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