Early History
The South Korean government in the early part of the 1960s began a new economic plan that required large corporations referred to as "chaebols" to focus on manufacturing exports. This new strategy called for a series of five year plans which were designed to reduce the trade deficit the nation was going through while helping to bolster the country's 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 significant player in this effort to improve the significance of South Korea's exports.
The South Korean government sponsored cheap loans for chaebols producing goods for export. Daewoo benefited from the loans when it began trading during the year 1967. This was at the start of the second five-year plan. Daewoo took advantage of the nation's large labor force, its primary asset. By focusing on labour-intensive industries, like clothing and textile, the company yielded high profits. The company's factory in Pusan produced 3.6 million shirts each and every month. The company also made simple manufacturing machinery, that were also labour intensive. During this time, Daewoo helped to increase South Korea's level of exports, which were growing nearly 40 percent per year.
When the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production started to decline. Competition from malasya and Thailand forced Korea to refocus its energies on other industries, like shipbuilding, petrochemicals, 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 completely withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was intended to further the expansion of Korea's exports while simultaneously producing components which previously had to be imported. Local parts production helped to make possible a national defense industry and strengthen domestic industries.