Early History
In the early 1960s, the South Korean government initiated a new economic strategy that requires the chaebols, or conglomerates, to concentrate on increasing production for export. A series of five year plans laid out the policy for decreasing South Korea's trade deficit while strengthening domestic production. This was a plan which had already been employed successfully by Taiwan and Hong Kong, the Far East competitors of South Korea. Daewoo had a key part in this effort to improve the importance of South Korea's exports.
The South Korean government sponsored cheap loans for chaebols producing goods for export. Daewoo benefited from the loans when it began trading in 1967. This was at the start of the second five-year plan. The corporation Daewoo capitalized on the huge labor force of the nation, its primary asset. By focusing on labour-intensive industries, like for instance clothing and textile, the company generated high earnings. The company's factory in Pusan produced 3.6 million shirts each and every month. Moreover, the company manufactured simple manufacturing machinery, which were labour intensive as well. During this time, Daewoo helped to increase South Korea's level of exports, that were growing nearly 40 percent per year.
Korea's comparative advantage in labor-intensive production began to decline, when the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, which forced the country to concentrate on the businesses of shipbuilding, petrochemicals, mechanical and electrical engineering, and construction. This particular phase of Korea's economic recovery lasted from 1973 to the year 1981. This occurred at the same time as the United States announced its intentions to completely withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was meant to further the expansion of Korea's exports while at the same time manufacturing components which had to be imported before. Domestic components production helped to strengthen domestic businesses and make possible a national defense industry.