Early History
During the early part of the 1960s, the South Korean government began 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 South Korea's trade deficit while strengthening local production. This was a strategy which had already been successfully utilized y both South Korea's Far East competitors, Taiwan and Hong Kong. Daewoo was a key player in this effort to improve the importance 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 in the year 1967. This was at the beginning of the second five-year plan. The company Daewoo capitalized on the country's large labor force, its primary asset. By focusing on labour-intensive businesses, like for instance textile and clothing, the company yielded high earnings. The factory of the company within Pusan produced 3.6 million shirts each month. In addition, the company made basic manufacturing machinery, which were labour intensive as well. In this time, Daewoo helped to boost the level of South Korea's exports, which were growing almost 40 percent per year.
Once the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production began to decline. Competition from Thailand and Malaysia forced Korea to refocus its energies on other industries, such as petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of the nation's economic recovery lasted from the year 1973 to 1981. This took place at the same time as the United States announced its plans to totally withdraw its peacekeeping forces from the nation. The new emphasis in production was intended to further the expansion of Korea's exports while at the same time producing components which had to be imported before. Local components production helped to strengthen domestic industries and make possible a national defense industry.