Early History
The government of South Korea during the early part of the 1960s began a new economic plan which required big corporations known as "chaebols" to concentrate on manufacturing exports. This new strategy called for a series of five year plans that were designed to reduce the trade deficit the nation was experiencing while helping to bolster the country's production. This was a plan that had already been utilized successfully by Hong Kong and Taiwan, the Far East competitors of South Korea. The corporation Daewoo was a major player in this effort to boost the significance of South Korea's exports.
The South Korean government sponsored cheap loans for chaebols manufacturing goods for export. Daewoo benefited from the loans when it began trading in 1967. This was at the beginning of the second five-year plan. The corporation Daewoo capitalized on the country's large labor force, its primary asset. By focusing on labour-intensive businesses, such as textile and clothing, the company generated high earnings. The company's factory in Pusan produced 3.6 million shirts on a monthly basis. The corporation also made simple manufacturing equipment, that were also labour intensive. During this time, the corporation Daewoo helped to boost the level of exports of South Korea, which were growing almost 40 percent 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, which forced the nation to focus on the industries of shipbuilding, petrochemicals, electrical and mechanical engineering, and construction. This specific phase of Korea's economic recovery lasted from the year 1973 to the year 1981. This occurred at the same time as the United States announced its intentions to completely withdraw its peacekeeping forces from the country. The new emphasis in manufacturing was intended to further the expansion of Korea's exports while simultaneously manufacturing parts that had to be imported previously. Local components manufacturing helped to strengthen domestic businesses and make possible a national defense industry.