Dutch East India Company Essay ⋆ Business Essay Examples ⋆ EssayEmpire

In the mid-to-late 16th century, European enterprises began to reassert a time-honored interest in the potential rewards offered by long-distance trade. Among them was the United East India Company, or Verenigde Oost-Indische Compagnie. The VOC, as it is often referred to, developed over the next two centuries into an organization so large and powerful that it is considered to be the world’s first-ever multinational corporation.

The VOC was established as a charter company in 1602 by the Dutch parliament, the States-General of the Netherlands, from a collection of smaller companies. At the time, European economy and society, especially in England and Holland, were undergoing rapid change through the growth of the merchant middle class that preferred trade rather than land as the method of income. Within that was another economic transformation: Bills of exchange emerged as a favored currency for business transactions, which, combined with the opening of banks in large cities and the first waves of colonialism, led businessmen to new concepts of investing their capital.

The Dutch had been one of the leaders in creating a structure of modern colonialism that involved merchant businessmen joining with their home states on the formation of monopolistic, imperialistic companies. One manner of effectively accomplishing such an outcome, they discovered, was to raise capital for ongoing ventures by pooling individual assets into a single company. In return, the individual investor would receive transferable shares of stock in the company. Then, at the point in time at which the venture turned a profit, the company would divide and disburse the profit based on the proportion of shares held by the investor. It was the VOC that became the first-ever company to begin—and benefit from—this practice of limited liability.

From the outset, the VOC turned a profit from its ventures and did so largely by buying low, selling high, and trading favorably in all manner of commodities across the Asian continent. The capacity to do so systematically began with the company directors, the Seventeen Gentlemen, dispatching a few VOC fleets each year to the hub outpost in Batavia (present-day Jakarta, Indonesia). These voyages had a tendency to last anywhere from seven to nine months in each direction, as the fleet sailed to Batavia and back via the Cape of Good Hope. When the fleet reached Batavia and unloaded its cargo of tradable goods and precious metals, servants, and instructions to the colonial High Indies Government, agents of the colonial government would in turn oversee the distribution of cargo throughout the commercial hierarchy and local geography.

From there, VOC merchants transported the imported goods, metals, and people to regions including India, Persia, Japan, and, later, China. The effectiveness of the land-based operation—and the monopoly itself—was settled as much in various collection posts along the trading routes as in maintaining coercive or inequitable relationships with local populations. Through whatever means, the commodities, once acquired, would be delivered to Batavia for shipment to the Netherlands on a returning fleet. Upon arrival, the cargo would be brought to a VOC warehouse until the company saw fit to release the goods to the European market through auction. The resultant profit was then used to provide dividends to shareholders and fees to directors, and to fund existing and future company operations.

As an additional part of their business, the VOC financed voyages such as those on which Henry Hudson was sent in the early 1600s to explore and discover a more efficient route to India via Greenland. In any case, the sheer magnitude and force of the overall operation—geographically, economically, organizationally, politically, and militarily—was at once the basic element in the company’s early ability to reduce its risk and also precisely what led to a considerable amount of uncertainty at even the minutest step in their business processes. As time went on, for instance, the Seventeen Gentlemen experienced difficulty in obtaining accurate information about goings-on in Batavia while also mismanaging the balance of better incentives and harsher sanctions to their many agents. But these relatively internal hindrances began to emerge in larger numbers around the same time as fiercely increasing external competition, most notably from the British East India Company that had gained its footing by the mid-to-late 17th century.

By the end of the 17th century and the beginning of the next one, the centralized authority within the VOC began to seriously break down. Some conveniently-situated VOC agents found power in their positions, for these agents were situated in manners that would have allowed them to direct VOC resources through any channels they perceived to be beneficial. That is, the agents eventually recognized that they were effectively positioned to act as principals, which meant they could selectively become direct competitors of VOC principals should they so choose. Many acted on the opportunity in the interest of greater personal gain and, though the formal hierarchy remained in place, the authority of VOC principals withered away until the company was dissolved on December 31, 1795.

Bibliography:

Adams, “Principals and Agents, Colonialists and Company Men: The Decay of Colonial Control in the Dutch East Indies,” American Sociological Review (1996);
H. Arnoux, The Dutch in America: A Historical Argument (private printing, 1890);
B. Ekelund and R. D. Tollison, “Mercantilist Origins of the Corporation,” Bell Journal of Economics (1980);
S. Gaastra, “Competition or Collaboration?: Relations Between the Dutch East India Company and Indian Merchants Around 1680,” in Merchants, Companies and Trade, S. Chaudhury and M. Morineau, eds. (Cambridge University Press, 1999);
Gelderbloom and J. Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612,” The Journal of Economic History (2004);
William N. Goetzmann and K. Geert Rouwenhorst, The Origins of Value: The Financial Innovations That Created Modern Capital Markets (Oxford University Press, 2005);
Robert Parthesius, Dutch Ships in Tropical Waters. The Development of the Dutch East India Company (VOC) Shipping Network in Asia 1595–1660 (Amsterdam University Press, 2008);
Prakesh, “The Portuguese and the Dutch in Asian Maritime Trade: A Comparative Analysis,” in Merchants, Companies and Trade, S. Chaudhury and M. Morineau, eds. (Cambridge University Press, 1999).

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