How The VOC Became The Richest Company In The World

Visitors to Amsterdam will be familiar with it’s tall, narrow buildings and labyrinth of canals which run past the winding streets with typical Dutch names such as Lindenstraat, Keizersgracht and Damstraat. But away from the well-trodden tourist paths of the city centre, in the eastern district, are some streets with not-so typical Dutch sounding names like Balistraat, Sumatrastraat, and Borneostraat. These are situated within what is known locally as the Indian neighbourhood and are named in reference to what was once the Dutch controlled East Indies. Constituting much of the modern state of Indonesia, these islands came to be ruled by the Netherlands over 7000 miles away, when the Dutch East India Company established itself in the region some 400 years ago and quickly grew to become the richest company the world had ever seen. Possessing quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins and establish colonies, it is often considered to be the world’s first multinational corporation and one which set the precedent for how modern business and international trade are conducted to this day. But what inspired these Dutch merchants to undertake the lengthy and perilous journey to the far side of the world? This is the history of the Dutch East India Company.

Prior to Amsterdam becoming the centre of Dutch commercial activity in the 17^th century, the primary urban centres for trade in the region were the cities of Bruges and Antwerp. Both cities attracted a multitude of merchants from all nations across Europe. Amongst these were the Portuguese, who were the pioneers of international trade during the 1500’s, having established trading posts and networks across the globe to bring exotic goods, particularly spices from the Far East, back to Europe.  

At this time, the Netherlands along with what is now Belgium and Luxembourg, was under the rule of the Spanish Crown, which in turn was in a dynastic union with Portugal, as part of the wider Hapsburg empire which was the dominant European power of the age. Relations between the Dutch and their Spanish overlords were rapidly deteriorating owing to the sectarian divide between the recently adopted Protestant faith of the Netherlands and the devoutly Catholic Spanish. These tensions eventually culminated into the outbreak of the Dutch Revolt, also known as the Eighty Years War, in 1566 in which the Netherlands sought to gain independence as a sovereign state. 

By 1591 however, the Portuguese in collusion with Spain and the powerful German banking families of Fugger and Welser, began to divert their trade away from the Dutch ports of Antwerp and Bruges, and onto the German city of Hamburg instead. This not only deprived the Dutch of the benefits of the lucrative spice trade but also disrupted the global supply chain, as the Portuguese were unable to keep up with the ever-growing demand, which consequently caused prices to rise sharply.

As a way of combatting this act of commercial sabotage, Dutch merchants were encouraged to enter the spice trade in direct competition to the Portuguese. The problem for the Dutch however, was that they did not know where they would need to sail to in order to obtain such spices, as the Portuguese jealously guarded their navigational knowledge to what is now Indonesia.

After working in secret to obtain and verify the nautical charts to reach the Spice Islands, in 1595, the first Dutch fleet of four ships under the partial leadership of Cornelis de Houtman set sail to Banten, the primary pepper port in the west of Java. When they finally reached Banten in June 1596, the expedition came into immediate conflict with both the Portuguese and the native Javanese, who were reluctant to trade with the newcomers. After acquiring a small amount of spices and having lost half their crew to conflict and disease, the expedition decided to return to the Netherlands the following year with enough cargo to yield a sufficient profit.

These efforts were furthered in 1598, when a fleet of eight ships under the command of Jacob van Neck became the first Dutch merchants to reach the Maluku islands, which were the direct source of pepper and nutmeg in the region, effectively allowing them to cut out the Javanese middlemen. The ships returned to Europe between 1599 and 1600 and yielded a staggering 400% profit.

Despite the immense wealth that could be made from these expeditions, they were inherently risky due to the threat of disease, piracy and shipwreck wiping out the fleet and it’s crew, which from the perspective of an investor, would eliminate any possibility of a return on their money. To mitigate these risks, rather than invest in one single trading expedition at a time, it was determined that by pooling investments and resources together and spreading them across multiple trading expeditions, the risk and impact of any single expedition failing would be reduced, whilst at the same time allowing for voyages that did return successfully to provide consistent rewards. This approach had already been adopted by the English in 1600, with the founding of the East India Company and in response, the Dutch decided to replicate this with a company of their own, creating the United East Indies Company two years later in 1602.

The Dutch East India Company, or Verenigde Oostindische Compagnie and often abbreviated to VOC, established their first permanent trading post in Banten in 1603. This was followed by another trading post in 1611, in what is now the modern city of Jakarta, which shortly thereafter became the company’s headquarters in Asia and was initially named Batavia by the first governor-general, Jan Pieterszoon Coen. Although the governor-general had official power within Asia, a body of 17 principal shareholders retained overall control of the company back in the Netherlands.

Besides the already established Portuguese presence in the region, a growing threat to the interests of the VOC came from the English East India Company, which by the 1610’s had established numerous trading posts of its own across the Spice Islands. This rivalry between the two trading companies escalated in the following decade and reached a violent climax in 1623, when VOC officials on Ambon island, tortured and killed 21 men, 10 of whom belonged to the English East India Company, on suspicion that they were plotting to overthrow the Dutch and seize control of the trading post for themselves. The incident caused a diplomatic crisis between England and the Netherlands and remained a point of contention in the years that followed, becoming a leading factor in the outbreak of the First Anglo Dutch War in 1652.

Although the company’s main interests lay within the spice producing islands of the Indonesian archipelago, it’s operations quickly expanded to other areas of Asia. VOC ships carried supplies from the Netherlands to the various trading posts across the region, which were then exchanged for precious metals, typically silver and copper from Japan. These in turn, were traded for luxury goods like silk, cotton, porcelain, and textiles in the markets of the powerful Asian empires of Mughal India or Qing dynasty China. These products were either traded within Asia for the coveted spices or brought back to Europe where they could be sold at a much higher price.

Much of the VOC’s early expansion came at the expense of the Portuguese presence in the region, which was gradually losing it’s dominance on trade in the East Indies. The VOC was also able to gain control of the trading post on Dejima, an artificial island off the coast of Nagasaki, which for more than two hundred years was the only place Europeans were permitted to trade with Japan. Furthermore, in 1652, Jan van Riebeeck established an outpost at the southwestern tip of Africa to resupply company ships travelling to and from Asia. This outpost subsequently grew into the Cape colony and later, Cape Town.

Besides their primary interest in establishing trading posts, the VOC also looked to sponsor exploration missions as part of the wider theme of scientific discovery in the Dutch Golden Age. In 1609, the company hired the English navigator Henry Hudson to explore a North Easterly passage to Asia through the Arctic Ocean. Unable to pass through the ice, Hudson turned his ship Westwards in the hope of reaching Asia via a purported North American route instead. In the process he mapped much of what is now the Northeast coast of Canada and the United States, as well as journeying up the river which bears his name to this day. The Dutch settlement of New Amsterdam would later be founded at the mouth of this river and subsequently grow to become the city of New York. Additionally, the VOC can be credited with mapping much of the coastline of Australia and New Zealand in the 17^th century. Although the territory was never colonised by the Dutch, explorers such as Willem Janszoon and Abel Tasman chartered much of the region in search of the fabled great southern continent.

By 1669, the VOC was the richest private company the world had ever seen, with over 150 merchant ships, 40 warships, 50,000 employees and a private army of 10,000 soldiers. As a result of this unprecedented growth and riches, it was able to reward it’s investors with an annual dividend payment of 40%.

By the following year however, the growth of the VOC had begun to stagnate. One of the reasons for this was the decline in trade with Japan, which was brought about by Japanese government limiting the export of the precious metals which underpinned the value of the VOC’s inter-Asiatic trade network. In addition to this, competition from the English East India Company began to intensify during this time and the cyclical outbreaks of conflict of the Anglo-Dutch Wars in the latter half of the 18^th century, severely impacted the flow of spices and other Asian goods into Europe. To their credit, the VOC were able to undercut their English counterparts at almost every turn and effectively priced them out of the market by over supplying spices like pepper in order to suppress their market value. This prevented the English East India Company from gaining any substantial market share at the VOC’s expense.

Despite these efforts, the value of spice trade was beginning to decline and further competition from the likes of the French and Danish entering the market eventually forced the hand of the VOC to close their pepper emporium at Banten in 1684. Although the VOC attempted to replicate their business model for the spice trade on the Malabar Coast of India at the turn of the 18^th century, changing tastes and demands in Europe for other Asian goods like tea, coffee, cotton, textiles, and sugar, forced them to abandon this venture in 1721.

The VOC subsequently shifted it’s strategy from the low volume - high profit spice trade, to the lower margin - higher volume commodities business but this required a vast increase in operations to generate the same amount of revenue. To facilitate this, the VOC effectively doubled itself in size by expanding it’s fleet and securing loans to acquire the necessary precious metals, from other non Japanese sources, to finance the purchase of commodities in Asia’s markets. From 1680 – 1720, the tonnage of ships returning from Asia rose by 125% but profits on these expeditions did not increase linearly and only came to 78%. This ‘Age of Expansion’ substantially increased the operating costs of the VOC and consequently impacted the profit margins and dividend payments that were made to it’s investors. Despite the lower returns, the company retained shareholder confidence and even saw it’s stock price increase to an all-time high in the 1720’s.

The remainder of the 18^th century however, would mark the steady decline of the Dutch East India company. Although wider macro-economic factors such as the decline of intra-Asiatic trade and the emergence of cheaper sugar from the West Indies and Brazil had an impact on the commercial revenues of the VOC, there was little that could be done in response as they were beyond the company’s control. Conversely, there were multiple failings of the company’s own making such as incompetent leadership, corruption and financial mismanagement, which exacerbated the damage already being done to the company. Additionally, the extremely high mortality rate of the VOC’s employees both enroute to and whilst based in Asia, crippled the company’s ranks of manpower. It is estimated that some 4000 people died in the company’s service each year.

Perhaps the most disastrous example of the VOC’s incompetence came in 1740, when in response to a rumoured uprising by the Chinese community in Batavia, the VOC alongside the native Javanese, unleashed an unprecedented wave of violence that claimed the lives of over 10,000 Chinese residents of the city. In the aftermath of the massacre, the VOC’s reputation was severely tarnished, not just in Asia but also in back in the Netherlands, were an official enquiry was established to bring judicial proceedings against the Governor General, Adriaan Valckenier, who later died in a prison cell awaiting trial.

By 1780, although the company faced enormous problems it continued to operate on a large scale and generated consistent returns for it’s shareholders. Plans to reform the company were drawn up to increase it’s profitability and restore much of the prestige that had been lost in the past decades, however, the outbreak of the Fourth Anglo Dutch War that year would drive the VOC to bankruptcy.

In the 100 years that had passed since the Third Anglo Dutch War of the 1670’s, the British had eclipsed the Dutch as the leading maritime and colonial power of the age. The Royal Navy now dominated the world’s oceans and was able to inflict irreparable damage on the fleets and ports of not only the Dutch state but also the overseas possessions of the VOC. Dutch East India Company ships were captured; their valuable trade cargoes seized; trading posts in the Cape Colony, India, Sri Lanka and Indonesia were attacked and occupied by the British. By the wars conclusion in 1784, the Netherlands was in financial ruin and loans to keep the VOC afloat were no longer tenable. Although the British returned the territories they had captured from the Company in the Treaty of Paris, they were able to secure a free trade agreement to the Dutch East Indies, which effectively put an end to any competitive advantage the VOC had in the region. On the 1^st March 1796, the Dutch East India Company was formally nationalised by the then Batavian Republic, bringing an end to almost 200 years of what was once the richest company the world had ever seen.