Early History
In the early 1960s, the government of South Korea started a new economic strategy that requires the chaebols, or conglomerates, to focus on increasing production for export. A series of five year plans laid out the strategy for decreasing the trade deficit of South Korea while strengthening local production. This was a strategy which had already been successfully employed y both South Korea's Far East competitors, Taiwan and Hong Kong. The corporation Daewoo had a significant part in this effort to enhance the significance of South Korea's exports.
To assist the chaebols in their efforts for production of exports, the government of South Korea sponsored cheap loans for chaebols. Daewoo was among these companies which benefited during the year 1967. This was at the start of the second five-year plan. Daewoo took advantage of the huge workforce of the country, its primary asset. By concentrating on labour-intensive businesses, like clothing and textile, the company generated high earnings. The corporation's factory in Pusan made 3.6 million shirts each month. Furthermore, the company made basic 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, once the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, that forced the country to focus on the businesses of shipbuilding, petrochemicals, electrical and mechanical engineering, and construction. This specific phase of Korea's economic recovery lasted from the year 1973 to nineteen eighty one. This occurred at the same time as the United States announced its plans to completely withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was meant to further expand Korea's exports while at the same time producing components which had to be imported previously. Local components production helped to make possible a national defense industry and strengthen domestic businesses.