| Studying the history of business is a fascinating | | | | company. The enterprise was the worlds first to be |
| exercise. The origins of many of the finance and | | | | owned by investors through the issuance of stock |
| business products that we utilize today were | | | | equity. |
| perfected during centuries past in countries sprinkled | | | | The Dutch East India Company did not simply send |
| far and wide around the world. One of the most | | | | ships to negotiate one off trade deals. The Company |
| important, inventive and skilled business cultures was | | | | became fully integrated to mitigate risk and maximize |
| created in the Netherlands during the 17th century. | | | | profits. In addition to owning, manning and operating a |
| As the world was discovered, mapped and colonized | | | | shipping fleet, the Company fielded a phalanx of |
| by the early Spanish and Portuguese explorers, new | | | | trading agents in countries all over Asia. They built and |
| trade routes were pioneered and many high value | | | | maintained fixed trading posts near the farms, |
| products came to market in Europe as demand for | | | | plantations and sources of production of their trade |
| exotic imports exploded. This boom in international | | | | goods. Having a permanent team of buyers, sellers |
| trade required a corresponding expansion of novel | | | | and facilities on location cemented trade relationships |
| financing mechanisms to fund this commerce. | | | | at a time when communication was horribly inefficient. |
| The first great merchant traders were the Portuguese. | | | | This gave Dutch traders huge advantages over |
| They used Lisbon as their trade center. However, | | | | competitors. |
| their trade apparatus was primitive even for the age. | | | | The Dutch became ensconced in the regions they |
| The principal imports and the most valuable products | | | | cultivated for trade. In addition, owing to the immense |
| of 1600’s trade were East Asian spices and silks. | | | | travel distances required to complete each voyage, |
| Because the Portuguese were inefficient in distribution | | | | they established a system of logistics, strategically |
| and in financing methods the Italians, Spanish and Dutch | | | | placed supply outposts, repair facilities and provisioning |
| were all interested in circumventing Portuguese | | | | points to support the growing ship traffic that the |
| merchants and overtaking their trade relationships. | | | | Dutch East India Company maintained. The outposts |
| The Dutch were particularly enterprising. They were | | | | were dotted along the African coasts, Madeira, |
| also committed to espionage. Use of spies enabled the | | | | Madagascar, India and Indian Ocean Island |
| Dutch to discover the state secrets of the Portuguese | | | | Archipelago’s. The presence of these commercial |
| trade routes. With knowledge of the well documented | | | | facilities only served to increase trading opportunities |
| Portuguese trade routes in hand, a great level of risk | | | | for the Company in regions where these plants were |
| was removed from the international commercial trade | | | | positioned. |
| equation. | | | | For almost 200 years the Dutch East India Company |
| In 1598 Jakob von Neck organized a group of five | | | | paid a dividend to shareholders of 18%. This was the |
| companies into a trade expedition. He left with 22 | | | | most valuable enterprise in the world at that time. The |
| ships, visited the Spice Islands in Indonesia and | | | | success of this business model made tiny Holland the |
| managed to negotiate and secure a cargo of pepper | | | | richest state on earth. They pioneered the use of |
| and other valuable spices. By the time he had returned | | | | letters of credit, bills of lading and receivable financing. |
| to the Netherlands, von Neck had lost eight ships but | | | | These, and many other finance mechanisms created |
| still earned his investing partners a 400% return on their | | | | by the Dutch, enabled this tiny kingdom to enjoy status |
| stakes. | | | | as one of the world’s great colonial powers while |
| At that time each voyage was a stand-alone business | | | | much larger nations stumbled and declined. |
| entity. Piracy, disease, weather and simple navigation | | | | For 200 years the Dutch East India Company was the |
| error made these trips highly speculative. Also, the | | | | international gold standard for corporate governance, |
| commodities being traded were highly elastic in | | | | performance and profitability. To this very day, the |
| valuations. A successful voyage could generate | | | | trade routes, trading terms and conditions, and |
| staggering profits, but losses were common and could | | | | marketing techniques perfected by Dutch merchants |
| be steep. | | | | are in use. This entrepreneurial nation is an example |
| The Dutch saw opportunity to create a cartel. The | | | | that modern states can study to learn the massive |
| result was the Dutch East India Company formed in | | | | positive possibilities inherent in creating open trading |
| 1602. This was the world’s first multinational | | | | systems. |