Early History
During the early part of the 1960s, the government of South Korea initiated a new economic plan requiring the conglomerates, or chaebols, to focus on increasing production for export. A series of five year plans laid out the policy for decreasing South Korea's trade deficit while strengthening domestic production. This was a strategy that had already been employed successfully by the Far East competitors of South Korea, Hong Kong and Taiwan. Daewoo had a significant part in this effort to boost the importance of South Korea's exports.
To assist the chaebols in their efforts for production of exports, the government of South Korea sponsored cheap loans for chaebols. Daewoo was one of these companies that benefited during 1967. This was at the start of the second five-year plan. Daewoo capitalized on the country's large workforce, its primary asset. By concentrating on labour-intensive businesses, like for instance textile and clothing, the company yielded high earnings. The factory of the corporation in Pusan made 3.6 million shirts on a monthly basis. The corporation also manufactured basic manufacturing machinery, that were also labour intensive. During this time, Daewoo helped to boost the level of South Korea's exports, that were growing nearly 40 percent per year.
Korea's comparative advantage in labor-intensive production began to decline, once the demand for labour pushed the wages upwards. Thailand and Malaysia became market competitors to South Korea, which forced the nation to focus on the businesses of shipbuilding, petrochemicals, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to the year 1981. This took place at the same time as the US announced its plans to completely withdraw its peacekeeping forces from the country. The new emphasis in production was intended to further expand Korea's exports while at the same time making parts which previously had to be imported. Local components manufacturing helped to strengthen domestic industries and make possible a national defense industry.