The East India Company (1600-1872) was the world's first multinational firm. It was formed in Britain and did business mainly in India. The history of the firm carries interesting lessons about how globalisation was born in the 1700s, and Indian business changed since then. In order to see how, it is necessary to start with a brief description of the Company itself. The Company's shareholders were merchants and bankers of the City of London.
They wanted to trade in the Indian Ocean, which was already a vast and well-developed trading world in 1600, in order to get hold of Indonesian spices that sold at high prices in Europe. Soon they realised that inside Asia, one Asian good exchanged for another did much better than any European good. They then started procuring Indian cotton cloth as payment for the spices. Indian cloth producers did not want European goods either, but were happy to accept silver. Silver mined from the Americas and obtained from Spanish ports started pouring into Asia. Eventually, the whole trade was redirected towards the Atlantic world. In the 1700s, the two leading Asian exports, Indian cloth and Chinese tea, were purchased by the Company for sale to the burgeoning British and American middle-class.
By the end of the 1700s, the Company had undergone a curious change; it had begun to rule a part of India in the name of the Mughal Emperor. This was the beginning of the British Empire in South Asia.
Why did a group of foreigners succeed so dramatically as traders in the Indian Ocean?
And why did a group of traders decide to capture power in a distant land?
In the 1600s the Company was an upstart in India, smaller in scale than almost any of the large Indian family firms operating from the Indian coastal trading towns like Surat, Masulipatnam, and Hooghly, and desperately trying to defend its operations against attacks by European rivals, the Dutch and the Portuguese. An empire was a prospect beyond dreams. Yet, collectively, the Europeans did possess three strengths that the greatest Indian firms did not have.
First, the Europeans had knowledge of long-distance navigation.
They understood charts, maps, ocean currents, instruments, routes, and the technique of making sturdier and larger ships carrying guns on board much better than did the Indian seafaring merchants. The Europeans, thus, had developed a truly global understanding of the oceans long before the other ocean-bound cultures. Indians were good navigators, but they did not venture beyond the Indian Ocean.
Second, the Company could procure lots of Spanish silver. In turn, their capacity to do so had owed to the presence of well-developed financial markets in Europe of this time. In India, banking was less developed, money changed fewer hands, and interest rates were higher.
The biggest advantage the Company possessed stemmed from its identity as a joint stock firm. In Asia, the biggest firms financed investments with their own money, family savings, or at the most, money borrowed from members of the same caste or community. The idea of the joint stock was unknown. That idea allowed the East India Company to pool in huge amounts of money, and make use of the economies of scale available in overseas trade. It could build an elaborate infrastructure consisting of forts, factories, harbours, and ships. Joint stock also made them better risk-takers. The Indian traders spread risks by dealing in a variety of goods in auction-type exchanges. They were what the Dutch historian Jacob van Leur had called 'peddlers' of the oceans. The Company, thanks to its capacity to absorb risks, dealt in a few goods, which it bought on large scale. Being specialised, it needed to contract with a specific set of suppliers year after year and to pay out vast sums of money as advances.
Contractual sale of goods was not unknown in India before, but contractual sale on such a scale by a single firm had no precedent. The need to protect its ports and harbours from numerous enemies made the Company keen to own ports. The three leading examples, Madras, Bombay, and Calcutta, represented quite a different business culture in coastal India.
Whereas Surat and Masulipatnam had belonged to states that lived mainly on land taxes, the Company towns were oceanbound, and had no ties with land. Bombay, Calcutta, and Madras were no ordinary ports. They were ports where seafaring merchants, rather than landlords and warlords, made laws. The Company towns, therefore, were attractive to Indian merchants as well. In the 1700s when the Mughal Empire started breaking up and warfare broke out in the interior, hundreds of wealthy Indian merchants and bankers fled to the Company towns. They were a huge source of support for the Company's political adventures. We need not overdraw these strengths.
The Company's own business privileges, which were a monopoly granted by the British Crown, were constantly under attack fromprivate traders and even its own employees. The relation between Indian firms and the Indian rulers was based on informal understanding, but the Europeans did not enjoy such trust and goodwill. They had to take out license to trade, and pay massive bribes to the Indian kings and their henchmen. They also had to keep an army of paid agents to procure goods. These contracts had no Indian precedents, and therefore, they were not protected by any Indian law.
Contracts were broken often, and the Company could do little when they were broken. In order to avoid such situations, the Company recruited its chief agents carefully. They were often individuals who held power over the textile artisans. At the same time, they were more knowledgeable about India than were the Company's own officers. The Company officers disliked this dependence and hated the agents.
Lastly, unlike a modern firm, the Company did not have a unitary command-and control structure. Its overseas enterprise was a peculiar combination of modern joint stock principle in raising money and pre-modern partnership in management.
The two partners were the sedentary City merchants and peripatetic sailors and soldiers. These two classes were not friendly at home. But the sailors and soldiers joined the venture on the promise that they could trade a little on the side.
Still, it was the latter that had to deal with hostile kings and untrustworthy agents in India, which made them more aggressive and opportunistic than the shareholders back home. The sailors and soldiers were the people who made the moves that led to the empire in India, often against the instructions of the shareholders.
The Company's success, in conclusion, had much in common with the ingredients that many modern multinational make use of - capacity to absorb risks, capacity to think on a world scale, access to deep financial markets, and access to information.
Its weaknesses too were surprisingly modern in character - miscalculation of political risks and unreliable local partners. But the Company was also quite unique. For one thing, it was a firm with a split personality, torn between merchants and soldiers. For another, it reached its peak during an unusual moment in Indian history that saw the collapse of a great medieval empire. That moment gave the sailors and soldiers the chance to take hold of the reins of the Company, giving birth to another empire.
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Source : The Economic Times. Author: Mr.Tirthankar Roy,Professor of Economic History, London School of Economics and author of The East India Company...The World's Most Powerful Corporation.
They wanted to trade in the Indian Ocean, which was already a vast and well-developed trading world in 1600, in order to get hold of Indonesian spices that sold at high prices in Europe. Soon they realised that inside Asia, one Asian good exchanged for another did much better than any European good. They then started procuring Indian cotton cloth as payment for the spices. Indian cloth producers did not want European goods either, but were happy to accept silver. Silver mined from the Americas and obtained from Spanish ports started pouring into Asia. Eventually, the whole trade was redirected towards the Atlantic world. In the 1700s, the two leading Asian exports, Indian cloth and Chinese tea, were purchased by the Company for sale to the burgeoning British and American middle-class.
By the end of the 1700s, the Company had undergone a curious change; it had begun to rule a part of India in the name of the Mughal Emperor. This was the beginning of the British Empire in South Asia.
Why did a group of foreigners succeed so dramatically as traders in the Indian Ocean?
And why did a group of traders decide to capture power in a distant land?
In the 1600s the Company was an upstart in India, smaller in scale than almost any of the large Indian family firms operating from the Indian coastal trading towns like Surat, Masulipatnam, and Hooghly, and desperately trying to defend its operations against attacks by European rivals, the Dutch and the Portuguese. An empire was a prospect beyond dreams. Yet, collectively, the Europeans did possess three strengths that the greatest Indian firms did not have.
First, the Europeans had knowledge of long-distance navigation.
They understood charts, maps, ocean currents, instruments, routes, and the technique of making sturdier and larger ships carrying guns on board much better than did the Indian seafaring merchants. The Europeans, thus, had developed a truly global understanding of the oceans long before the other ocean-bound cultures. Indians were good navigators, but they did not venture beyond the Indian Ocean.
Second, the Company could procure lots of Spanish silver. In turn, their capacity to do so had owed to the presence of well-developed financial markets in Europe of this time. In India, banking was less developed, money changed fewer hands, and interest rates were higher.
The biggest advantage the Company possessed stemmed from its identity as a joint stock firm. In Asia, the biggest firms financed investments with their own money, family savings, or at the most, money borrowed from members of the same caste or community. The idea of the joint stock was unknown. That idea allowed the East India Company to pool in huge amounts of money, and make use of the economies of scale available in overseas trade. It could build an elaborate infrastructure consisting of forts, factories, harbours, and ships. Joint stock also made them better risk-takers. The Indian traders spread risks by dealing in a variety of goods in auction-type exchanges. They were what the Dutch historian Jacob van Leur had called 'peddlers' of the oceans. The Company, thanks to its capacity to absorb risks, dealt in a few goods, which it bought on large scale. Being specialised, it needed to contract with a specific set of suppliers year after year and to pay out vast sums of money as advances.
Contractual sale of goods was not unknown in India before, but contractual sale on such a scale by a single firm had no precedent. The need to protect its ports and harbours from numerous enemies made the Company keen to own ports. The three leading examples, Madras, Bombay, and Calcutta, represented quite a different business culture in coastal India.
Whereas Surat and Masulipatnam had belonged to states that lived mainly on land taxes, the Company towns were oceanbound, and had no ties with land. Bombay, Calcutta, and Madras were no ordinary ports. They were ports where seafaring merchants, rather than landlords and warlords, made laws. The Company towns, therefore, were attractive to Indian merchants as well. In the 1700s when the Mughal Empire started breaking up and warfare broke out in the interior, hundreds of wealthy Indian merchants and bankers fled to the Company towns. They were a huge source of support for the Company's political adventures. We need not overdraw these strengths.
The Company's own business privileges, which were a monopoly granted by the British Crown, were constantly under attack fromprivate traders and even its own employees. The relation between Indian firms and the Indian rulers was based on informal understanding, but the Europeans did not enjoy such trust and goodwill. They had to take out license to trade, and pay massive bribes to the Indian kings and their henchmen. They also had to keep an army of paid agents to procure goods. These contracts had no Indian precedents, and therefore, they were not protected by any Indian law.
Contracts were broken often, and the Company could do little when they were broken. In order to avoid such situations, the Company recruited its chief agents carefully. They were often individuals who held power over the textile artisans. At the same time, they were more knowledgeable about India than were the Company's own officers. The Company officers disliked this dependence and hated the agents.
Lastly, unlike a modern firm, the Company did not have a unitary command-and control structure. Its overseas enterprise was a peculiar combination of modern joint stock principle in raising money and pre-modern partnership in management.
The two partners were the sedentary City merchants and peripatetic sailors and soldiers. These two classes were not friendly at home. But the sailors and soldiers joined the venture on the promise that they could trade a little on the side.
Still, it was the latter that had to deal with hostile kings and untrustworthy agents in India, which made them more aggressive and opportunistic than the shareholders back home. The sailors and soldiers were the people who made the moves that led to the empire in India, often against the instructions of the shareholders.
The Company's success, in conclusion, had much in common with the ingredients that many modern multinational make use of - capacity to absorb risks, capacity to think on a world scale, access to deep financial markets, and access to information.
Its weaknesses too were surprisingly modern in character - miscalculation of political risks and unreliable local partners. But the Company was also quite unique. For one thing, it was a firm with a split personality, torn between merchants and soldiers. For another, it reached its peak during an unusual moment in Indian history that saw the collapse of a great medieval empire. That moment gave the sailors and soldiers the chance to take hold of the reins of the Company, giving birth to another empire.
.................................................................................................................................................................
Source : The Economic Times. Author: Mr.Tirthankar Roy,Professor of Economic History, London School of Economics and author of The East India Company...The World's Most Powerful Corporation.
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