When we think of the world’s most valuable public companies our minds tend to gravitate to the mammoth US tech companies like Amazon and Apple – both of which have been (and at the time of writing are fluctuating around) valued at over US$1,000,000,000,000. Yes that is twelve zeroes, and yes that is a trillion with a “T”. Surely, no company in history could compete with the Tech Giants of today on market value.
Apple may have been the first public company in history to be valued at over US$1 trillion (it is thought that the Saudi Arabian state owned oil giant Saudi Aramco is worth several trillion dollars), but when adjusted for inflation there have actually been several. The most valuable of them all was the Dutch East India Company (Vereenigde Oostindische Compagnie in Dutch or VOC).
The peak value of the VOC was so high that it puts modern companies, and even economies, to shame. If we add the market capitalisation of twenty of the worlds largest companies, including Apple, Microsoft, Facebook, Amazon, ExxonMobil, Berkshire Hathaway, and Wells Fargo, together we get to around the same valuation of the VOC at its height – Unbelievable! And yet true.
The company was historically an exemplary company-state rather than a pure for-profit corporation. Originally a government-backed military-commercial enterprise, the VOC was the wartime brainchild of leading Dutch statesman Johan van Oldenbarnevelt. From its inception in 1602, the company was not only a commercial enterprise but also effectively an instrument of war in the nascent Dutch Republic’s War of Independence (1568 – 1648) against the powerful Spanish Empire.
Before the Dutch Revolt, the city of Antwerp (in modern Belgium) had played a major role as a distribution centre in northern Europe. However, after 1591, the Portuguese began dealing with influential German families and banks that preferred to use Hamburg as their northern port to distribute their goods, effectively cutting Dutch merchants out of the trade. At the same time, the Portuguese trading system was proving inefficient and unable to increase supply to satisfy growing demand for spices, particularly pepper – each lag in pepper supply was causing a sharp rise in price.
The Portuguese crown was united in personal union with the Spanish crown, with which the Dutch Republic was at war, in 1580. The Portuguese Empire therefore became an appropriate target for Dutch military attacks. These factors motivated opportunistic Dutch merchants to enter the intercontinental spice trade and a four-ship exploratory expedition set sail for Banten, the principal pepper port of West Java, in 1595. Half of the crew were lost before the expedition made it back to the Netherlands the following year, but enough spice to make the venture profitable also made it back.
By 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 proving massively lucrative. In 1599, a fleet of eight ships made it all the way to the “Spice Islands” of Maluku (western Indonesia), the source of pepper, completely cutting out the Javanese middlemen. This particular expedition made a 400 percent profit!
In 1600, the Dutch joined forces with the Muslim Hituese in the region in an anti-Portuguese alliance, in return for which the Dutch were granted the sole right to purchase spices from the Hitu on Ambon Island. This was just one island of many though and the Portuguese and Dutch duked it out for many years to determine which power would be the dominant trading force in the region.
At the time, it was customary for a company to be funded only for the duration of a single voyage and then be liquidated upon the return of the fleet. Investment in these expeditions was a very high-risk venture, not only because of the obvious dangers of piracy, disease and shipwreck, but also because of the economic factors of inelastic demand and relative elastic supply of spices that could make prices tumble. In order to manage such risks, the forming of a cartel to control the supply seemed the logical solution. 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 financial ruin.
A Brief History
The Dutch government soon followed suit and in March 1602 sponsored the creation of a single company that granted monopoly over the Dutch spice trade for 21 years: the VOC was born. For a time in the seventeenth century, the VOC were able to monopolise the trade in nutmeg, mace and cloves and sold these spices across Europe and India for between fourteen and seventeen times the price that they paid for them in Indonesia. While Dutch profits soared, the local economy of the Spice Islands was devastated. The charter of this new company granted it the ability to build forts, maintain armies and even conclude treaties with Asian rulers.
In February 1603, the company captured the Santa Catarina, a 1,500-ton Portuguese merchant ship off the coast of Singapore. She was such a prize that her sale proceeds increased VOC capital by more than 50%.
Also in 1603, the first permanent Dutch trading post was set up in Banten, West Java, and another was established in Batavia (later Jakarta) in 1611. The post of Governor General was set up to more firmly control affairs in Asia. The Governor General effectively became the main administrator of the VOC’s Asian activities, although the Heeren XVII, a body of 17 shareholders continued to officially control the company.
In 1619, the newly appointed Governor General, Jan Pieterszoon Coen, saw an opportunity for the VOC to become a political, as well as economic, power in Asia. He backed a force of nineteen ships to storm Batavia, driving out the local forces and established the city as the VOC’s Asian headquarters. During the 1620s almost the entire native population was driven away, starved to death or murdered in an attempt to replace them with Dutch plantations which were used to grow spices for export. Coen hoped to settle large numbers of Dutch colonists, but implementation of his policy never gained ground, mainly because very few Dutch were willing to emigrate to Asia.
Another of Coen’s ventures proved more successful. One of the major problems in European trade with Asia was that the Europeans had little to offer that Asian consumers wanted, except silver and gold. This meant that the spice traders had to pay with the precious metals, which were in short supply in Europe except for Spain and Portugal. The metals had to be obtained by creating trade surpluses with other European nations. Coen began an intra-Asiatic trade system, whose profits could be used to finance the spice trade with Europe. This avoided the need for exports of precious metals, but at first it required the formation of a large trading-capital fund in the Indies. The VOC reinvested a large share of its profits into this scheme – it paid off! The company traded throughout Asia through their innovative trading system. Silver and copper from Japan were used to trade with India and China for silk, cotton, textiles and porcelain. These products, in turn, were used to trade for the coveted spices.
The VOC also played a large part in introducing European ideas and technology to Asia, as well as supporting Christian missionaries. For over two hundred years (1641 – 1854) the only place where Europeans were permitted to trade with Japan was on an island off the coast with Nagasaki named Deijima. The Dutch controlled Deijima.
The VOC managed to break the Portuguese monopoly of the cinnamon trade in 1640 when they captured Galle on the island of Ceylon (Modern Sri Lanka). In 1659, the Dutch expelled the Portuguese from the island, securing the cinnamon monopoly for the VOC.
In 1652, an outpost was established in the southwestern tip of Africa at the Cape of Good Hope to re-supply VOC ships on their journey east. This outpost later became a fully fledged colony, Cape Town, when more Dutch and other Europeans began settling there. Throughout the seventeenth century VOC trading posts were also established in Persia, Bengal, Malacca, Siam, Formosa, and the Malabar (southwest) and Coromandel (southeast) coasts in India. Direct access to the Chinese mainland finally came in 1729 when a factory was opened in Canton. The company also came to dominate and eventually monopolise all trade with the Aceh Sultanate (western Indonesia).
All of this trade brought unimaginable wealth to the VOC and by 1669 it was at the height of its power. The VOC was the richest private company that the world had ever seen with over 150 merchant ships, 40 warships, 50,000 employees, a private army of 10,000 soldiers – even Apple doesn’t have a private army. The company was paying an unbelievable 40% dividend payment on the investor’s original investment.
When you reach the summit there is only one way left to go – down.
Several events caused the growth of VOC trade to stall. Firstly, the highly profitable trade with Japan began to decline. In 1662 the Chinese, under Ming loyalist Koxinga, ended the Dutch dominance of Formosa (modern Taiwan), and this combined with internal struggle on the mainland (the bloody transition from the Ming dynasty to Qing dynasty was in full swing) brought an end to the silk trade after 1666. Secondly, the shogunate in Japan enacted a series of policies to limit the export of silver and gold from their country. This limited VOC opportunities for trade and Japan ceased to function as the linchpin of the intra-Asiatic trade of the VOC by 1685.
Even more importantly than these Asian setbacks was the outbreak of the Third Anglo-Dutch War in 1672. Although the war ended in 1674 with a Dutch victory, the war did temporarily interrupt VOC trade with Europe. The war caused a spike in the price of pepper which encouraged the English East India Company (EIC) to aggressively enter the market. The EIC flooded the market with pepper from India and the VOC was forced into a crippling price war. However, the VOC (whose capital was significantly larger than their English counterparts) could afford to wait out their rivals, which they did and by 1683 the EIC came close to bankruptcy.
However, the writing was on the wall and other similar companies, like the Danish East India Company and the French East India Company also began to make inroads on the Dutch trade system. The importance of traditional commodities in Asian-European trade was beginning to diminish by this point anyway and the military presence that the VOC required to enhance its monopoly could no longer be justified. However, this lesson was slow to sink in and at first the VOC made the decision to improve its military presence on the Malabar Coast (hoping to curtail English influence in the region). In 1710, the Zamorin of Calicut was forced to sign a treaty undertaking to trading exclusively with the VOC and expelling all other European traders. This briefly appeared to change the company’s floundering fortunes… that was until 1715 when the Zamorin renounced the treaty with the encouragement of the EIC and began to trade with the French and the British.
In 1721 the VOC decided that it was no longer worth the trouble to try and dominate the Malabar pepper and spice trade. The decision to strategically scale down the Dutch military presence in the area and effectively yield to EIC influence was taken.
The Dutch were defeated by the warriors of Travancore in southwest India at the Battle of Colachel in 1741. this defeat is considered the earliest example of an organised Asian power overcoming European military technology and tactics. It also signaled the decline of Dutch power in India.
The attempt to continue as before as a low volume-high profit enterprise with its core business in the spice trade had failed. The VOC had, however, already began to follow the example of other European competitors in diversifying into other Asian commodities, like tea, cotton, textiles and sugar. These commodities provided a lower profit margin and therefore required a larger sales volume to generate similar revenue. This structural change in the VOC’s commodity composition and business model had began as early as the 1680s, after the temporary collapse of the EIC in 1683 offered a fantastic opportunity to enter these markets. The true cause for the change, however, lies in two structural features of the new era of intercontinental trade:
- There was a change in the tastes affecting European demand for Asian commodities around the turn of the 18th century.
- A new era of an abundant supply of capital at low interest rates suddenly opened around this time which enabled the company to easily finance its expansion into these new areas of commerce.
The tonnage of ships returning to Europe rose by around 125% in this period, but the VOC’s revenues only rose by 78%. This reflects the basic change in the VOC’s circumstances that had occurred: it was now forced to compete on an equal footing with other suppliers – gone were the days of its monopolies. Naturally this made for lower profit margins.
After 1730, the fortunes of the VOC began to decline further with five major problems explaining its decline over the next fifty years to 1780:
- External political and economic factors that were out of the VOC’s control led to a steady erosion of intra-Asiatic trade. These factors led to the company being squeezed out of Persia, Suratte, Bengal and the Malabar Coast, forcing the company to confine its operations to the belt that it physically controlled – Ceylon through the Indonesian archipelago.
- The way that the company was organised in Asia, with its centralised hub in Batavia, began to cause serious disadvantages due to the inefficiency of shipping everything here first before moving it on to its final destination.
- The greed and immorality of VOC personnel, though a problem for all European East India Companies of the time, appears to have plagued the VOC on a larger scale than its competitors – the phrase “perished under corruption” came to summarise the company’s corporate environment and future.
- High mortality rates among employees decimated the ranks and fatigued the survivors of all East India Companies, and the VOC was no different.
- The dividend distributed by the company exceeded the surplus it garnered in Europe in nearly every decade from 1690 to 1760. While profits fell the dividends only slightly decreased from earlier levels.
Despite these problems, the VOC remained an enormous operation in 1780 and the prospects of the company were far from hopeless – or so it seemed. The Fourth Anglo-Dutch War (1780 – 1784) saw British attacks in Europe and Asia which reduced the VOC fleet by half, removed valuable cargo from its control and devastated the company’s remaining power in Asia.
After the war, the company was a financial wreck. – a husk of its former glory. After several vain attempts at reorganisation by the provincial states of Holland and Zeeland, the company was finally nationalised by the new Batavian Republic on 1 March 1796 with most of the former possessions subsequently being subsumed by expanding British interests during the Napoleonic Wars, although some were returned after the creation of the United Kingdom of the Netherlands in 1814. This made no difference to the Vereenigde Oostindische Compagnie which was dissolved on 31 December 1799 – the sun had finally set on the most profitable private company that the world has thus far seen.
Significance of the Dutch East India Company
In terms of global business history, the lessons from the VOC’s successes or failures are critically important. With its pioneering institutional innovations and powerful role in global business history, the company is often considered by many to be the forerunner of modern corporations – in many respects, modern corporations are the direct descendants of the VOC model. It was their 17th century institutional innovations and business practices that laid the foundations for the rise of giant global corporations in subsequent centuries.
In his book Amsterdam: A History of the World’s Most Liberal City the American author and historian Russell Shorto made the argument that no company in history has had such an impact on the world and that the company’s surviving archives can be measured in kilometeres. It expanded the world whilst also bringing Europe, Asia and Africa to one another in an early example of globalisation.
A pioneering model of the multinational corporation in the modern sense, the VOC is usually considered as the world’s first true transnational corporation. In the early 1600s, the Dutch East India Company became the world’s first company to ever be listed on a formal stock exchange. In many ways, modern-day publicly listed global companies are descended from the business model pioneered by the VOC in the 17th century – even the contemporary English/British East India Company’s operational structure was altered to duplicate the superior VOC one.
During its golden age, the company played crucial roles in the business, financial, socio-political-economic, diplomatic, ethnic, military, and exploratory maritime history of the world – there are not many entities that can make that claim. With its pioneering institutional innovations and powerful roles in world history, the Dutch East India Company is considered by many to be the first major, first modern, first global, most valuable, and most influential corporation ever seen.
It was not all roses though, and the VOC has been critisced for a litany of unethical and questionable activities, including its quasi-absolute commercial monopoly, colonialism, exploitation, slavery, environmental destruction, its candid use of violence and being overly bureaucratic in its organisational structure.
But this post has rambled on for long enough now so I will leave you with this final criticism – the VOC’s economic activity on the island of Mauritius largely contributed to the extinction of the dodo, the flightless bird that was native to the tiny island.
The Rest is History
If your business history curiosity has not been satiated yet then why not check out the Rest is History article on 10 Really Old Companies?