Pondicherry as a business

centre
 French East India Company
• founded in 1664 to compete with the British and Dutch
East India companies, it was chartered by King Louis
XIV for the purpose of trading in Eastern Hemisphere.
• The first state-sponsored voyage to the Indies was in
1603. Given 15-year monopoly of the Indies trade.
• Company not a joint-stock corporation, and was funded
by the Crown.
• Later company was granted a 50-year monopoly on
French trade in the Indian and Pacific Oceans, a region
stretching from the Cape of Good Hope to the Straits of
Magellan.
• IPO later offered to French aristocracy – quickly sold out
 Commerce to politics
• decline of the Mughal Empire
• the French decided to intervene in Indian political affairs
to protect their interests, by forging alliances with local
rulers in south India.
• From 1741 the French under Joseph François Dupleix
pursued an aggressive policy against both the Indians
and the British until they ultimately were defeated by
Robert Clive.
• The Company was not able to maintain itself financially,
and it was abolished in 1769
• King Louis XVI transfers to the state all its properties,
assets and rights
• The King pays all debts and obligations
 Key territories

Chandannagore, Pondicherry
European settlements in Bengal
• French – Chandannagore
• Portuguese – Bandel
• Dutch – Chinsura
• Danish – Srirampur
• English – Govindapur, Sutanuti, Kalikata (became
Kolkata)
• Weak administration by Mughals – political weakness of
the rulers of Bengal
• Gun power & European war strategies vs medieval
strategies of the local rulers
• Riverine communication – hence, superior naval power
won
 Pondicherry
• Roman settlement between 2nd century BC
to 2nd century AD
• Sanskrit university in 8th century BC
• 4th century AD onwards – part of Pallava
kingdom, then the Cholas, and the
Pandyas
• Then ruled by the Sultanate of Madurai,
Vijaynagar kingdom, and sultanate of
Bijapur
 European connection
• Portuguese, Dutch, Dane and then French
• till 1690 the French were interested mainly
in trade and commerce activities
• Name changed from Puducherri
• In 1699, the French bought Pondicherry
town from the Dutch
 French connection deepens
• Mughal rulers donated villages to French
to get timber from surrounding forests
• French thwarted Maratha attacks – more
villages to French
• In 1793 – administered out of Madras by
English
• Returned to French in 1816 – remained in
their possession till 1954
What parallels do you see between
the stories of Surat, Calcutta,
Bombay and Pondicherry?
 Class responses
• All are ports – critical since Europeans
were naval powers and traded over high
seas
• All had fairly well developed mercantile
traditions and traders already in place
• Settlements along the Hooghly river was
because that was the only river which
allowed large European ships to sail
upstream
 Class responses
• All locations suffered from lack of strong
local political rule and administration – the
power vacuum allowed some European
powers to evolve from traders to colonial
powers
• The large hinterland required a system of
distribution and sourcing which the local
merchants could provide
• Local merchants also acted as financiers
 Class discussions
• Power – manifested in
– Political administrative (EIC taking over as colonial
power, and admin later handed over to the British
Crown)
– Political influence – the rise of the French and English
through local support
– Financial – the death of the Dutch and the French
– Intellectual
– Military
– Manpower (numbers of talented people)
– Customer – preference for a certain company
This discussion continued

Later at end of class

Business in Pondicherry

The story of Indian businessmen

to build the trading centre
 French business interests
• Cloth purchase and manufacture
• Long distance with France and other
French settlements
• Indians used as intermediaries
– Mudaliars, Pillais and later Chettiars
 Thanappa Mudaliar
• Rice traders in Mylapore – dealing with the
Portuguese
• Appointed “broker of the company” by the
French
• Encouraged others like him to trade with
the French
• This post became hereditary – raised to
the French aristocracy (“courtier”)
 Nainiyappa Pillai
• Traditionally shepherds
• Became chief brokers for the French
company
• Also “Dubash”
• Post also became hereditary
 The importance of brokers
• Typically between the buyer (French
company) and suppliers (cloth
manufacturers)
• French did not know about
– Manufacturing, availability, prices, types of
cloths, threads, qualities, etc
• Dispatch of goods timebound
 Constraints
• Lack of knowledge of local language and
cultures
• Lack of knowledge of production variables
• Large number of producers – how to
contact, coordinate and deal with them
 Hence
• Rise of intermediaries
• Transition from agrarian functions to a new business class
• Value addition in the supply chain
• Intermediaries also functioned as financiers and bankers
to suppliers

What is an intermediary? What role does

an intermediary play?
 Class discussion
• Intermediaries become important in the second
stage of economic development
– From agrarian to sectoral (industrial) and then on to
tertiary (services) stages
• Intermediary functions
– Aggregators
– Link between sources of produce, and also for supply
from and to the hinterland
– Local network
– Warehousing and transport
– Financiers, bankers, money lenders
– Middlemen (interpreters, translators)
 Alternative model
• Dutch and Danish companies
– Direct contact and dealing with suppliers
(weavers)
– Direct financing of produce for purchase by
the company
 Rise of Joint stock company
• French company capital tied up in
advances to weavers
• Joint investment requested from
merchants in placing goods in French
ships and in shipping industry
 Rise of Joint stock company
• Working methods
– Advances to suppliers through merchants
– Merchants supervised production and
providing stocks to port
– French company accepted produce as per
requirements
– Immediate reconciliation of accounts
 Rise of joint stock company
• Formed with many brokers
• Allowed them to develop efficient
merchant capital from wider network
possible individually
• Allowed brokers to work with a degree of
independence from the French company
 Issues
• Earnings of brokers through joint stock
company initially lower than individual
earnings – not all merchants wanted to
join
• Some merchants joined because of
monopolies in specific textile items
• Too many small merchants allowed
French to create specialised verticals –
each in specific types of cloth
 Advantage
• Distribution of French goods in Indian
market
• Gain considerable advantage in value
addition
– Avoidance of high prices for lower quality
cloth
 Rise of protectionism
• Sole concessions for the company
• Restrictions on brokers – they cannot deal
with other companies like the Dutch, or the
Portuguese
• Favourable treatment in rates and duties
in the home market (France)
 The death of the French
• Intermediaries wooed away by the British
from Pondicherry to Madras
• French lost the battle of the high seas in
Europe – British Navy much stronger
• British had more capital and invested more
time in understanding local people
 What are the learnings?
• The role of the intermediaries have not changed
much, while the forms of intermediaries have
evolved
– Distributors finance functioning of companies by
paying deposits in order to become distributors
– Credit from company and to retailers also functions as
a form of finance
• If intermediaries have too much power, the
company suffers – the French company died
because they had no connection with the
suppliers, unlike the Dutch and the Danish
How do you relate these with the
business situations today?
 Class discussions
• Companies must have direct contact with
customers in their markets – not depend
on intermediaries totally
• Role of intermediaries is very important,
but they can’t have total control
 Power in large businesses
• Political administrative – no more apparent; but
misuse seen in ITT in Chile and Shell in Nigeria
• Political influence – critical; the expansion of
Tata into S Korea, S Africa, etc
• Financial – critical
• Intellectual – IPRs like Google, software cos;
can be coercive, like Microsoft & Intel
• Military – not seen much except in theatres of
war
• Manpower – success of TCS, Infosys etc
• Customer – Colgate in India – vs HUL & P&G
 A ‘pagoda’
• a unit of currency, a coin made of gold or half
gold minted by Indian dynasties as well as the
British and the Dutch.
• There were two types of pagodas coined by
foreign traders. The most valuable was the Star
pagoda, worth approximately 8 shillings
• The second was the Porto Novo pagoda, worth
about 25% less than the Star pagoda.