Final answer:
European countries set up colonies as trade hubs and sources of raw materials, backed by trading companies like the Dutch and British East India Companies. This was influenced by mercantilism, ensuring colonies benefited the wealth and power of the home country.
Step-by-step explanation:
European countries and trading companies set up colonies to create places to trade and create commerce. These colonies served multiple purposes: they provided a source of raw materials, a market for goods manufactured in the home country, and a strategic base for expanding trade networks. Trading companies, such as the British East India Company and the Dutch East India Company, were granted monopolies on foreign trade and established their enterprises globally through the sale of stocks and bonds.
The system underpinning these activities was known as mercantilism, which was based on the belief that a country's wealth and power could be increased by amassing resources and regulating trade to benefit the home country. England, for instance, enacted the Navigation Acts to ensure that British colonies provided raw materials for British industry and that the colonies were markets for British goods, leading to the creation of a substantial empire and enhancing Britain's power over its European rivals.