Early History
In the early 1960s, the South Korean government began a new economic strategy requiring the conglomerates, or chaebols, to focus 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 which had already been used successfully y both South Korea's Far East competitors, Taiwan and Hong Kong. Daewoo had a major part in this effort to enhance the significance of South Korea's exports.
To help the chaebols in their efforts for production of exports, the government of South Korea sponsored cheap loans for chaebols. Daewoo was amongst 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 focusing on labour-intensive businesses, like clothing and textile, the business yielded high earnings. The factory of the corporation within Pusan produced 3.6 million shirts on a monthly basis. In addition, the company manufactured basic manufacturing machines, that were also labour intensive. During this time, Daewoo helped to increase the level of South Korea's exports, which were growing nearly 40% per year.
Korea's comparative advantage in labor-intensive production started 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 specific phase of the country's economic recovery lasted from 1973 to the year 1981. This took place at the same time as the US announced its plans to completely withdraw its peacekeeping forces from the nation. The new emphasis in production was meant to further expand Korea's exports while simultaneously manufacturing components that had to be imported previously. Local components production helped to make possible a national defense industry and strengthen domestic industries.