Origins Before the
Dutch Revolt, which began in 1566/68, the Brabant city of
Antwerp had played an important role as a distribution center in northern Europe. After 1591, the Portuguese used an international syndicate of the German
Fugger family and
Welser family, as well as Spanish and Italian firms, which operated out of
Hamburg as the northern staple port to distribute their goods, thereby cutting Dutch merchants out of the trade. At the same time, the Portuguese trade system was unable to increase supply to satisfy growing demand, in particular the demand for pepper. Demand for spices was relatively
inelastic; therefore, each lag in the supply of pepper caused a sharp rise in pepper prices. In 1580, the
Portuguese crown was
united in a
personal union with the
Spanish crown, known as the
Iberian Union, with which the
Dutch Republic was at war. The
Portuguese Empire thus became an appropriate target for Dutch military incursions. These factors motivated Dutch merchants to enter the intercontinental spice trade themselves. Further, a number of Dutch merchants and explorers, such as
Jan Huyghen van Linschoten and
Cornelis de Houtman, obtained firsthand knowledge of the "secret" Portuguese trade routes and practices, providing further opportunity for the Dutch to enter the trade. The stage was set for Dutch expeditions to the
Indonesian islands, beginning with
James Lancaster in 1591,
Cornelis de Houtman in 1595 and in 1598,
Jacob Van Neck in 1598, Lancaster again in 1601, among others. During the four-ship exploratory expedition by
Frederick de Houtman in 1595 to
Banten, the main pepper port of West Java, the crew clashed with Portuguese and indigenous Javanese. Houtman's expedition then sailed east along the north coast of
Java, losing twelve crew members 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 in 1596, but with enough spices to make a considerable profit. of
Jacob van Neck in 1599 by
Cornelis Vroom In 1598, an increasing number of 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 1598, a
fleet of eight ships under
Jacob van Neck were the first Dutch fleet to reach the 'Spice Islands' of Maluku, also known as the Moluccas, cutting out the Javanese middlemen. The ships returned to Europe in 1599 and 1600 and the expedition made a 400 percent profit. In 1600, the Dutch joined forces with the Muslim Hituese on
Ambon Island 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 when the Portuguese surrendered their fort in Ambon to the Dutch-Hituese alliance. In 1613, the Dutch expelled the Portuguese from their
Solor fort, but a subsequent Portuguese attack led to a second change of hands. Following this second reoccupation, the Dutch again captured Solor in 1636. East of
Solor, on the island of
Timor, Dutch advances were halted by an autonomous and powerful group of Portuguese Eurasians called the
Topasses. They remained in control of the
Sandalwood trade. Their resistance lasted throughout the 17th and 18th centuries, causing
Portuguese Timor to remain under the Portuguese sphere of control.
Formative years 's baghlah was a type of ship widely used by Dutch traders in the
Indian Ocean, the
Arabian Sea, the
Bay of Bengal, the
Strait of Malacca and the
South China Sea. At the time, it was customary for a company to be funded only for the duration of a single voyage and to be liquidated upon the return of the fleet. Investment in these expeditions was a very high-risk venture, because of the usual dangers of piracy, disease and shipwreck, and because the interplay of
inelastic demand and relatively
elastic supply of spices could make prices tumble, thereby ruining prospects of profitability. To manage such risk, the forming of a
cartel to control supply would seem logical. In 1600, the English were the first to adopt this approach by bundling their resources into a monopoly enterprise, the
English East India Company, 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 monopoly over the Asian trade. For a time in the seventeenth century, it was able to monopolise the trade in nutmeg, mace, and cloves and to sell these spices across European kingdoms and Emperor
Akbar the Great's
Mughal Empire at 14–17 times the price it paid in
Indonesia. While Dutch profits soared, the local economy of the Spice Islands was destroyed, because as a monopoly buyer, the VOC forced the prices paid to the local producers in the Spice Islands down to low levels. With a capital of 6,440,200
guilders, the new company's charter empowered it to build forts, maintain armies, and conclude treaties with Asian rulers. It provided for a venture that continued for 21 years, with a financial accounting only at the end of each decade. , by
Willem Blaeu, 1630. North is on the right, with
Ternate as the rightmost followed by
Tidore, both were known as the
Spice Islands (trade secret, outposts of the VOC). |left In February 1603, the company seized the
Santa Catarina, a 1,500-ton Portuguese merchant
carrack, off the coast of the
Malay Peninsula. That same year, a joint Dutch-English force captured another Portuguese carrack off
Macau. The proceeds from the sale of the cargo of the two vessels was equivalent to more than 50% of the VOC's original subscription capital. In 1603, the first permanent Dutch trading post in Indonesia was established in
Banten,
West Java. In 1611, another was established at
Jayakarta (later "Batavia" and then "Jakarta"). In 1610, the VOC established the post of
governor-general to more firmly control 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. The
Heeren XVII, a body of 17 shareholders representing different chambers, continued to officially have overall control. print, probably English The VOC headquarters were located in
Ambon during 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 India to Japan. A location in the west of the archipelago was thus sought. The Straits of Malacca were strategic but became 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 English
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, sparking 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. In 1620, diplomatic agreements in Europe ushered in a period of collaboration between the Dutch and English spice trades. This ended with the notorious
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 Banten, and focused on other Asian interests.
Growth , in the former
Dutch Malacca ,
Mughal Bengal. Hendrik van Schuylenburgh, 1665. In 1619,
Jan Pieterszoon 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
nutmeg for export. Coen hoped to settle large numbers of Dutch colonists in the East Indies, but implementation of this policy never materialised, mainly because very few Dutch were willing to emigrate 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, which were 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, benefiting mainly from
Bengal. Ships coming into Batavia from the Netherlands carried supplies for VOC settlements in Asia. Silver and copper from Japan were used to trade with the world's wealthiest empires,
Mughal India and
Qing 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 more than two hundred years the only place where Europeans were permitted to trade with
Japan. When the VOC tried to use military force to make
Ming dynasty China open up to Dutch trade, the Chinese defeated the Dutch in
a war over the Penghu islands from 1623 to 1624, forcing the VOC to abandon
Penghu for
Taiwan. The Chinese defeated the VOC again at the
Battle of Liaoluo Bay in 1633. The Vietnamese
Nguyen lords defeated the VOC in
a 1643 battle during the
Trịnh–Nguyễn War, blowing up a Dutch ship. The Cambodians defeated the VOC in the
Cambodian–Dutch War from 1643 to 1644 on the Mekong River. 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. In 1652,
Jan van Riebeeck established a resupply outpost at the Cape of Storms (the southwestern tip of Africa, now
Cape Town, South Africa) to service company ships on their journey to and from East Asia. The cape was later renamed
Cape of Good Hope in honour of the outpost's presence. Although non-company ships were welcome to use the station, they were charged exorbitantly. This post later became a full-fledged colony, the
Cape Colony, when more Dutch and other Europeans started to settle there. Through the seventeenth century VOC trading posts were also established in
Persia,
Bengal,
Malacca,
Siam,
Formosa (now Taiwan), as well as the
Malabar and
Coromandel coasts in India. Direct access to mainland China came in 1729 when a
factory was established in
Canton. In 1661,
Ming general Koxinga led a fleet to defeat the Dutch. After Koxinga's
Ming loyalists defeated Dutch reinforcements from Java in 1662, Frederick Coyett, the Dutch commander, surrendered Taiwan. (
see History of Taiwan). In 1663, the VOC signed the "Painan Treaty" with several local lords in the
Painan area that were revolting against the
Aceh Sultanate. The treaty allowed the VOC to build a trading post in the area and eventually to monopolise the trade there, especially the gold trade. 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 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 in the 1662
siege of Fort Zeelandia and related internal turmoil in
China (where the
Ming dynasty was being replaced with the China's
Qing dynasty) brought an end to the silk trade after 1666. Though the VOC substituted
Mughal Bengal's for Chinese silk, other forces affected the supply of Japanese silver and gold. The
shogunate 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 linchpin 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 enter this market aggressively 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 maximisation). 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 theretofore 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
Nagapattinam, so as to secure a monopoly on the pepper trade to 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 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. of the Dutch East India Company surrenders to Maharaja
Marthanda Varma of the Indian
Kingdom of Travancore after the
Battle of Colachel (depiction at
Padmanabhapuram Palace). In the 1741
Battle of Colachel, warriors of
Travancore under Raja
Marthanda Varma defeated the Dutch. 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 organised Asian power overcoming European military technology and tactics; and it signalled 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, 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 easily to 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 approximately to 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. 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. 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 do not 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, labour productivity did not go up sufficiently to realise 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". Specifically: "[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 (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 and fall '' attacking seven VOC East Indiamen on 14 June 1795 After 1730, the fortunes of the VOC started to decline. Five major contributing factors are attributed to its decay in the 50 years between 1730 and 1780: • There was a steady erosion of intra-Asiatic trade because of 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 organised in Asia (centralised on its hub in Batavia), which 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. It proliferated in the 18th century to the detriment of the company's performance. From about the 1790s onward, the phrase
perished under corruption (
vergaan onder corruptie, also abbreviated VOC in Dutch) came to summarise 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 further issue was caused by the VOC's
dividend policy. The dividends distributed by the company had exceeded the surplus it garnered in Europe in every decade from 1690 to 1760 except 1710–1720. 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
bewindhebbers 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 these problems, the VOC in 1780 remained an enormous operation. Its capital in the Republic, consisting of ships and goods in inventory, totalled 28 million guilders; its capital in Asia, consisting of the liquid trading fund and goods en route to Europe, totalled 46 million guilders. Total capital, net of outstanding debt, stood at 62 million guilders. The prospects of the company at this time therefore were not hopeless, had one of the plans for reform been undertaken successfully. In 1780, the
Fourth Anglo-Dutch War broke out, with wartime British attacks on the Dutch East India Company reducing the VOC's fleet by half and severely weakening its position in Asia. As a result of the war, the VOC suffered damages of up to 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, rumours of deportation of the gangs from the Batavia area led to widespread rioting. The Dutch military searched houses of Chinese in Batavia 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. Following the end of the Fourth Anglo-Dutch War in 1783, the VOC's financial issues worsened considerably. After vain attempts at reorganisation by the provincial States of
Holland and
Zeeland, the board of directors in the VOC were sacked in 1796 and the company's management was handed over to a
Committee for Affairs relating to East India Trade and Possessions (Dutch:
Comité tot de zaken van de Oost-Indische handel en bezittingen). The outbreak of the
French Revolutionary Wars sealed the fate of the VOC, as the fall of the
Dutch Republic and its replacement by the
Batavian Republic in 1795 led the Dutch and British to now be at war. British attacks on VOC shipping and colonies led to more losses, and though the VOC charter was renewed several times it was allowed to expire on 31 December 1799, nationalising the company. ==Organisational structure==