Early History
The South Korean government in the early 1960s began a new economic plan that required large companies known as "chaebols" to focus on producing exports. This new plan called for a series of five year plans that were designed to lessen the trade deficit the country was going through while helping to bolster the country's production. This was a plan which had already been employed successfully y both South Korea's Far East competitors, Taiwan and Hong Kong. The corporation Daewoo had a significant part in this effort to enhance the significance 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 among these businesses that benefited during 1967. This was at the start of the second five-year plan. The company Daewoo capitalized on the country's huge labor force, its primary asset. By focusing on labour-intensive businesses, like for example clothing and textile, the company generated high earnings. The corporation's factory in Pusan made 3.6 million shirts every month. In addition, the corporation manufactured basic manufacturing equipment, that were also labour intensive. Throughout this time, Daewoo helped to boost South Korea's level of exports, which were growing nearly 40% per year.
Once the demand for labour pushed wages up, Korea's comparative advantage in labor-intensive production began to decline. Competition from malasya and Thailand forced Korea to refocus its energies on other businesses, like petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to 1981. This happened at the same time as the US announced its plans to completely withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was intended to further expand Korea's exports while simultaneously manufacturing components which had to be imported previously. Local components manufacturing helped to strengthen domestic industries and make possible a national defense industry.