Early History
In the early part of the 1960s, the government of South Korea initiated a new economic strategy that requires the chaebols, or conglomerates, to concentrate on increasing production for export. A series of five year plans laid out the policy for decreasing South Korea's trade deficit while strengthening local production. This was a plan which had already been utilized successfully y both Taiwan and Hong Kong, the Far East competitors of South Korea. Daewoo had a major 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 government of South Korea sponsored cheap loans for chaebols. Daewoo was one of these companies which benefited during 1967. This was at the beginning of the second five-year plan. Daewoo took advantage of the huge labor force of the country, its primary asset. By focusing on labour-intensive businesses, like for instance clothing and textile, the company generated high earnings. The corporation's factory in Pusan produced 3.6 million shirts every month. The corporation also made basic manufacturing machines, that were also labour intensive. Throughout this time, Daewoo helped to boost South Korea's level of exports, that were growing almost 40 percent per year.
Korea's comparative advantage in labor-intensive production began to decline, once the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, that forced the nation to focus on the industries of shipbuilding, petrochemicals, mechanical and electrical 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 United States announced its plans to totally withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was intended to further the expansion of Korea's exports while at the same time manufacturing parts that had to be imported previously. Local parts manufacturing helped to make possible a national defense industry and strengthen domestic industries.