Also in , the first permanent Dutch trading post in Indonesia was established in Banten , West Java , and in , another was established at Jayakarta later "Batavia" and then "Jakarta". 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 located in Ambon during the tenures of the first three Governors General — , 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.
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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 , diplomatic agreements in Europe ushered in a period of co-operation between the Dutch and the English over the spice trade. He saw the possibility of the VOC becoming an Asian power, both political and economic. On 30 May , 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 s 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. 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.
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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 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 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. In , the VOC obtained the port of Galle , Ceylon , from the Portuguese and broke the latter's monopoly of the cinnamon trade.
In , Gerard Pietersz. By , the Portuguese had been expelled from the coastal regions, which were then occupied by the VOC, securing for it the monopoly over cinnamon.
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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 , Goa was the only remaining Portuguese city on the west coast.
In , 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.
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Direct access to mainland China came in when a factory was established in Canton. The treaty allowed the VOC to build a trading post in the area and eventually to monopolise the trade there, especially the gold trade. Many of the VOC employees inter-mixed with the indigenous peoples and expanded the population of Indos in pre-colonial history. Around , 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 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 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.
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 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.
Indeed, by , the latter came close to bankruptcy; its share price plummeted from to ; and its president Josiah Child was temporarily forced from office. However, the writing was on the wall.
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The VOC therefore closed the theretofore flourishing open pepper emporium of Bantam by a treaty of 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.
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. For a brief time, this appeared to improve the company's prospects.
However, in , 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.
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The VOC decided in 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. 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 s, after the temporary collapse of the EIC around 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.
The overall effect was approximately to double the size of the company. The tonnage of the returning ships rose by 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. 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 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". The long-term average annual profit in the 'Expansion Age' — was 2. 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.
Nevertheless, in the eyes of investors the VOC did not do too badly.