Regardless of whether Europeans constituted the primary historical force in 17th-century Indonesia, their presence undoubtedly initiated changes that in the long run were to be of enormous importance. The VOC itself represented a new type of power in the region: it formed a single organization, traded across a vast area, possessed superior military force, and, in time, employed a bureaucracy of servants to look after its concerns in the East Indies. In sum, it could impose its will upon other rulers and force them to accept its trading conditions. Under the governor-generalship of Jan Pieterszoon Coen and his successors, particularly Anthony van Diemen (1636–45) and Joan Maetsuyker (1653–78), the company laid the foundations of the Dutch commercial empire and became the paramount power of the archipelago.

During the 17th century the VOC went far toward establishing commercial control in the Indonesian islands. It captured Malacca from the Portuguese (1641), confined the British—after a period of fierce rivalry—to a factory at Bencoolen (now Bengkulu), in southwestern Sumatra, and established a network of factories in the eastern islands. Though it may have wished to limit its activities to trade, the company was soon drawn into local politics in Java and elsewhere, and, in becoming the arbiter in dynastic disputes and in conflicts between rival rulers, it inevitably emerged as the main political entity in the archipelago.

In the 1620s Sultan Agung, ruler of the central Javanese kingdom of Mataram and representative of the old and highly sophisticated Javanese civilization, sought to extend his power over Bantam (near present-day Banten) in western Java. This brought him into conflict with the Dutch, and he laid siege to the Dutch fortress at Batavia. Although Agung’s forces were eventually compelled to withdraw, the result of the confrontation was inconclusive and left both the Dutch and the Javanese warily respectful of each other’s strength. Dutch intervention in Javanese affairs increased in the later 17th and early 18th centuries, however, owing to internal dissensions within Mataram and a series of wars of succession between pretenders to the throne. In return for its services in 1674 to Amangkurat I, Sultan Agung’s successor, and then to Amangkurat II shortly afterward, the VOC received the cession of the Preanger regions of western Java.

This was the first of a series of major territorial advances. In 1704 Dutch forces assisted in replacing Amangkurat III with his uncle, Pakubuwono I, in return for which further territory was ceded. In this way almost all of Java gradually came under Dutch control, and by 1755 only a remnant of the kingdom of Mataram remained. This was divided into two principalities, Yogyakarta (Jogjakarta) and Surakarta (Solo), which survived until the end of Dutch rule. In an attempt to control the pepper trade in Sumatra, the VOC established footholds in western Sumatra and in Jambi and Palembang over the course of the 17th century, and it interfered in local conflicts in support of rulers who favoured it. The main Dutch expansion in Sumatra did not take place until the 19th century, however.

In acquiring territorial responsibilities, the company did not at first establish a close administrative system of its own in the areas that were under its direct control. In effect, the VOC replaced the sovereign of the royal court and, in so doing, inherited the existing structure of authority. An indigenous aristocracy administered the collection of tribute on behalf of the company, and only gradually was this system converted into a formalized bureaucracy. The VOC, like the royal court before it, drew revenue in the form of produce from the peasantry within its domain.

To implement its commercial monopoly, the VOC established company factories for the collection of produce, pressured individual rulers to do business solely with the company, controlled the sources of supply of particular products (clove production, for example, was limited to Ambon, nutmeg and mace to the Banda Islands), and, in the 18th century, pushed through a system of forced deliveries and contingencies. Contingencies constituted a form of tax payable in kind in areas under the direct control of the company; forced deliveries consisted of produce that local cultivators were compelled to grow and sell to the company at a set price. There was little difference between the devices. In theory, forced deliveries were thought of as a form of trade in which goods were exchanged, but they were, in fact, as the British scholar J.S. Furnivall described it, “tribute disguised as trade,” while contingencies were “tribute undisguised.” In effect, the whole system of company trade was designed to extract produce from the East Indies for disposal in a European market—but without stimulating any fundamental technological change in the area’s economy. The profits belonged to the company, not to the producers. The indigenous traders of the region were pushed aside by the VOC as it gained control of more and more of the export trade of the archipelago. The growth of Batavia resulted, for example, in the decline of the north coast ports of Java, through which much of the spice trade had been channeled since before the 15th century. In this way the traditional pattern of trade was checked and distorted.

During the 18th century the VOC ran into financial difficulties from a variety of causes: the breach of the company’s monopoly by smuggling, the growing administrative costs as the company came to shoulder greater responsibilities of government, and the corruption of the company’s servants. Further complicating matters, the Netherlands (at the time, the Dutch Republic) succumbed to France during the French revolutionary wars and was restructured and renamed the Batavian Republic in 1795. In 1799 the (Dutch) government of the republic terminated the affairs of the Dutch East India Company.