Early History
In the early 1960s, the government of South Korea initiated a new economic plan that requires 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 plan that had already been employed successfully y both Taiwan and Hong Kong, South Korea's Far East competitors. The corporation Daewoo had a significant part in this effort to improve the importance of South Korea's exports.
To assist the chaebols in their efforts for production of exports, the South Korean government sponsored cheap loans for chaebols. Daewoo was amongst these companies that benefited in 1967. This was at the start of the second five-year plan. The company Daewoo took advantage of the large workforce of the nation, its primary asset. By focusing on labour-intensive industries, such as clothing and textile, the company generated high profits. The corporation's factory in Pusan made 3.6 million shirts on a monthly basis. The company also manufactured basic manufacturing equipment, that were also labour intensive. During this time, Daewoo helped to increase the level of exports of South Korea, which were growing nearly 40% per year.
When the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production began to decline. Competition from both malasya and Thailand forced Korea to refocus its energies on other industries, such as shipbuilding, petrochemicals, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from the year 1973 to 1981. This took place at the same time as the United States announced its intentions to completely withdraw its peacekeeping forces from the country. The new emphasis in production was meant to further expand Korea's exports while simultaneously manufacturing parts that had to be imported previously. Local components manufacturing helped to make possible a national defense industry and strengthen domestic industries.