Early History
During the early 1960s, the South Korean government initiated a new economic plan requiring the chaebols, or conglomerates, to focus on increasing production for export. A series of five year plans laid out the strategy for decreasing the trade deficit of South Korea while strengthening local production. This was a strategy that had already been successfully utilized y both South Korea's Far East competitors, Hong Kong and Taiwan. Daewoo had a key part in this effort to enhance 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 started trading during 1967. This was at the beginning of the second five-year plan. The company Daewoo capitalized on the country's huge workforce, its primary asset. By focusing on labour-intensive businesses, such as clothing and textile, the business yielded high profits. The corporation's factory in Pusan made 3.6 million shirts on a monthly basis. Moreover, the corporation manufactured basic manufacturing equipment, which were also labour intensive. Throughout this time, Daewoo helped to increase South Korea's level of exports, which were growing nearly 40% per year.
Once 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 petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from the year 1973 to 1981. This occurred at the same time as the US announced its intentions to totally withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was intended to further the expansion of Korea's exports while simultaneously producing components that previously had to be imported. Domestic parts manufacturing helped to strengthen domestic industries and make possible a national defense industry.