Early History
In the early part of the 1960s, the South Korean government started a new economic plan requiring the chaebols, or conglomerates, to concentrate 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 which had already been successfully used by Hong Kong and Taiwan, South Korea's Far East competitors. Daewoo was a significant player in this effort to boost the significance of South Korea's exports.
The South Korean government sponsored cheap loans for chaebols producing goods for export. Daewoo benefited from the loans when it began trading in the year 1967. This was at the beginning of the second five-year plan. Daewoo capitalized on the country's large labor force, its primary asset. By concentrating on labour-intensive businesses, like clothing and textile, the business generated high profits. The factory of the company in Pusan made 3.6 million shirts each month. The corporation also made basic manufacturing equipment, which were also labour intensive. During this time, Daewoo helped to boost the level of exports of South Korea, that were growing almost 40% per year.
Korea's comparative advantage in labor-intensive production began to decline, when 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 businesses of shipbuilding, petrochemicals, mechanical and electrical engineering, and construction. This specific phase of Korea's economic recovery lasted from 1973 to nineteen eighty one. This occurred at the same time as the US announced its intentions to totally withdraw its peacekeeping forces from the country. The new emphasis in production was intended to further the expansion of Korea's exports while at the same time manufacturing components which previously had to be imported. Local parts production helped to strengthen domestic businesses and make possible a national defense industry.