Early History
In the early 1960s, the government of South Korea 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 policy for decreasing the trade deficit of South Korea while strengthening local production. This was a strategy that had already been used successfully by Taiwan and Hong Kong, South Korea's Far East competitors. The company Daewoo had a key part in this effort to improve the significance of South Korea's exports.
The government of South Korea sponsored cheap loans for chaebols producing products for export. Daewoo benefited from the loans when it began trading in 1967. This was at the start of the second five-year plan. Daewoo took advantage of the large workforce of the nation, its primary asset. By focusing on labour-intensive businesses, like clothing and textile, the company generated high earnings. The factory of the company in Pusan produced 3.6 million shirts every month. The corporation also made basic manufacturing machinery, which were labour intensive too. During this time, Daewoo helped to increase South Korea's level of 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 started to decline. Competition from Thailand and Malaysia forced Korea to refocus its energies on other businesses, such as petrochemicals, shipbuilding, mechanical and electrical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to nineteen eighty one. This occurred at the same time as the United States announced its intentions 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 simultaneously producing components that previously had to be imported. Local components manufacturing helped to make possible a national defense industry and strengthen domestic businesses.