Private equity's role in the South Korean economy hasn't lacked drama this past year.

Korean investigators are pursuing criminal indictments against the U.S. buyout firm Lone Star Funds for its role in the 2003 acquisition of the troubled state-owned Korea Exchange Bank. The scandal has painted foreign private equity investors—still tyros on the South Korean stage—as opportunists looking to enrich themselves at the expense of the locals.

The high-profile prosecution helped reinforce already deep skepticism about private equity among South Korean entrepreneurs, in part because they feared losing control to buyout artists who could swallow, leverage or flip their assets. Last week, Lone Star announced that it would seek buyers for the two remaining South Korean holdings in its portfolio, fueling speculation that it would pull out of South Korea entirely.

Such scandal and controversy brought a chill to South Korean private equity in 2006. Deal activity flattened, and average deal size slumped to $73 million, less than half of what it had been a year earlier. Yet backstage, ambitious local companies and adroit private equity firms—both offshore and, increasingly, homegrown—are collaborating on a happier second act. Following the new script, private equity investors are aiming to breathe new life into underutilized assets, helping young companies take on the powerful chaebols, opening new markets and sparking fresh competition. The following are moves from the new playbook:

Score with chaebol carve-outs. As global competition increases the need to streamline their operations, South Korea's giant conglomerates are showing a new willingness to divest underperforming parts of their vast operations. Activist private equity firms are well positioned to spot value in the misfit units and reinvigorate them.

That's what CCMP Capital Asia (formerly J.P. Morgan Partners Asia) aims to do with its purchase last July of the Buytheway Inc. store chain from the Tongyang Orion Group, an organization with interests stretching from confectionary and restaurant chains to movie production and distribution. Operating 1,000 convenience stores mainly in Seoul and with revenue totaling some $400 million, Buytheway will work with its private equity partner to consolidate food retailing that is still concentrated in small mom-and-pop shops and upgrade its merchandising mix to higher-margin products, such as fast-food, private-label, premium coffee and breakfast offerings. In addition to helping finance Buytheway's expansion, CCMP Capital will tap the expertise of its Hong Kong-based partner, which operates a successful 300-store network of convenience outlets in Hong Kong, Macao and mainland China.

Bet on hungry entrepreneurs. Many South Korean founders of promising startups have long been reluctant to cede control to private equity investors. But that inhibition is starting to relax as they come to see private equity partnerships as a way to finance their future growth, acquire management and corporate governance skills to fend off bigger competitors at home and tap global contacts to establish beachheads abroad. For example, Hi-mart Co. Ltd., South Korea's largest consumer electronics retailer, linked up with a private equity consortium led by Hong Kong-based Affinity Equity Partners to ensure its future as an independent company.

Originally founded in 1999 as a captive distributor of Daewoo products, Hi-mart was sold to Sun Jong-gu, a former Daewoo executive who became the company's chief executive and largest shareholder. Under Sun's leadership, Hi-mart established a new electronics retailing model for South Korea, challenging the dominance of the chaebols on one side and outflanking the small-scale specialist retail shops on the other.

Within a year, Sun had proved his approach could work by building a chain of stores that sold several manufacturers' popular brands. Yet Hi-mart's growth was stalled, and revenue had remained flat at $1.8 billion for the previous three years. Looking ahead, Sun saw that his company's ability to continue to grow would need the infusion of patient, fresh capital that the Affinity-led buyout group could offer. With its investment of some $780 million for 80% of the company, the private equity buyers are giving Hi-mart a capital cushion to finance its future expansion, with Sun retaining an 11% stake and a board seat.

Team up with a strategic partner. Smart private equity firms are skilled at knowing how best to capitalize on their strengths—and where they should rely on the capabilities of others. That's a talent that Michael Kim, the head of MBK Partners LP, a South Korea-based fund with $1.5 billion under management, has in abundance. The former chairman of the Carlyle Group's Asia investment fund has teamed up with Hyundai Capital, the finance division of Hyundai Motor Co. to acquire HK Mutual Savings Bank, a troubled thrift institution. The partners are joining forces to clean up the bank's balance sheet, improve financial and management disciplines and pursue additional acquisitions to grow scale. MBK and Hyundai Capital will each play to their strengths. MBK will provide financial expertise and governance structure, while Hyundai Capital will provide management and operating know-how.

As they learn to master their new role as trusted partners who help private South Korean companies succeed, private equity investors will likely benefit from another powerful trend. A generation of successful South Korean entrepreneurs who helped launch the nation's dynamic economic growth in the 1970s and 1980s will soon look to retire. To ensure their companies' survival, they are likely to turn to private equity buyers as part of their succession planning. Thus private equity funds may soon find themselves at center stage in helping companies to structure management-led buyouts. Now, that's a role most know how to play to perfection.

Chul-Joon Park, a partner in Bain & Co.'s Seoul office, directs the firm's Asian Private Equity Practice. Hugh MacArthur, a partner based in the firm's Boston office, heads Bain's Global Private Equity Practice.