Early History
During the early part of the 1960s, the South Korean government started a new economic strategy requiring the conglomerates, or chaebols, to focus on increasing production for export. A series of five year plans laid out the strategy for decreasing the trade deficit of South Korea while strengthening local production. This was a plan that had already been successfully employed by South Korea's Far East competitors, Taiwan and Hong Kong. Daewoo was a major player in this effort to boost the significance of South Korea's exports.
To help 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 corporation Daewoo took advantage of the large workforce of the nation, its primary asset. By concentrating on labour-intensive businesses, such as clothing and textile, the company generated high earnings. The company's factory within Pusan produced 3.6 million shirts every month. Also, the company made simple manufacturing machines, which were also labour intensive. In this time, Daewoo helped to boost South Korea's level of exports, which 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. Thailand and Malaysia became market competitors to South Korea, that forced the country to concentrate on the industries of petrochemicals, shipbuilding, mechanical and electrical engineering, and construction. This particular phase of Korea's economic recovery lasted from 1973 to 1981. This happened at the same time as the United States announced its intentions to totally withdraw its peacekeeping forces from the nation. The new emphasis in production was intended to further expand Korea's exports while at the same time producing components which had to be imported previously. Domestic parts production helped to make possible a national defense industry and strengthen domestic industries.