Early History
The South Korean government during the early 1960s started a new economic strategy that required huge companies known as "chaebols" to focus on manufacturing exports. This new strategy called for a series of five year plans that were intended to decrease the trade deficit the nation was going through while helping to bolster the nation's production. This was a plan which had already been successfully utilized by Hong Kong and Taiwan, the Far East competitors of South Korea. Daewoo had a major part in this effort to enhance the significance 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 companies that benefited in the year 1967. This was at the start of the second five-year plan. Daewoo capitalized on the nation's large labor force, its primary asset. By focusing on labour-intensive businesses, like for example textile and clothing, the company yielded high profits. The company's factory within Pusan made 3.6 million shirts each month. In addition, the company manufactured simple manufacturing machines, which were labour intensive as well. Throughout this time, the company Daewoo helped to increase South Korea's level of exports, which were growing almost 40% per year.
Once the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production began to decline. Competition from Thailand and Malaysia forced Korea to refocus its energies on other industries, like petrochemicals, shipbuilding, mechanical and electrical engineering, and construction. This specific phase of Korea's economic recovery lasted from the year 1973 to nineteen eighty one. This happened at the same time as the US announced its plans to completely withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was meant to further the expansion of Korea's exports while at the same time producing components which had to be imported previously. Local components manufacturing helped to strengthen domestic businesses and make possible a national defense industry.