Leyaoyao’s Diversification: Vertical Or Horizontal?

Guangzhou Leyaoyao Information Technology Co. Ltd. provided online-payment services in Guangzhou, China. In 2017, the company entered the claw-machine market and became the leader in the industry’s online-payment services within two years. To further develop its business and improve its market power, the company was considering diversification through vertical integration within the claw-machine industry or horizontal expansion to other types of offline physical devices. Both options held potential benefits and risks. Vertical integration would enable the company to enhance its market position, lift entry barriers, and develop a new revenue model within the claw-machine business, but consolidation costs could be substantive and the relatively small scale of the claw-machine industry could be a constraint for the company’s future development. Horizontal expansion would allow the company to apply its core competences from the claw-machine industry to other offline and networked facilities, but it could be challenging due to established market leaders in other sectors. Which option would broaden the company’s business boundaries: vertical integration or horizontal expansion?

This case was developed for undergraduate- and graduate-level students on strategy. It may be used following a discussion on value networks, core competences, competitor analysis, and strategy management. Students may use the frameworks from these areas to analyze the information in the case. After working through the case and assignment questions, students will be able to<br><br\><ul><li>understand how Internet technology companies co-operate with traditional companies, and the logic of Internet products;</li><li>understand the importance of customer values and grasp the concepts of the value-creating network;</li><li>suggest how a company can develop core competences from a value-network perspective;</li><li>learn about the Business Model Canvas strategic management template and draw easy conclusions about a given Internet business model;</li><li>learn about the impact of the external environment on a company’s decision-making and strategy formulation for development; and</li><li>think about the growth of the company from the perspectives of horizontal and vertical diversification.</li></ul>

• online to offline
• payment service
• platform business