Early History
During the early part of the 1960s, the South Korean government began a new economic strategy that requires the conglomerates, or chaebols, to concentrate on increasing production for export. A series of five year plans laid out the policy for decreasing South Korea's trade deficit while strengthening local production. This was a strategy that had already been successfully used by South Korea's Far East competitors, Hong Kong and Taiwan. The company Daewoo was a significant player in this effort to improve the significance of South Korea's exports.
The South Korean government sponsored cheap loans for chaebols manufacturing goods for export. Daewoo benefited from the loans when it began trading during the year 1967. This was at the beginning of the second five-year plan. The company Daewoo capitalized on the nation's large labor force, its primary asset. By focusing on labour-intensive businesses, such as textile and clothing, the company yielded high profits. The corporation's factory within Pusan produced 3.6 million shirts on a monthly basis. The company also made basic manufacturing machines, which were also labour intensive. During this time, Daewoo helped to increase the level of exports of South Korea, which were growing almost 40 percent per year.
Korea's comparative advantage in labor-intensive production started to decline, once the demand for labour pushed the wages upwards. Thailand and Malaysia became market competitors to South Korea, which 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 the year 1981. This occurred 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 making components that had to be imported before. Local components manufacturing helped to make possible a national defense industry and strengthen domestic businesses.