Early History
The government of South Korea in the early 1960s started a new economic strategy that required large companies called "chaebols" to concentrate on producing exports. This new plan called for a series of five year plans that were designed to lessen the trade deficit the nation was going through while helping to bolster the nation's production. This was a strategy which had already been utilized successfully by South Korea's Far East competitors, Hong Kong and Taiwan. The company Daewoo was a key player in this effort to enhance the significance of South Korea's exports.
The government of South Korea sponsored cheap loans for chaebols manufacturing goods for export. Daewoo benefited from the loans when it started trading in the year 1967. This was at the beginning of the second five-year plan. The company Daewoo capitalized on the large labor force of the country, its primary asset. By concentrating on labour-intensive businesses, like clothing and textile, the business yielded high profits. The factory of the company in Pusan made 3.6 million shirts every month. The company also made basic manufacturing machines, which were labour intensive too. During this time, Daewoo helped to increase the level of South Korea's exports, that were growing nearly 40% per year.
Korea's comparative advantage in labor-intensive production started to decline, when the demand for labour pushed the wages upwards. Malaysia and Thailand became market competitors to South Korea, that forced the country to focus on the businesses of petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This particular 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 plans to totally withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was intended to further the expansion of Korea's exports while at the same time producing components that previously had to be imported. Local components manufacturing helped to make possible a national defense industry and strengthen domestic businesses.