The recent fire sale of Helio by SK Telecom to Virgin Mobile for $39M has made me reflect on Korean technology companies in the United States.

Korea is one of the most advanced countries when it comes to technology, but on the international stage, most Korean technology companies are still struggling to expand beyond hardware. Everyone knows Samsung and their prowess in hardware manufacturing but there are no successful global Korean software/technology services companies.

The irony is that within Korea, software and technology services companies like SK Telecom, NHN, and NCSoft are actually very innovative companies that dominate the local market. These companies are all highly profitable and they're well managed companies that have emerged as leaders in a highly competitive local market. They also have the cash flow and resources to invest in international expansion.

So, the question is, why haven't they succeeded? SK Telecom poured almost $500M into Helio, yet they ended up selling Helio for $39M. I've read that this equates to $200+ per subscriber which is ridiculous when the ARPU for a Helio subscriber is $80 per month.

On the flip side, why is it that some of the most innovative and successful companies have a hard time finding success in Korea?

WalMart entered the Korean market and ended up pulling out because they couldn't compete with E-Mart. Google is still having a hard time moving beyond 2% of the search market and competing against NHN, which continues to increase their 60%+ market share.

A lot of people have explored this issue and a lot has been written about US companies in Korea and vice versa.

From what I've read and observed, here's my take on Helio, Wal-Mart and Google:

Helio

Helio's strategy was flawed from the start. They had an innovative product but a flawed marketing strategy. They misjudged the US audience's appetite for high end phones with advanced data services which also came with high monthly bills. They chose to become a MVNO with a dependency on Sprint's network which hampered their business model. They also had a wishy washy marketing strategy which didn't differentiate their advanced product in the highly competitive and crowded cellphone market.

Wal Mart

With Wal-Mart in Korea, a lot has been written about how they failed to recognize and adapt to the local tastes and preferences. You could argue that it was a classic arrogance and hubris. If the Wal-Mart way has been so successful in the US, why wouldn't it work in Korea? After all, who doesn't want low prices? It turns out that the average Korean middle class consumer doesn't just care about low prices, they also care about the shopping experience. E-mart recognized this from the start and they were able to create a superior shopping experience, even going so far to help people find parking when visiting E-mart stores.

Google

With Google in Korea, most people don't realize that NHN is a very innovative company with a great track record when it comes to execution. In Korea, Google is competing against a Yahoo like entity which has been able to integrate and leverage Search, Content, and Services into a single destination site which has a dominant market position.

NHN is essentially what Yahoo could have become if they were able to continue innovating with flawless execution by a dedicated and focused management team. To paraphrase Brad Garlinghouse from Yahoo, NHN is one company that has been able to spread the peanut butter and make it stick.

There are lots of other reasons for NHN's success in the Korean market. Just like with failures, it's easy to look back and come up with reasons why something failed or succeeded.

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However, the thing that I find missing from a lot of the analysis is the human element. After having worked at large and small companies, my observation is that companies don't pick the best strategy. Companies pick the best people for the job and then hope that they pick and execute the best strategy.

The first hurdle that companies need to clear in picking a person is to find someone who's a good fit for the foreign market. The skills and background that make you successful in the local market don't always translate to the foreign market. That's why it's almost always a bad idea to send your A-person or A-team overseas, just because they're successful back home.

Or even worse, send your A-person overseas because they're loyal to you. Having grown up in Hong Kong, I've seen my share of clueless expat executives appointed by headquarters because they have the right connections and pedigrees from back home. They never win the respect of the local team and they never really develop an understanding of the local market. They're too busy managing their connections back to headquarters and hoping for the promotion back home.

A lot of these problems are caused by management not having a good perspective on the type of people that they need to hire to be successful overseas. The reason is that these executives spend most of their career specializing themselves in the local market and develop little perspective on international markets.

The more successful global companies have recognized this issue and now have programs in place to provide global exposure for their executives. If more than 50% of your revenue is coming from international markets, it really does make sense to have an appropriately balanced management team.

Even if you pick the right person with the right experience and empathy for your international market, you're still not there. In a perfect world, the best people determine and execute the best strategy, which in turn leads to success. However, people don't work in a vacuum. Your overseas team still has to work with people back at headquarters.

What does this mean from a management perspective? It means that the team heading up your international markets needs to understand how things work within the corporate organization. That's why it's almost always a bad idea to pick a person in the local market on the basis of their decades of experience in the local market. I've even seen cases where companies pick executives from totally unrelated or marginally related industries because they have the "local experience" and "local connections".

The other critical factor is the support of the upper management team. You need a corporate management team that recognizes the importance of international markets and has the management will and courage to push through the required changes, even when they're risky. This management support has to be something that exist at all management levels. Just having the support of the CEO is not enough because the practical reality is that the CEO isn't the person who gets things done.

So, with all these difficulties on the human side, it's no wonder that companies have a hard time being successful in foreign markets. However, it's not all bad news for US companies. US companies have a huge advantage because of the heterogeneous talent pool within the US. The US is blessed with a multi-cultural population that still maintains ties back to their home countries. Therefore, it's much easier to find the "magic expat", and also easier to find upper management with an interest in developing international markets.

For Korean companies, it's much harder to find "magic expats". Korea is a relatively small company with a cohesive and homogeneous society and culture. It's rare to find a non-Korean person work their way up the management ranks at a Korean company. You'll have the token foreign executive but they're usually hired at a senior level and they never really fully mesh with the corporate DNA.

So, going back to Helio which spurred this train of thought.

I'm not familiar with what happened behind the scenes and I don't know any of the management team in Korea/US that launched and nurtured Helio. However, I would be willing to bet money that things could have turned out very differently if Helio was launched and managed by a different team of people.

Helio really had the potential to have been what the iPhone is becoming. It would have required a totally different way of thinking about cell phones. However, they did have all the assets in place to create something revolutionary. Like Apple, Helio had the integrated software and hardware stack and the support of a high speed network. It's a shame that they never had the people who were able to move beyond incremental innovation, unlike what Apple and Google are doing with the iPhone and Android.

In summary, the old maxim that companies always put in their corporate mission and value statement is true. People are a company's asset. It's a pity companies don't always recognize what this really means to their success, especially when it comes to expanding into international markets.

After the Dick Grasso story, I couldn't resist writing an entry on this story. Apparently, two people approached Taco Bell with the idea of an advertising campaign around a talking Chihuahua. After this meeting, Taco Bell started running the talking Chihuahua advertising campaigns without compensating the orignators of the idea. The pair sued successfully in 1998 and won $30.1 million dollars, and they've just been awarded an additional $11.8 million dollars.

Not bad for what on the surface seems like a silly idea. Who knew that talking Chihuahuas would make such great advertising? At least Dick Grasso had to do more than just come up with brilliant advertising ideas.

Fortune has an article on Stelios Haji-Ioannou and his various "Easy" companies that form the EasyGroup conglomerate. Stelio has started a number of companies that range from rental cars, airlines, to internet cafes, based on the idea of eliminating middlemen using technology. Apparently, his companies are all doing very well, including EasyJet which is a public company that generated $765M in revenue last year.

As I was reading through the article, I noticed that EasyGroup has a similar business model to companies like FreshDirect and Dell. All of these companies are using technology to eliminate the middlemen to deliver lower cost and higher value to customers. These companies are not internet companies per se, but they are examples of how internet technology and general information technology can become a competitive advantage, if applied correctly to support a rational business model. Also, it was interesting to note the similarities between EasyCar/Easy InternetCafe and JetBlue. All of these companies offer the same class of service (but with dynamic pricing) using standardized components, whether it's one type of plane or one type of car model. This model obviously reduces operational complexity and maintenance costs, which allows them to undercut their competition. It also reminded me of Dell in some ways because Dell is obssessed with maximizing their margins by minimizing their cost of inventory with just-in-time assembly of PC's. These are all sensible business principles and practices that more companies should really adopt to stay competitive.

The interesting thought for me is that companies such as EasyGroup, FreshDirect, Dell, and even EBay could not exist and thrive to the same extent if there was no such as thing as the Internet. However, the real focus shouldn't be on the innovation in technology that enables such companies to exist and thrive. It really should be on how advances in technology lead to innovation in business models and practices that have real impact in people's lives. Now that's a much more interesting topic than arguing why Linux is better than Windows.

If you live in New York, chances are that you have seen advertisements for FreshDirect. FreshDirect is a relatively new compay started by an ex-investment banker and one of the founders of Fairway Uptown, one of the largest and most successful groceries in New York. There's a great article in Strategy + Business magazine (free registration required) on FreshDirect that discusses how they are applying the Dell Business Model to online grocery deliveries.

The thing that struck me about FreshDirect is that their strategy and business model is based on rational business principles. The founders decided to use the internet, not because it was a paradigm shift for the world of grocery stores, but because it offered the lowest transaction costs. The founders also had significant domain expertise and operating experience running or tracking grocery stores, and were able to develop a business model based on maximizing margins in an industry with notoriously low margins. It's funny how a business model for PC manufacturing and distribution can be applied to online groceries. It's a pity Michael Dell can't patent his business model. Compare this to WebVan, which didn't even think of itself as an online grocery. Apparently, the business plan for WebVan was built around it dominating the "last mile" of e-commerce. I don't think Louis Borders or George Shaheen really had much experience in grocery stores or the last mile distribution of physical goods.

It's too early to say whether FreshDirect will succeed or not (others have failed in New York), but I think it has a good chance. Given the hassle of pulling carts through narrow aisles in Manhattan grocery stores and trying to catch a taxi with bags of groceries in the rain, the idea of sitting in my apartment and ordering groceries seems very appealing. I'm sure it's appealing to other New Yorkers since everyone in New York gets things delivered, whether it's laundry or chinese food. Now, if only I could convince them to start deliveries to the Upper West Side...

Overture has announced that they will be acquiring the Web search properties of Fast Search & Transfer (FAST) for $70 million in cash and up to $30 million over the next three years, based on fiscal performance targets met by FAST. This is on the heels of their earlier announcement that they will be acquiring AltaVista for $80 million in Overture stock and $60 million in cash. Although Overture keeps denying it, they must be investing $100 million in cash to address the growing threat from Google and Yahoo to Overture's core business of paid placement within search results. Of course, the immediate result of these two announcements was that Overture's stock price plummeted down by 33%. If I were holding Overture stock right now, I would not be very happy.

I still remember the early days of Overture when they were known as Goto.com. They had this wacky idea of auctioning placement of search results from keywords to the highest bidder. It sounded like one of those novel business models dreamt up by a clever MBA that was creative but not quite solid. Not as wacky as the business model from AllAdvantage.com (recurse(get paid to surf and get a cut of the revenue stream from everyone you recruit into the program)) or the original business model of buy.com (sell goods at cost and make money on advertising to the customer base), but still a little wacky. You definitely have to hand it to Overture. They were able to execute on their business model and launch a $2 billion market.

The question is, can Overture continue to execute on their business model? In some ways, they've shown how companies such as Google can monetize web searches, but they seem to be slipping. After all, how hard can it be to develop search placement technology? All you have to do is recognize some keywords and then look up the appropriate text to place within the search. The real hard part is developing a good search engine, which is the part that Google seems to have mastered. Now that Overture has access to the AltaVista and FAST web search assets, it will be interesting to see how they innovate and evolve their technology into new areas. The hard part for them is that they have to embark on this transformation as a public company, with all the scrutiny and short term revenue and earnings pressure associated with being a public company. Whatever happens in the short term, I wouldn't count Overture out. They've been able to execute on their original business model and build a $2 billion market. Maybe they can do it again.