How useful are theories of convergence, divergence and crossvergence in explaining the complexities of relationships between headquarters and subsidiaries

Author: Iloka Benneth Chiemelie

Published: 14/12/2013

In any given organization, knowledge is a key resource when it comes to measuring the role it plays in contributing towards increased performance and competitive advantage. Researches have shown that the main motivation for MNEs’ business expansion abroad is to gain access to new knowledge and transfer such knowledge across its firm in order to boost its human resources (Bjorkman, Stahl and Vaara, 2007; Ranft and Lord, 2002). However, differences in culture means that how such knowledge is shared between headquarter and its subsidiaries can vary.

The divergence theory by Ralston et al. (1997) stated that one system will have to drop its own value in order to adopt the values of the other system (normally, that of the Headquarter). This creates issues with relationship of both system because of the difficulties associated with dropping an inbuilt values and adopting a totally different one (Weber et al., 1996).

The theory of convergence as described by Ralston et al. (1997) made known that convergence in organization implies that the value system existing in such organization are combined to become one. The implication is that the lack of convergence will make the relationship between headquarters and subsidiaries more complex because differences in value will mean differences in the way information are shared within the system (this is explained in the literature of social community by Etzioni, 1961; Ouchi, 1980; Selznick, 1965).

The theory of crossvergeence was defined by Ralston et al. (1997) as the development of a new unique culture, beliefs, and values in a given system, which is something different from the old values. It means that headquarter and its subsidiary need to drop their previous national or organizational culture and develop a new one that will guide their business operation. Just as in the theory of social community (Etzioni, 1961; Ouchi, 1980; Selznick, 1965), the lack of such development will led to complexities in relationship between headquarter and subsidiary because of the differences in their value system.

How is this theoretical framework similar to or different from other cross-cultural management frameworks which you have studied in this module?

The above theoretical frameworks are similar with localization, globalization and glocalization. In the localization approach, the company brings its values to converge with the local values of its subsidiary in the foreign country.

Globalization means that the subsidiary and headquarter drops their individual value to create a crossvergent value that will be adopted across its subsidiaries irrespective of country or market (a sort of new global way of standardizing its business).

Globalicalization on the other hand can be considered as the divergence of the subsidiaries from their normal values (before acquisition) to the values of the Headquarter (following successful acquisition).

Which theoretical framework(s) would you apply when considering how to bring about more effective integration with subsidiaries and minimise risk for headquarters?

In addition to the cultural differences, attention also needs to be paid to the dynamism involved in integrating a business process and this include physical, procedural and cultural integration (Shrivastava, 1986).

I will apply the framework of convergence because it would increase the level of knowledge transfer and aid in the establishment of a common value system (Etzioni, 1961; Ouchi, 1980; Selznick, 1965). This is because the two cultures are combined to form a common culture that is built around the values established in the two cultures. The framework of convergence is also better than divergence (because there is no need for any system to drop its value totally and adopt the values of another system) and crossvergence (because the systems involved will still retain their own values and also learn from the values of their partner system).

References

Bjorkman, 1., Stahl, G., and Vaara, E. (2007), Cultural differences and capability transfer in cross-border acquisitions: The mediating roles of capability complementarity, absorptive capacity, and social integration.  Journal of International Business Studies, 38 (4): 658-672.

Etzioni, A. (1961). A comparative analysis of the complex organization. New York: Free Press.

Ouchi, W. G. (1980), Market, bureaucracies, and clans. Administrative Society Quarterly, 25 (1): 129-141.

Ralaston, D.A., Holt, D.H., Terpstra, R.H., and Kai-Cheng, Y. (1997). The impact of national cultures and economic ideology on managerial work values: A study of the United States, Russia, Japan, and China. Journal of International Business Studies, 28 (1): 177-207.

Ranft, A., and Lord, M. (2002), Acquiring new technologies and capabilities: A grounded model of acquisition implementation. Organization Science, 13 (4): 420-441.

Selznick, P. (1965). RVA and the grass roots. New York: Harper Torchbooks.

Shrivastava, P. (1986). Post-merger integration. Journal of Business Strategy, 7 (1): 65-76.

Weber, Y., Shenkar, O., and Raveh, A. (1996). National and corporate cultural fit in mergers/acquisitions: An exploratory study. Management Science, 42 (8): 1215-1227.