Early History
In the early 1960s, the South Korean government began a new economic strategy requiring the chaebols, or conglomerates, to concentrate 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 domestic production. This was a plan that had already been used successfully by South Korea's Far East competitors, Taiwan and Hong Kong. Daewoo had a key part in this effort to improve 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 among these companies that benefited during the year 1967. This was at the beginning of the second five-year plan. Daewoo capitalized on the nation's large workforce, its primary asset. By concentrating on labour-intensive industries, like for instance clothing and textile, the company yielded high profits. The factory of the company in Pusan made 3.6 million shirts every month. Also, the company manufactured simple manufacturing machines, that were also labour intensive. Throughout this time, the company Daewoo helped to increase the level of South Korea's 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. Malaysia and Thailand became market competitors to South Korea, that forced the nation to concentrate on the industries of shipbuilding, petrochemicals, electrical and mechanical engineering, and construction. This specific phase of the country's economic recovery lasted from the year 1973 to the year 1981. This occurred at the same time as the US announced its intentions to completely withdraw its peacekeeping forces from the nation. The new emphasis in production was meant to further the expansion of Korea's exports while at the same time making components which previously had to be imported. Local parts manufacturing helped to make possible a national defense industry and strengthen domestic businesses.