Early History
In the early part of the 1960s, the South Korean government began a new economic strategy requiring the chaebols, or conglomerates, to focus on increasing production for export. A series of five year plans laid out the policy for decreasing South Korea's trade deficit while strengthening local production. This was a strategy that had already been successfully employed y both the Far East competitors of South Korea, Taiwan and Hong Kong. The company Daewoo was a significant player in this effort to enhance the importance of South Korea's exports.
The government of South Korea sponsored cheap loans for chaebols producing products for export. Daewoo benefited from the loans when it started trading during the year 1967. This was at the start of the second five-year plan. Daewoo capitalized on the huge labor force of the nation, its primary asset. By concentrating on labour-intensive businesses, like clothing and textile, the business generated high profits. The factory of the corporation within Pusan made 3.6 million shirts on a monthly basis. The company also manufactured simple manufacturing equipment, that were labour intensive too. In this time, Daewoo helped to increase the level of South Korea's exports, which were growing nearly 40% per year.
Once the demand for labour pushed wages up, the comparative advantage in labor-intensive production in Korea began to decline. Competition from both malasya and Thailand forced Korea to refocus its energies on other industries, like petrochemicals, shipbuilding, electrical and mechanical engineering, and construction. This phase of Korea's economic recovery lasted from 1973 to 1981. This took place at the same time as the US announced its intentions 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 simultaneously producing components that previously had to be imported. Local components manufacturing helped to strengthen domestic industries and make possible a national defense industry.