Early History
In the early part of the 1960s, the South Korean government 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 strategy for decreasing South Korea's trade deficit while strengthening local production. This was a plan that had already been successfully employed y both the Far East competitors of South Korea, Hong Kong and Taiwan. 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 South Korean government sponsored cheap loans for chaebols. Daewoo was among these businesses that benefited in the year 1967. This was at the beginning of the second five-year plan. Daewoo took advantage of the nation's large workforce, its primary asset. By concentrating on labour-intensive industries, such as textile and clothing, the company generated high profits. The company's factory in Pusan produced 3.6 million shirts every month. The corporation also made simple manufacturing equipment, which were labour intensive as well. During this time, Daewoo helped to increase South Korea's level of exports, that were growing nearly 40% per year.
Korea's comparative advantage in labor-intensive production began to decline, when the demand for labour pushed the wages upwards. Thailand and Malaysia became market competitors to South Korea, that forced the nation to focus on the businesses of petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to the year 1981. This happened at the same time as the US 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 at the same time producing components that had to be imported before. Domestic components manufacturing helped to make possible a national defense industry and strengthen domestic businesses.