Early History
In the early 1960s, the government of South Korea began a new economic strategy that requires the conglomerates, or chaebols, to focus 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 strategy which had already been successfully used by Taiwan and Hong Kong, the Far East competitors of South Korea. Daewoo was a significant player in this effort to boost the importance of South Korea's exports.
To help the chaebols in their efforts for production of exports, the South Korean government sponsored cheap loans for chaebols. Daewoo was among these companies that benefited in 1967. This was at the beginning of the second five-year plan. The company Daewoo capitalized on the nation's huge labor force, its primary asset. By concentrating on labour-intensive businesses, such as clothing and textile, the business yielded high earnings. The company's factory in Pusan made 3.6 million shirts every month. The corporation also made basic manufacturing machines, that were labour intensive as well. Throughout this time, the corporation Daewoo helped to boost South Korea's level of exports, which 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 both malasya and Thailand forced Korea to refocus its energies on other businesses, like shipbuilding, petrochemicals, mechanical and electrical engineering, and construction. This specific phase of Korea's economic recovery lasted from 1973 to 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 expand Korea's exports while at the same time producing components that previously had to be imported. Domestic parts manufacturing helped to make possible a national defense industry and strengthen domestic industries.