BUSINESSWEEK ONLINE : SEPTEMBER 25, 2000 ISSUE
INTERNATIONAL -- COVER STORY

Breaking Away: Success outside the Chaebol (int'l edition)


Lee Ga Hyoung could have become a Samsung lifer. For eight years, the engineer worked at the chaebol's prestigious electronics division, leading a team developing cell phones and other mobile products. But Lee had ideas for new portables burning a hole in his imagination and realized it might take years for his bosses at Samsung Electronics Co. ( SSNHY) to give him the green light. So, in 1991, he jumped.

Today Lee, 42, runs his own mobile-phone maker and is an inspiration for thousands of would-be Korean entrepreneurs. Last year, his six-year-old Appeal Telecom Co. sold 1.3 million cell phones, generating a net profit of $48 million on $296 million in revenues--the best earnings performance of any Korean startup. Last month, Appeal's Apollo phone, an ultraslim model with a big screen, was Korea's best-selling handset. It even pushed aside Samsung's Dual Folder phone--although the Apollo sells for 8% more.

Impressed with Appeal's products and quality control, U.S. wireless giant Motorola Inc. ( MOT) paid $50 million in 1998 for a 51% stake in the company. As part of the deal, Lee retained management control. Motorola's vote of confidence, he reckons, is a sign that small Korean independents are ready to take on the mighty chaebol. ''It has broken the perception,'' he says, ''that small firms are bound to toil in the chaebols' shadows as suppliers or contractors.''

SVELTE PHONE. Korean entrepreneurs could do worse than follow Lee's business strategy. Rather than plunge straight into manufacturing, after quitting Samsung Lee spent three years learning about the business by selling brand-name pagers and cell phones. Drawing on feedback from distributors, Lee did away with the usual rectangular pager design, devising instead a square-shaped one. Within seven months of launch it was Korea's best-seller. His first cell phone, considered extra-svelte for the time, sold 550,000 in 10 months.

Lee's vision is to become one of the world's top 10 phone makers within three years. That's where the tie-up with Motorola comes in. ''It will take ages, and tons of money, to establish ourselves in export markets,'' says Lee. ''But Motorola instantly gave us a brand name and distribution networks.'' For Motorola, Appeal is a reliable source for phones for both North America and for its current drive into the tough Japanese market. Last month, Japanese mobile operator KDDI Corp. began buying 50,000 Appeal phones a month under the Motorola name. The next hurdle: making further inroads in the U.S., and taking on China. Appeal has a fighting chance.

By Moon Ihlwan in Seoul

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