At the time, it was customary
for a company to be set up only for the duration of a single voyage, and to be
liquidated on the return of the fleet. Investment in these expeditions was a
very high-risk venture, not only because of the usual dangers of piracy,
disease and shipwreck, but also because the interplay of inelastic demand and
relatively elastic supply of spices could make prices tumble at just the wrong
moment, thereby ruining prospects of profitability. To manage such risk the
forming of a cartel to control supply would seem logical. This first occurred
to the English, who bundled their forces into a monopoly enterprise, the East
India Company in 1600, thereby threatening their Dutch competitors with ruin.
In 1602, the Dutch government followed suit, sponsoring the creation of a single "United East Indies Company" that was also granted a monopoly over the Asian trade. The charter of the new company empowered it to build forts, maintain armies, and conclude treaties with Asian rulers. It provided for a venture that would continue for 21 years, with a financial accounting only at the end of each decade.
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, a body of 17 shareholders representing different chambers, continued to officially have overall control.
VOC headquarters were in Ambon for the tenures of the first three Governors General (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 1602, the Dutch government followed suit, sponsoring the creation of a single "United East Indies Company" that was also granted a monopoly over the Asian trade. The charter of the new company empowered it to build forts, maintain armies, and conclude treaties with Asian rulers. It provided for a venture that would continue for 21 years, with a financial accounting only at the end of each decade.
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, a body of 17 shareholders representing different chambers, continued to officially have overall control.
VOC headquarters were in Ambon for the tenures of the first three Governors General (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.
Growth
In 1619, Jan Pieterzoon Coen was appointed
Governor-General of the VOC. He saw the possibility of the VOC becoming an
Asian power, both political and economic. On 30 May 1619, Coen, backed by a
force of nineteen ships, stormed Jayakarta driving out the Banten forces; and
from the ashes established Batavia as the VOC headquarters. In the 1620s almost
the entire native population of the Banda Islands was driven away, starved to
death, or killed in an attempt to replace them with Dutch plantations. These
plantations were used to grow cloves and nutmeg for export. Coen hoped to
settle large numbers of Dutch colonists in the East Indies, but this part of
his policies never materialized, mainly because very few Dutch were willing to
immigrate to Asia.
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
the precious metals, 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 coast of Nagasaki, was for more than two hundred years the only place where
Europeans were permitted to trade with Japan.
In 1640, the VOC obtained the
port of Galle, Ceylon, from the Portuguese and broke the latter's monopoly of
the cinnamon trade. In 1658, Gerard Pietersz 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. To prevent the
Portuguese or the English from ever recapturing Sri Lanka, the VOC went on to
conquer the entire Malabar Coast from the Portuguese, almost entirely driving
them from the west coast of India. When news of a peace agreement between
Portugal and the Netherlands reached Asia in 1663, Goa was the only remaining
Portuguese city on the west coast.
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.
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.
Many of the VOC employees inter-mixed with the indigenous peoples and expanded the Mestizo population of Indos in pre-colonial history.
Reorientation
Around 1670, two events caused the growth of VOC trade to stall. In the first place, the highly profitable trade with Japan started to decline. The loss of the outpost on Formosa to Koxinga and related internal turmoil in China (where the Ming dynasty was being replaced with the Qing dynasty) brought an end to the silk trade after 1666. Though the VOC substituted Bengali for Chinese silk other forces affected the supply of Japanese silver and gold. The shaogunate enacted a number of measures to limit the export of these precious metals, in the process limiting VOC opportunities for trade, and severely worsening the terms of trade. Therefore, Japan ceased to function as the lynchpin of the intra-Asiatic trade of the VOC by 1685.
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 English East India Company (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 (which 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.
 |
| Negapatnam |
 |
| Negapatnam |
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 to dominate
the Malabar pepper and spice trade. A strategic decision 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.
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: The 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 (excepting 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.
Concretely: The 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 (excepting 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.
Decline
However, 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.
· There was a
steady erosion of intra-Asiatic trade by changes in the Asiatic political and
economic environment that the VOC could do little about. These factors
gradually squeezed the company out of Persia, Suratte, the Malabar Coast, and
Bengal. The company had to confine its operations to the belt it physically
controlled, from Ceylon through the Indonesian archipelago. The volume of this
intra-Asiatic trade, and its profitability, therefore had to shrink.
· The way the
company was organized in Asia (centralized on its hub in Batavia) that
initially had offered advantages in gathering market information, began to
cause disadvantages in the 18th century, because of the inefficiency of first
shipping everything to this central point. This disadvantage was most keenly
felt in the tea trade, where competitors like the EIC and the Ostend Company
shipped directly from China to Europe.
· The
"venality" of the VOC's personnel (in the sense of corruption and
non-performance of duties), though a problem for all East-India Companies at
the time, seems to have plagued the VOC on a larger scale than its competitors.
To be sure, the company was not a "good employer". Salaries were low,
and "private-account trading" was officially not allowed. Not
surprisingly, it proliferated in the 18th century to the detriment of the
company's performance. From about the 1790s onward, the phrase perished by
corruption (also abbreviated VOC in Dutch) came to summarize the company's
future.
· A problem
that the VOC shared with other companies was the high mortality and morbidity
rates among its employees. This decimated the company's ranks and enervated
many of the survivors.
· A
self-inflicted wound was the VOC's dividend policy. The dividends distributed
by the company had exceeded the surplus it garnered in Europe in every
decade but one (1710–1720) from 1690 to 1760. However, in the period up to 1730
the directors shipped resources to Asia to build up the trading capital there.
Consolidated bookkeeping therefore probably would have shown that total profits
exceeded dividends. In addition, between 1700 and 1740 the company retired 5.4
million guilders of long-term debt. The company therefore was still on a secure
financial footing in these years. This changed after 1730. While profits
plummeted the directors only slightly decreased dividends from the earlier
level. Distributed dividends were therefore in excess of earnings in every
decade but one (1760–1770). To accomplish this, the Asian capital stock had to
be drawn down by 4 million guilders between 1730 and 1780, and the liquid
capital available in Europe was reduced by 20 million guilders in the same
period. The directors were therefore constrained to replenish the company's
liquidity by resorting to short-term financing from anticipatory loans, backed
by expected revenues from home-bound fleets.
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 massacre of the Chinese 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 nationalized 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
Wright family, owners of Voyager Estate in Margaret River Western Australia,
acquired the VOC name and trademark in 1995. 
