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


  • Chakrabarty, Subhajit
  • Nag, Biswajit


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.

Suggested Citation

  • Chakrabarty, Subhajit & Nag, Biswajit, 2013. "Empirical study to segment firms and capture dynamic business context using LCA," MPRA Paper 51622, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:51622

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    References listed on IDEAS

    1. Frauke Kreuter & Ting Yan & Roger Tourangeau, 2008. "Good item or bad—can latent class analysis tell?: the utility of latent class analysis for the evaluation of survey questions," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 723-738, June.
    2. Green, Paul E & Carmone, Frank J & Wachspress, David P, 1976. " Consumer Segmentation via Latent Class Analysis," Journal of Consumer Research, Oxford University Press, vol. 3(3), pages 170-174, December.
    3. Linzer, Drew A. & Lewis, Jeffrey B., 2011. "poLCA: An R Package for Polytomous Variable Latent Class Analysis," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 42(i10).
    4. Astrid Cullmann, 2012. "Benchmarking and firm heterogeneity: a latent class analysis for German electricity distribution companies," Empirical Economics, Springer, vol. 42(1), pages 147-169, February.
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    More about this item


    segmentation; classification; clusters; policy; garments;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade


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