Early History
In the early 1960s, the government of South Korea began a new economic plan requiring the chaebols, or conglomerates, to concentrate on increasing production for export. A series of five year plans laid out the policy for decreasing the trade deficit of South Korea while strengthening local production. This was a plan that had already been employed successfully by South Korea's Far East competitors, Hong Kong and Taiwan. The company Daewoo had a significant part in this effort to boost the significance of South Korea's exports.
To assist the chaebols in their efforts for production of exports, the South Korean government sponsored cheap loans for chaebols. Daewoo was among these businesses that benefited during 1967. This was at the start of the second five-year plan. The corporation Daewoo capitalized on the large labor force 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 produced 3.6 million shirts every month. Furthermore, the corporation manufactured simple manufacturing equipment, which were also labour intensive. Throughout this time, Daewoo helped to increase the level of South Korea's exports, that were growing nearly 40 percent per year.
Once the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production started to decline. Competition from Thailand and Malaysia forced Korea to refocus its energies on other businesses, like petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of the country's economic recovery lasted from the year 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 country. The new emphasis in production was meant to further the expansion of Korea's exports while at the same time producing parts that previously had to be imported. Domestic parts manufacturing helped to make possible a national defense industry and strengthen domestic industries.