Early History
During the early part of the 1960s, the government of South Korea began a new economic strategy 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 the trade deficit of South Korea while strengthening domestic production. This was a strategy which had already been used successfully y both South Korea's Far East competitors, Taiwan and Hong Kong. Daewoo was a significant player in this effort to enhance the significance 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 among these companies that benefited during 1967. This was at the start of the second five-year plan. The corporation Daewoo took advantage of the huge workforce of the nation, its primary asset. By focusing on labour-intensive businesses, like textile and clothing, the business generated high profits. The corporation's factory within Pusan produced 3.6 million shirts each month. The corporation also made simple manufacturing machinery, which were labour intensive too. Throughout this time, Daewoo helped to boost South Korea's level of exports, which were growing nearly 40 percent per year.
When the demand for labour pushed wages up, the comparative advantage in labor-intensive production in Korea started to decline. Competition from malasya and Thailand forced Korea to refocus its energies on other industries, like shipbuilding, petrochemicals, mechanical and electrical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to the year 1981. This happened at the same time as the United States announced its intentions to completely withdraw its peacekeeping forces from the country. The new emphasis in production was intended to further the expansion of Korea's exports while simultaneously producing parts which previously had to be imported. Local components manufacturing helped to make possible a national defense industry and strengthen domestic industries.