Empirical study to segment firms and capture dynamic business context using LCA

The usual methods of segmenting firms are insufficient as they do not consider hidden (unobserved) groupings and do not consider the dynamic market context such as in the apparel industry. An empirical analysis was done using latent class analysis on a cross-section survey of 334 Indian apparel exporting firms. Five latent classes were found by empirical estimation – (i) very old manufacturers in tier 1 cities with large turnover, (ii) manufacturers in tier 2 and 3 cities, (iii) small merchants from the quota-system period dealing in some high fashion, (iv) new firms dealing in some high fashion and women’s garments, (v) new firms not in high fashion. These latent classes are found valid in market context and hence this method can be further explored. An incentive policy structure for the target latent groups in the industry can be better designed from the results.