Early History
During the early 1960s, the South Korean government initiated a new economic strategy requiring 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 plan that had already been successfully used y both Taiwan and Hong Kong, the Far East competitors of South Korea. Daewoo was a major player 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 that benefited during the year 1967. This was at the start of the second five-year plan. Daewoo capitalized on the large workforce of the country, its primary asset. By concentrating on labour-intensive industries, such as clothing and textile, the business yielded high profits. The company's factory within Pusan produced 3.6 million shirts every month. The company also made basic manufacturing machines, which were also labour intensive. In this time, Daewoo helped to boost the level of exports of South Korea, that were growing almost 40% 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, that forced the nation to focus on the businesses of petrochemicals, shipbuilding, mechanical and electrical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to 1981. This happened at the same time as the US announced its intentions to totally withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was meant to further the expansion of Korea's exports while simultaneously manufacturing parts that previously had to be imported. Domestic components production helped to make possible a national defense industry and strengthen domestic businesses.