The first international companies

Global business – the first international companies.

Dutch East India Company – VOC, or Verenigde Oost-Indische Compagnie was founded in 1602. This organization can be considered one of the first international corporations. International trading organizations such as the VOC as well as for example the British East India Trading Company acted on behalf of European states governments in Asia in 17^th and 18^th centuries. They were private equity limited organizations with a guaranteed trade monopoly and military protection from their governments in return for a share of the profits from trade (Ekelund et al. 1980). The first multinational business organizations acted like states in their power, with the merchant and naval fleets and military forces (Dalrymple, 2020).

The initial aim of those organizations was to develop the import of valuable commodities into Europe, and over time they became increasingly involved in controlling and expanding their territories (Rees, 2017).

Efforts were made by many countries to create similar business organization as East India Trading Company (Exhibit 2-7). Interestingly, they all started their first organizations with the same names but had different histories and lifespans (Chaudhury, 1999). For example, the Portuguese East India Company was founded in 1628, competed with the British and Dutch Company, and ceased operations in 1633. The French East India Company was founded in 1664 and went bankrupt in1794. The British East India Company was founded in 1600 and ceased operations in 1784.

Ex. 2‑7 Trademarks and life span of the first international companies in global business

Keywords: international company, international trade, global business – the first international companies

This organization controlled large parts of the Indian subcontinent and the Southeast Asian continent, as well as Hong Kong (Wilbur, 1945). Although the British India Company was founded two years before the Dutch, the Dutch East India Company is still the longest-lived first international corporation.

In 1610, the VOC was established in Batavia, in Indonesia or then called as Dutch East Indies and conquered most of the island of Ceylon, now Sri Lanka, completing the Galle fortress there in 1640 and in 1641 recapturing Malacca from the Portuguese, which was essential for international trade. Until the middle of 17^th century, the VOC fortified its transport and trade routes with military fortresses from which it provided military protection. The maritime trade route from Amsterdam to the Indian Ocean coast followed the African continent from the south. Cape Town in South Africa was founded in 1652 on the southernmost tip of Africa and was an important point on the shipping route, as well as for trade and military protection.

When the VOCs first reached in Asia, the ships used to make the long voyages by sailing directly back and forth from Europe to load. Later, a hub and spoke distribution network was developed. Goods were consolidated at the main ports, and from there, the large ships sailed to Europe. The large ships used to carry between 500 and 1000 tons of cargo. The route and sailing season of these ships was configured to make the most of the prevailing winds. Meanwhile, the consolidation and distribution of goods were carried out by smaller ships which operated in the Indian Ocean between smaller ports and the main ports.

Ex. 2‑8 VOC shipping network in the 17th century

Keywords: shipping, trade routes, global business – the first international companies

The main and most important ports in the Indian Ocean were Batavia, current Indonesia and Galle, now Sri Lanka. The small ships used to sail far away from the Indian Ocean coasts. Goods were stored in warehouses in Batavia and Galle. These warehouses were guarded by large military forces and were essentially fortresses. This was the first implementation of the principle of regional and international distribution centres (Braudel et al., 1992). This is still the principle of operating international trade flows today throughout the world, as it is described more in Part D Chapter 13 of the book.

The VOC has been active in both regional trade between the Indian Ocean countries and trade between them and Europe (Exhibit 2-8). For example, silk and coffee were exported from the Arabian Peninsula, while spices were imported. Clothing, fabrics, silk, pepper, and indigo were exported from India, while imports were mainly silver. Exports from Sri Lanka were mainly cinnamon, pepper, cardamom, sapwood, precious stones, and ivory, while imports were primarily clothing and fabrics. Muscat, pepper, and cloves were exported from Botswana, while clothing, silver, and ivory were imported.

VOC also traded with China and Japan. Exports from China included tea, sugar, silk, porcelain, precious metals, spices, clothing, and luxury goods. Japan exported lacquer and precious metals and imported silk, porcelain, spices, and luxury goods. It is also important to mention here dark side of those first international companies as an export of slaves from Africa was included into some of business models in that time.

Trade with the Indian Ocean countries involved imports of pepper, cinnamon, cloves, nutmeg, coffee, tea, and sugar via Amsterdam and exports of silver from Europe. In other words, the VOC bought spices, coffee, tea, and other luxury goods in bulk from Asian countries in exchange for silver and traded them on the retail market in Europe. With a monopoly on trade, the corporation made very high profits, and by 1750, it employed around 25,000 people and did business in 10 Asian countries. The business model of the first international business organization was based on state participation, which gave monopoly rights and military protection, but also created a breeding ground for corruption, self-interest, and mismanagement, which led to the bankruptcy of the VOC in 1799 and the takeover of all its assets and liabilities by the Dutch kingdom.

Ex. 2‑9 Shipping in the Netherlands, France, England, and Spain in the 18th century

Keywords: England, Spain, France, Netherlands, global business – the first international companies

Despite its unsuccessful end, this multinational corporation, which lasted for almost 200 years, remains not only the first but also one of the longest-running multinationals in modern history. Although England, Spain, and France also had trade relations with their colonized countries, the VOC is the first example of a multinational corporation with many similarities to the corporations of the 21^st century. VOC was the first international organization to float its shares to the public, in the same way as stock exchanges do today.

The British East India Company has competed with the Dutch East India Company since its beginning. The British East India Company is considered to have been founded in the 1600s, even slightly earlier than the Dutch East India Company. The British East India Company was active until 1874.

However, Spain and France have also made significant contributions to globalization, as have the Netherlands and England, although the location has varied. The intercontinental trade links, destinations, and frequency of these four colonial powers have been identified by scholars through maritime records. Ship crews used to record all the details of their voyages, dates, weather conditions, and even wind gusts. As merchant shipping was closely linked to military shipping and making maps, all voyage records were carefully archived and preserved on national charts. In the early 20^th century, scholars digitized many of the travel documents preserved in the archives and mapped shipping from the eighteenth to the mid-18^th century in a structured way (Exhibit 2-9). The shipping routes and the number of voyages made by ships largely reflect the international trade relations of the time, their structure, geography, and approximate intensity. Each country registered ships under its flag so that trade could be attributed to a particular country. The exhibit 2-9 excludes Portuguese-flagged vessels, and vessels in the Pacific Ocean, where European countries have had little involvement in the trade.

Spanish trade was mainly directed towards their American colonies, especially Argentina, Mexico and Iceland of Cuba. Shipping to the Americas was on the southern side of the North Atlantic and back to Europe on the northern side, taking advantage of the prevailing winds and currents.

The Dutch maritime trade network is mainly linked to the activities of the Dutch East India Corporation – VOC, where trade was organized through intermediate distribution ports at Batavia and Galle, with Cape Town, used as an intermediate destination being Dutch colony in 1652-1806. Dutch commercial interests were also involved in transatlantic trade with its colonies in the Caribbean and Guyana, a Dutch colony between 1616 and 1814.

The UK’s trading network was the most extensive, as the UK was the world’s dominant maritime power during this period, with colonial interests in the Americas and South Asia.

The United Kingdom’s dominance in the seas since the 17^th century is linked to the outcome of the Anglo-Spanish War. Between 1585 and 1604, England and Spain had a two-decade-long military conflict over influence in international trade and Dutch independence. The conflict erupted when English warships entered Spanish Dutch waters and contributed to a Dutch independence revolt. During the war, England and Spain fought battles in the British Isles, the Atlantic Ocean, the Azores, and the Canary Islands, and in the territories of the Netherlands, Portugal, France, and Spain. The Treaty of London signed on 28 August 1604, put an end to the hostilities and established the condition of the status quo ante bellum, the situation that existed before the war by the agreement of both nations. This was the first major military conflict in human history over the division of intercontinental trade and geopolitical influence worldwide.

Trade on French-flagged ships was relatively poor, limited to the triangular trade structure between France, its Caribbean colonies of Haiti, Guadeloupe, and Martinique, and New France – Saint Pierre and Miquelon after 1763.

The formed structure of international trade relations between the four colonial powers also explains the diversity of cultures, languages, legal systems, and even economies between the different continents and countries even today.

Spanish has spread throughout most of South America except Brazil, where Portuguese has spread, and Mexico. In contrast, British has spread throughout North America – today’s USA and Canada – as well as Australia and Oceania. French has partially spread to Canada, isolated Caribbean countries, and isolated African colonies. The countries of the Arabian Peninsula, the Indochina Peninsula, and other countries in South Asia have retained their national languages as the main languages to this day, although English has been adopted as the language of international trade and business relations. In fact, England’s victory in the Anglo-Spanish War was a significant historical event that led to England’s dominance in intercontinental trade and to the spread and adoption of English as the primary language of business, as it has remained until the 21^st century.  Spanish is second only to English in terms of its prevalence as a mother tongue in other countries. The industrial revolution was the fact that reinforced position of colonists and created huge disbalance in economic development between world nations.

To complement a critical view of the history of globalization, it is necessary to mention here some critical views presented by Immanuel Maurice Wallerstein (Wallerstein, 1976), Dani Rodrik (Rodrik, 2011) or Tamás Szentes (Szentes, 2003). Various critics presents an analysis of the asymmetrical interdependences involved in the structure, behavior and relations among the developed and underdeveloped countries. For instance, Szentes describes (Szentes, 2003) how the dichotomy between development and underdevelopment within the world economy has evolved during the last centuries as a concomitant, on the one hand, of the rise, in only a certain part of the world, of modern industrial capitalism in the form of national market economy, and, on the other hand, of the gradual unfolding of a capitalist world economy which is uneven. Therefore, the Centre-Periphery relations with asymmetrical interdependences allow understanding the international development gap and causes of underdevelopment of large number of nations.

Global business – the first international companies

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