The Dutch East India Company (Vereenigde Oost-Indische Compagnie or VOC in old-spelling Dutch, literally "United East Indian Company") was established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia. It was the first multinational corporation in the world and the first company to issue stock. It was also arguably, the world's first megacorporation, possessing quasi-governmental powers, including the ability to wage war, negotiate treaties, coin money, and establish colonies.
It remained an important trading concern for almost two centuries, paying an 18% annual dividend for almost 200 years, until it became bankrupt and was formally dissolved in 1800, its possessions and the debt being taken over by the government of the Batavian Republic. The VOC's territories became the Dutch East Indies and were expanded over the course of the 19th century to include the whole of the Indonesian archipelago, and in the twentieth century would form Indonesia.
During the 16th century the spice trade was dominated by the Portuguese who used Lisbon as a staple port. Before the Dutch Revolt Antwerp had played an important role as a distribution center in northern Europe, but after 1591 the Portuguese used an international syndicate of the German Fuggers and Welsers, and Spanish and Italian firms that used Hamburg as its northern staple, to distribute their Asian goods, thereby cutting out Dutch merchants. At the same time, the Portuguese trade system was so inefficient that it was unable to supply growing demand, in particular the demand for pepper. The demand for spices was relatively inelastic, and the lagging supply of pepper therefore caused a sharp rise in pepper prices at the time.
Likewise, as Portugal had been "united" with the Spanish crown, with which the Dutch Republic was at war, in 1580, the Portuguese Empire became an appropriate target for military incursions. These three factors formed motive for Dutch merchants to enter the intercontinental spice trade themselves at this time. Finally, a number of Dutchmen like Jan Huyghen van Linschoten and Cornelis de Houtman obtained first hand knowledge of the "secret" Portuguese trade routes and practices, thereby providing opportunity. The stage was thus set for Houtman's first voyage to Banten, the chief port of Java, and back (1595–97), which generated a modest profit.
In 1596, a group of Dutch merchants decided to try again to circumvent the Portuguese monopoly. In 1596, a four-ship expedition led by Cornelis de Houtman was the first Dutch contact with Indonesia. The expedition reached Banten, the main pepper port of West Java, where they clashed with both the Portuguese and indigenous Indonesians. Houtman's expedition then sailed east along the north coast of Java, losing twelve crew to a Javanese attack at Sidayu and killing a local ruler in Madura. Half the crew were lost before the expedition made it back to the Netherlands the following year, but with enough spices to make a considerable profit.
In 1598, an increasing number of new fleets were sent out by competing merchant groups from around the Netherlands. Some fleets were lost, but most were successful, with some voyages producing high profits. In March 1599, a fleet of twenty-two ships under Jacob van Neck of five different companies was the first Dutch fleet to reach the ‘Spice Islands’ of Maluku. The ships returned to Europe in 1599 and 1600 and, although eight ships were lost, the expedition made a 400 percent profit. In 1600, the Dutch joined forces with the local Hituese (near Ambon) in an anti-Portuguese alliance, in return for which the Dutch were given the sole right to purchase spices from Hitu. Dutch control of Ambon was achieved in alliance with Hitu when in February 1605, they prepared to attack a Portuguese fort in Ambon but the Portuguese surrendered. In 1613, the Dutch expelled the Portuguese from their Solor fort, but were expelled again in 1636 following a re-occupation of the site.
In 1603, the first permanent Dutch trading post in Indonesia was established in Banten, West Java and in 1611, another was established at Jayakarta (later 'Batavia' and then 'Jakarta'). In 1610, the VOC established the post of Governor General to enable firmer control of their affairs in Asia. To advise and control the risk of despotic Governors General, a Council of the Indies (Raad van Indië) was created. The Governor General effectively became the main administrator of the VOC's activities in Asia, although the Heeren XVII continued to officially have overall control.
VOC headquarters were in Ambon for the tenures of the first three Governor Generals (1610-1619), but it was not a satisfactory location. Although it was at the centre of the spice production areas, it was far from the Asian trade routes and other VOC areas of activity ranging from Africa to Japan. A location in the west of the archipelago was thus sought; the Straits of Malacca were strategic, but had become dangerous following the Portuguese conquest and the first permanent VOC settlement in Banten was controlled by a powerful local ruler and subject to stiff competition from Chinese and English traders.
In 1604, a second British East India Company voyage commanded by Sir Henry Middleton reached the islands of Ternate, Tidore, Ambon and Banda; in Banda, they encountered severe VOC hostility, which saw the beginning of Anglo-Dutch competition for access to spices. From 1611 to 1617, the English established trading posts at Sukadana (southwest Kalimantan), Makassar, Jayakarta and Jepara in Java, and Aceh, Pariaman and Jambi in Sumatra which threatened Dutch ambitions for a monopoly on East Indies trade. Diplomatic agreements in Europe in 1620 ushered in a period of cooperation between the Dutch and the English over the spice trade. This ended with a notorious, but disputed incident, known as the 'Amboyna massacre', where ten Englishmen were arrested, tried and beheaded for conspiracy against the Dutch government. Although this caused outrage in Europe and a diplomatic crisis, the English quietly withdrew from most of their Indonesian activities (except trading in Bantam) and focused on other Asian interests.
Another of Coen's ventures was more successful. A major problem in the European trade with Asia at the time was that the Europeans could offer few goods that Asian consumers wanted, except silver and gold. European traders therefore had to pay for spices with precious specie, and this was in short supply in Europe, except for Spain and Portugal. The Dutch and English had to obtain it by creating a trade surplus with other European countries. Coen discovered the obvious solution for the problem: to start an intra-Asiatic trade system, whose profits could be used to finance the spice trade with Europe. In the long run this obviated the need for exports of precious metals from Europe, though at first it required the formation of a large trading-capital fund in the Indies. The VOC reinvested a large share of its profits to this end in the period up to 1630. The VOC traded throughout Asia. Ships coming into Batavia from the Netherlands carried supplies for VOC settlements in Asia. Silver and copper from Japan were used to trade with India and China for silk, cotton, porcelain, and textiles. These products were either traded within Asia for the coveted spices or brought back to Europe. The VOC was also instrumental in introducing European ideas and technology to Asia. The Company supported Christian missionaries and traded modern technology with China and Japan. A more peaceful VOC trade post on Dejima, an artificial island off the coast of Nagasaki, was for many decades the only place where Europeans were permitted to trade with Japan.
In 1640, the VOC obtained the port of Galle, Sri Lanka, from the Portuguese and broke the latter's monopoly of the cinnamon trade. In 1658, Gerard Hulft laid siege to Colombo, which was captured with the help of King Rajasinghe II of Kandy. By 1659, the Portuguese had been expelled from the coastal regions, which were then occupied by the VOC, securing for it the monopoly over cinnamon.
In 1652, Jan van Riebeeck established an outpost at the Cape of Good Hope (the southwestern tip of Africa, currently in South Africa) to re-supply VOC ships on their journey to East Asia. This post later became a full-fledged colony, the Cape Colony, when more Dutch and other Europeans started to settle there.
VOC trading posts were also established in Persia (now Iran), Bengal (now Bangladesh, but then part of India), Malacca (Melaka, now in Malaysia), Siam (now Thailand), mainland China (Canton), Formosa (now Taiwan) and the Malabar Coast and Coromandel Coast in India. In 1662, however, Koxinga expelled the Dutch from Taiwan (see History of Taiwan).
By 1669, the VOC was the richest private company the world had ever seen, with over 150 merchant ships, 40 warships, 50,000 employees, a private army of 10,000 soldiers, and a dividend payment of 40% on the original investment.
Even more importantly, the Third Anglo-Dutch War temporarily interrupted VOC trade with Europe. This caused a spike in the price of pepper, which enticed the EIC to aggressively enter this market in the years after 1672. Previously, one of the tenets of the VOC pricing policy was to slightly over-supply the pepper market, so as to depress prices below the level where interlopers were encouraged to enter the market (instead of striving for short-term profit maximization). The wisdom of such a policy was illustrated when a fierce price war with the EIC ensued, as that company flooded the market with new supplies from India. In this struggle for market share the VOC (that had much larger financial resources) could wait out the EIC. Indeed by 1683 the latter came close to bankruptcy; its share price plummeted from 600 to 250; and its president Josiah Child was temporarily forced from office.
However, the writing was on the wall. Other companies, like the French East India Company and the Danish East India Company also started to make inroads on the Dutch system. The VOC therefore closed the heretofore flourishing open pepper emporium of Bantam by a treaty of 1684 with the Sultan. Also, on the Coromandel Coast it moved its chief stronghold from Pulicat to Negapatnam, so as to secure a monopoly on the pepper trade at the detriment of the French and the Danes. However, the importance of these traditional commodities in the Asian-European trade was diminishing rapidly at the time. The military outlays that the VOC needed to make to enhance its monopoly were not justified by the increased profits of this declining trade. .
Nevertheless, this lesson was slow to sink in and at first the VOC made the strategic decision to improve its military position on the Malabar Coast (hoping thereby to curtail English influence in the area, and end the drain on its resources from the cost of the Malabar garrisons) by using force to compel the Zamorin of Calicut to submit to Dutch domination. In 1710 the Zamorin was made to sign a treaty with the VOC undertaking to trade exclusively with the VOC and expel other European traders. For a brief time this appeared to improve the Company's prospects. However, in 1715, with EIC encouragement, the Zamorin renounced the treaty. Though a Dutch army managed to suppress this insurrection temporarily, the Zamorin continued to trade with the English and the French, which led to an appreciable upsurge in English and French traffic. The VOC decided in 1721 that it was no longer worth the trouble to try and dominate the Malabar pepper and spice trade. A strategic decdision was taken to scale down the Dutch military presence and in effect yield the area to EIC influence.
The 1741 Battle of Colachel by Nairs of Travancore under Raja Marthanda Varma was therefore a rearguard action. The Dutch commander Captain Eustachius De Lannoy was captured. Marthanda Varma agreed to spare the Dutch captain's life on condition that he joined his army and trained his soldiers on modern lines. This defeat in the Travancore-Dutch War is considered the earliest example of an organized Asian power overcoming European military technology and tactics; and it signaled the decline of Dutch power in India.
The attempt to continue as before as a low volume-high profit business enterprise with its core business in the spice trade had therefore failed. The Company had however already (reluctantly) followed the example of its European competitors in diversifying into other Asian commodities, like tea, coffee, cotton, textiles, and sugar. These commodities provided a lower profit margin and therefore required a larger sales volume to generate the same amount of revenue. This structural change in the commodity composition of the VOC's trade started in the early 1680s, after the temporary collapse of the EIC around 1683 offered an excellent opportunity to enter these markets. The actual cause for the change lies, however, in two structural features of this new era.
In the first place there was a revolutionary change in the tastes affecting European demand for Asian textiles, and coffee and tea, around the turn of the 18th century. Secondly, a new era of an abundant supply of capital at low interest rates suddenly opened around this time. The second factor enabled the Company to easily finance its expansion in the new areas of commerce. Between the 1680s and 1720s, the VOC was therefore able to equip and man an appreciable expansion of its fleet, and acquire a large amount of precious metals to finance the purchase of large amounts of Asian commodities, for shipment to Europe. The overall effect was to approximately double the size of the company.
The tonnage of the returning ships rose by 125 percent in this period. However, the Company's revenues from the sale of goods landed in Europe rose by only 78 percent. This reflects the basic change in the VOC's circumstances that had occurred: it now operated in new markets for goods with an elastic demand, in which it had to compete on an equal footing with other suppliers. This made for low profit margins. Unfortunately, the business information systems of the time made this difficult to discern for the managers of the company, which may partly explain the mistakes they made from hindsight. This lack of information might have been counteracted (as in earlier times in the VOC's history) by the business acumen of the directors. Unfortunately by this time these were almost exclusively recruited from the political regent class, which had long since lost its close relationship with merchant circles.
Low profit margins in themselves don't explain the deterioration of revenues. To a large extent the costs of the operation of the VOC had a "fixed" character (military establishments; maintenance of the fleet and such). Profit levels might therefore have been maintained if the increase in the scale of trading operations that in fact took place, had resulted in economies of scale. However, though larger ships transported the growing volume of goods, labor productivity did not go up sufficiently to realize these. In general the Company's overhead rose in step with the growth in trade volume; declining gross margins translated directly into a decline in profitability of the invested capital. The era of expansion was one of "profitless growth.
Concretely: "[t]he long-term average annual profit in the VOC's 1630-70 'Golden Age' was 2.1 million guilders, of which just under half was distributed as dividends and the remainder reinvested. The long-term average annual profit in the 'Expansion Age' (1680-1730) was 2.0 million guilders, of which three-quarters was distributed as dividend and one-quarter reinvested. In the earlier period, profits averaged 18 percent of total revenues; in the latter period, 10 percent. The annual return of invested capital in the earlier period stood at approximately 6 percent; in the latter period, 3.4 percent."
Nevertheless, in the eyes of investors the VOC did not do too badly. The share price hovered consistently around the 400 mark from the mid-1680s (which a hiccup around the Glorious Revolution in 1688), and they reached an all-time high of around 642 in the 1720s. VOC shares then yielded a return of 3.5 percent, only slightly less than the yield on Dutch government bonds.
But from there on the fortunes of the VOC started to decline. Five major problems, not all of equal weight, can be adduced to explain its decline in the next fifty years to 1780.
Despite of all this, the VOC in 1780 remained an enormous operation. Its capital in the Republic, consisting of ships and goods in inventory, totaled 28 million guilders; its capital in Asia, consisting of the liquid trading fund and goods en route to Europe, totaled 46 million guilders. Total capital, net of outstanding debt, stood at 62 million guilders. The prospects of the company at this time therefore need not have been hopeless, had one of the many plans to reform it been taken successfully in hand. However, then the Fourth Anglo-Dutch War intervened. British attacks in Europe and Asia reduced the VOC fleet by half; removed valuable cargo from its control; and devastated its remaining power in Asia. The direct losses of the VOC can be calculated at 43 million guilders. Loans to keep the company operating reduced its net assets to zero.
From 1720 on, the market for sugar from Indonesia declined as the competition from cheap sugar from Brazil increased. European markets became saturated. Dozens of Chinese sugar traders went bankrupt which led to massive unemployment, which in turn led to gangs of unemployed coolies. The Dutch government in Batavia did not adequately respond to these problems. In 1740, rumors of deportation of the gangs from the Batavia area led to widespread rioting. The Dutch military searched houses of Chinese in Batavia searching for weapons. When a house accidentally burnt down, military and impoverished citizens started slaughtering and pillaging the Chinese community. This Chinese Massacre was deemed sufficiently serious for the board of the VOC to start an official investigation into the Government of the Dutch East Indies for the first time in its history.
After the Fourth Anglo-Dutch War, the VOC was a financial wreck, and after vain attempts by the provincial States of Holland and Zeeland to reorganize it, was nationalised on 1 March 1796 by the new Batavian Republic. Its charter was renewed several times, but allowed to expire on 31 December 1800. Most of the possessions of the former VOC were subsequently occupied by Great Britain during the Napoleonic wars, but after the new United Kingdom of the Netherlands was created by the Congress of Vienna, some of these were restored to this successor state of the old Dutch Republic by the Anglo-Dutch Treaty of 1814.
The VOC consisted of six Chambers (Kamers) in port cities: Amsterdam, Delft, Rotterdam, Enkhuizen, Middelburg and Hoorn. Delegates of these chambers convened as the Heeren XVII (the Lords Seventeen). They were selected from the bewindhebber-class of shareholders
Of the Heeren XVII, eight delegates were from the Chamber of Amsterdam (one short of a majority on its own), four from the Chamber of Zeeland, and one from each of the smaller Chambers, while the seventeenth seat was alternatively from the Chamber of Zeeland or rotated among the five small Chambers. Amsterdam had thereby the decisive voice. The Zeelanders in particular had misgivings about this arrangement at the beginning. The fear was not unfounded, because in practice it meant Amsterdam stipulated what happened.
The six chambers raised the start-up capital of the Dutch East India Company:
The raising of capital in Rotterdam did not go so smoothly. A considerable part originated from inhabitants of Dordrecht. Although it did not raise as much capital as Amsterdam or Zeeland, Enkhuizen had the largest input in the share capital of the VOC. Under the first 358 shareholders, there were many small entrepreneurs, who dared to take the risk. The minimum investment in the VOC was 3,000 guilders, which priced the Company's stock within the means of many merchants.
Among the early shareholders of the VOC, immigrants played an important role. Under the 1,143 tenderers were 39 Germans and no fewer than 301 Zuid-Nederlanders (roughly present Belgium and Luxemburg, then under Habsburg rule), of whom Isaac le Maire was the largest subscriber with ƒ85,000. VOC's total capitalization was ten times that of its British rival.
The logo of the VOC consisted of a large capital 'V' with an O on the left and a C on the right leg. The first letter of the hometown of the chamber conducting the operation was placed on top (see figure for example of the Amsterdam chamber logo). The flag of the company was orange, white, blue (see Dutch flag) with the company logo embroidered on it.
The Heeren XVII (Lords Seventeen) met alternately 6 years in Amsterdam and 2 years in Middelburg. They defined the VOC's general policy and divided the tasks among the Chambers. The Chambers carried out all the necessary work, built their own ships and warehouses and traded the merchandise. The Heeren XVII sent the ships' masters off with extensive instructions on the route to be navigated, prevailing winds, currents, shoals and landmarks. The VOC also produced its own charts.
In the context of the Dutch-Portuguese War the company established its headquarters in Batavia, Java (now Jakarta, Indonesia). Other colonial outposts were also established in the East Indies, such as on the Spice Islands (Moluccas), which include the Banda Islands, where the VOC forcibly maintained a monopoly over nutmeg and mace. Methods used to maintain the monopoly included the violent suppression of the native population, not stopping short of extortion and mass murder. In addition, VOC representatives sometimes used the tactic of burning spice trees in order to force indigenous populations to grow other crops, thus artificially cutting the supply of spices like nutmeg and cloves.
Opperhoofd is a Dutch word (plural Opperhoofden) which literally means 'supreme head[man]'. In this VOC context, the word is a gubernatorial title, comparable to the English Chief factor, for the chief executive officer of a Dutch factory in the sense of trading post, as lead by a Factor, i.e. agent.
Other Trade Companies of the age of the sail
Famous people of the VOC
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