Division and Section (Tabulation Category) - of the classification are complex. At the Division and Group levels, substantial weight is placed on the nature of the good or service that is produced as the principal product of the activity in question. In this context, this refers to the physical composition and stage of fabrication of the item and the needs served by the item. This criterion furnishes the basis for grouping producer units according to similarities in, and links between, the raw materials consumed and the sources of demand for the items. As well, two other major criteria are considered at these levels: the uses to which the goods and services are put, and the inputs, the process and the technology of production. |
| 5.6. | While it is not necessary for purposes of this chapter to explain the concept of an activity in any detail, it is necessary to clarify the fundamental distinction between principal and secondary activities on the one hand and ancillary activities on the other. |
2. Principal, secondary and ancillary activities
Principal activities
| 5.7. | The principal activity of a producer unit is the activity whose value added exceeds that of any other activity carried out within the same unit. (The producer unit may be an enterprise or an establishment as defined below.) The classification of the principal activity is determined by reference to ISIC, first at the highest level of the classification and then at more detailed levels. The output of the principal activity - its principal product and any by-products (i.e., a product necessarily produced together with principal products) - must consist of goods or services that are capable of being delivered to other units even though they may be used for own consumption or own capital formation. |
Secondary activities
| 5.8. | A secondary activity is an activity carried out within a single producer unit in addition to the principal activity and whose output, like that of the principal activity, must be suitable for delivery outside the producer unit. The value added of a secondary activity must be less than that of the principal activity, by definition of the latter. The output of the secondary activity is a secondary product. Most producer units produce at least some secondary products. |
Ancillary activities
| 5.9. | The output of an ancillary activity is not intended for use outside the enterprise. An ancillary activity is a supporting activity undertaken within an enterprise in order to create the conditions within which the principal or secondary activities can be carried out. Before trying to give more precision to the concept of an ancillary activity, it is useful to illustrate the kinds of activities that may be ancillary:
(a) Keeping records, files or accounts in written form or on computers;
(b) Communicating in written form or by telephone, telex, telefax, direct computer links, etc., or by messengers, couriers, etc.;
(c) Purchasing of materials and equipment;
(d) Hiring, training, managing and paying employees;
(e) Storing materials or equipment: warehousing;
(f) Transporting goods or persons inside or outside the producer unit;
(g) Promoting sales;
(h) Cleaning and maintenance of buildings and other structures;
(i) Repairing and servicing machinery and equipment;
(j) Providing security and surveillance. |
| 5.10. | In addition to the defining characteristic that they provide support for the principal, or secondary, activities, ancillary activities have certain common characteristics related to their output. These additional characteristics include:
(a) Ancillary activities typically produce outputs that are commonly found as inputs into almost any kind of productive activity;
(b) Ancillary activities produce services (and, as exceptions, goods provided that they do not become a physical part of the output of the principal or secondary activity) as output;
(c) The value of an individual ancillary activity's output is likely to be small compared with that of the principal or secondary activities of an enterprise. |
| 5.11. | The defining characteristic is by no means sufficient to identify an ancillary activity: there are many kinds of activities whose outputs are entirely consumed within the same enterprise but which could not possibly be considered as ancillary. The characteristic that ancillary activities tend to be found in any productive activity is related to the characteristic that ancillary activities produce services as output. Individual goods are not commonly used as inputs in the same way as services such as accounting, transportation or cleaning. For example, an enterprise may produce milk, all of which is processed into butter or cheese within the same enterprise. However, milk production cannot be considered an ancillary activity, because milk is a unusual kind of input found only in special types of productive activity. In general, goods that become embodied in the output of the principal or secondary activities cannot be outputs of ancillary activities. |
| 5.12. | Certain activities, although common, are not so common as to be considered ancillary. Many enterprises produce their own machinery and equipment, build their own structures and carry out their own research and development. These activities are not to be treated as ancillary, whether carried out centrally or not, as they are not found frequently and extensively in all kinds of enterprises, small as well as large. |
| 5.13. | By definition, an ancillary activity is not undertaken for its own sake but purely in order to provide supporting services for the principal or secondary activities with which it is associated. Therefore, both the System and ISIC treat ancillary activities as integral parts of the principal or secondary activities with which they are associated. As a result:
(a) The output of an ancillary activity is not explicitly recognized and recorded separately in the System. It follows that the use of this output is also not recorded;
(b) All the inputs consumed by an ancillary activity - materials, labour, consumption of fixed capital, etc. - are treated as inputs into the principal or secondary activity which it supports;
(c) It is not possible to identify the value added of an ancillary activity because that value added is combined with the value added of the principal or secondary activity.
Thus, the production accounts of the System provide no direct information about the incidence or range of ancillary activities carried out within producer units. Their existence can only be inferred by studying the structure of the inputs consumed by producers. |
Changes in ancillary activities
| 5.14. | In some cases an enterprise may have a choice between engaging in ancillary activities which provide supporting services for its principal or secondary activities or purchasing such services on the market from specialist service producers. In addition to the obvious difficulty of separating many ancillary activities from the associated principal and secondary activities, the choice may be restricted by the fact that, in practice, the requisite services are often not readily available in the right quantities on local markets. |
| 5.15. | An ancillary activity may grow to the point that it has the capacity to provide services outside the enterprise. For example, a computer processing unit may develop in-house capabilities for which there is an outside demand. When an activity starts to provide services to outsiders, that part which produces output for sale has to be treated as secondary rather than ancillary. |
The role of ancillary activities in the economic system
| 5.16. | As the existence of ancillary activities is not explicitly recognized in the System or in production statistics generally, it is difficult to obtain information about their role in the economy. For example, it is difficult to know how much output they produce, how many persons are engaged in such activities, how many resources they consume, etc. This may be regarded as a serious disadvantage for certain purposes, such as analysing the impact of "information technology" on productivity when the processing and communication of information are typical ancillary activities. However, it would be difficult and costly to obtain detailed information about the entire range of ancillary activities undertaken within producer units. Moreover, the values of their outputs would all have to be imputed. However, for some types of analysis it may be useful and necessary to estimate and record these activities separately (see chapter XXI). |
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