Early History
In the early part of the 1960s, the South Korean government began a new economic plan that requires the chaebols, or conglomerates, 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 local production. This was a plan that had already been successfully utilized by Hong Kong and Taiwan, South Korea's Far East competitors. The corporation Daewoo had a major part 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 amongst these businesses which benefited in the year 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 concentrating on labour-intensive industries, such as clothing and textile, the business generated high earnings. The company's factory within Pusan produced 3.6 million shirts on a monthly basis. The company also made simple manufacturing machinery, which were labour intensive as well. During this time, the company Daewoo helped to increase the level of South Korea's exports, which were growing nearly 40 percent per year.
When the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production began to decline. Competition from both Thailand and Malaysia forced Korea to refocus its energies on other industries, such as petrochemicals, shipbuilding, mechanical and electrical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to 1981. This occurred at the same time as the US announced its plans to completely withdraw its peacekeeping forces from the nation. The new emphasis in manufacturing was meant to further the expansion of Korea's exports while at the same time manufacturing parts that had to be imported before. Domestic components manufacturing helped to strengthen domestic industries and make possible a national defense industry.