Early History
During the early part of the 1960s, the government of South Korea started a new economic strategy 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 strategy which had already been employed successfully y both the Far East competitors of South Korea, Taiwan and Hong Kong. The company Daewoo was a key player in this effort to enhance the importance 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 one of these companies which benefited in 1967. This was at the start of the second five-year plan. Daewoo took advantage of the country's large workforce, its primary asset. By focusing on labour-intensive industries, such as clothing and textile, the company yielded high earnings. The company's factory in Pusan made 3.6 million shirts on a monthly basis. Also, the company manufactured basic manufacturing equipment, which were labour intensive too. In this time, Daewoo helped to boost the level of South Korea's exports, that were growing nearly 40 percent per year.
Korea's comparative advantage in labor-intensive production began to decline, once the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, which forced the nation to concentrate on the businesses of petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from the year 1973 to 1981. This happened at the same time as the US announced its plans to totally withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was meant to further expand Korea's exports while simultaneously manufacturing components which previously had to be imported. Domestic components manufacturing helped to make possible a national defense industry and strengthen domestic businesses.