Abstract
This paper explores the convergence/divergence thesis that has sparked a debate in the literature of international human resource management (IHRM). By focusing on the role of multinational companies/enterprises (MNCs/MNEs), the author critically analyzes how market economies force companies to adopt uniform IHRM practices. In contrast, at the same time, encountering divergence forces from institutions tends to constrain the forces of convergence. The study contributes to the lively converge/diverge debate as a reflection of a complex dynamic process in globalization. The conclusion drawn from this paper is that in the end, IHRM will neither converge nor diverge, but MNCs will thrive on a hybrid model meant to serve the interests of nations and businesses as well.
Introduction
International Human Resource Management (IHRM) has contributed to a lively and ongoing debate about the role of market economies and globalization in the future management of people. Multinational companies (MNCs) are the driving forces for globalization as they seek to gain a competitive market overseas (Meyer and Xin, 2018, p. 1830). IHRM is essential for MNCs seeking to maintain a competitive advantage over their rival in the international business environment. Bader et al. (2021, p. 5) defined IHRM as activities that target human resource management at the international level.
However, Kuruvilla and Verma (2006, p. 48) defined IHRM as a process of efficient procuring, allocating, and using human resources effectively to serve the firm’s competitive advantage. In most cases, this process entails using expatriates at the international level to run the business overseas or across borders. MNCs have been engaging in the process of IHRM by adopting the best and unique IHRM practices, where established and emerging MNEs copy from established companies to avoid being phased out by the forces of competition. It is a response to economic market forces and globalization of businesses that has triggered the convergence/divergence debate.
The debatable question is whether the global drive for the most effective IHRM practices converges or whether the country’s culture, history, and institutional arrangements propagate divergence. Neither convergence nor divergence arguments provide sufficient arguments to justify the future of IHRM based on the role of MNCs. An analysis of literature on the two theses of convergence/divergence contributes to the literature on the debate without necessarily enforcing any of the theses.
Convergence Thesis
HRM practices comprise individuals from diverse cultures, traditions, societal values, beliefs, and national cultures. In the globalized context where businesses start investing in environments across geographical borders, the export of HRM practices plays a direct role in influencing and altering business patterns (Farndale and Sanders, 2017, p. 135). The convergence thesis is supported by arguments favoring firms mimicking the steps and practices of established MNCs, an approach that drives IHRM towards convergence. Proponents of the divergence thesis hope for a moment in history when HRM practices will be universal as all companies, both established MNEs and upcoming medium-sized enterprises, will be operating on similar HRM practices (Boussebaa, 2015, p. 698). The potential outcome of these similarities is the adoption of universal IHRM practices.
The argument favoring the divergence thesis thrives on globalization and industrial/manufacturing activities. Literature supporting the divergence thesis based on globalization factors argues that companies that fail to adopt the best HRM practices risk losing their market share to their competitors in the global environment. In a study by Vo and Stanton (2011, p. 3517), the authors analyzed the impact of companies exporting HRM practices during globalization to maintain competition over rivals.
Brewster et al. (2016, p. 287) further argued that MNCs are forced to cross streams and engage in current HRM practices that meet the business’s needs in the environment where it operates. In another study by Chiang et al. (2017), the authors stated that international firms will continue copying and adopting the best strategies that serve the interests of the business to survive the forces of competition. Such practices include organizing the working environment, responding to the needs of employees, compensation programs, and training and empowerment of employees (Collings and Isichei, 2018, p. 166). Adopting the best strategies and best practices within the HRM practices drives the thesis that IHRM will one day clock the state of homogenization.
Researchers have carried out case studies to support the homogenization/convergence thesis. The study by Colakoglu and Caligiuri (2008) is a case for reference. The authors argue that with over 650,000 MNCs in the US and 850,000 corresponding subsidiaries scattered overseas, MNCs are forced to respond to the needs of subsidiaries through integration and adoption of HR practices that reflect the parent company’s goals.
It is supposed to have more than ten subsidiary MNCs. In that case, adopting HR practices exported from the US can have a significant impact when other businesses copy the art of doing business. A similar view is held by Lin et al. (2012, p. 90), who argued that expatriate management has been transforming MNCs, as key drivers of globalization and production processes, seek to meet the diverse needs of HRM at the global level.
Critical Analysis of Globalization Convergence
While existing evidence in HRM literature on divergence points to the possible homogenization of HRM practices in the future, the thesis does not provide sufficient evidence to support the argument. In a study by Weathers and Siemens (2018, p. 3), the authors refuted the possible standardization of IHRM practices in the foreseeable future, considering the varying changes in national policies globally. Countries like China and India pursue nation-specific interests by focusing on national cultures while evading global practices.
Additionally, the recent decline in unionization of workers and collective bargaining agreements points towards divergence, instead of supporting the thesis of convergence. For instance, factors such as employee training, bargaining on wages, and information provision vary from one country to another and are specific to the governance policies in different countries. No developed nation is willing to submit to the pressure of globalization by embracing foreign HRM practices.
The cross-cultural aspect of transferring HRM to a global status also undermines the convergence thesis. Proponents of the divergence thesis rely on transferring expatriates to foreign countries as a tool for possible convergence. Sanders De Cieri (2021, p. 65) explained how expatriates can be assimilated into the foreign culture, instead of transferring the culture to the country where they are employed.
Cross-cultural HRM practices are too broad to adopt the culture of the US or Japan. For instance, an HRM practice serving in the US cannot be exported to apply to the different environments in Asia, Africa, and South America at once. This view makes the convergence thesis a false hope for MNCs and MNEs.
Although MNCs are drivers of cultural integration and globalization in the IHRM literature, they depend on national laws and policies of governance in nations. MNCs do not have the power to influence or reduce the sovereignty of nations. Companies such as Apple, Microsoft, and Facebook have been forced to submit to the rule of law in countries such as China and India. When a country demands that a company have a certain percentage of employees from the local culture, the firm must comply or face certification barriers that could impact success in the foreign country.
Schotter et al. (2017, p. 413) explained that MNCs continue to require nation-specific regulations and guidance on operations affecting HRM practices. In this context, the success of the best practices is not immune to the unique cultures, laws, and regulations that differ from one country to another. Employees hold the success of IHRM practices, even when the strategy is considered the best or one that could serve the firm’s interests in a foreign business environment. The convergence debate underestimates the issues raised in this critical analysis; hence, it is still far from the homogenization of IHRM practices.
Divergence Thesis
Compared to the theoretical convergence thesis, the divergence thesis has gained significant traction from scholars interested in evidence-based application of HRM practices. This debate has a higher number of supporters compared to the convergence debate. The basic understanding of the divergence thesis is that the resilience of nation-specific cultures tends to cause MNCs to take a path-dependent approach to employment and HRM-related issues.
Proponents of the divergence thesis believe that IHRM practices will continue to differ, considering that all HRM practices are embedded in nation-specific socio-economic issues. MNCs are, therefore, forced to pursue only the best HRM strategies that fulfil the unique needs of the country in question (Ahiaoui et al., 2017, p. 870). Cultural and institutional theories drive the arguments in favor of the divergence debate.
MNEs operate in environments dominated by people. HR policies, practices, and activities are designed to serve the needs of employees while responding to nation-specific business environment policies. The institutionalization theory posits that MNCs operate in environments dominated by political, economic, and social regulations that constrain the adoption of foreign policies and regulations (Brewster et al., 2016, p. 290).
To succeed in the new business environment, the company must adhere to domestic rules and policies dictating the business norms. Thus, country-specific institutions determine the success of HRM in the global context. This creates a possibility of IHRM taking a path-specific or nation-specific direction because there is no universal law dictating that nations should work towards a common goal.
Existing evidence in institutional theory supports arguments raised by advocates of divergence theory. When analyzing the role of institutions on HRM practices, Mariappanadar (2012, p. 8) cited the case of China, where the national law allows only the existence of a single labour union to advocate for the rights and welfare of workers. The case of China is different from India and the US, where the law allows workers freedom to join different trade unions to protect the freedom and rights of workers. From this point of view, economies such as China are ready to take the nation-specific path of divergence.
The same institutional problem was discussed by Harzing et al. (2016, p. 685) in a case study carried out in Lithuania. The authors noted that European economies have adopted strict laws and regulations regarding training, employment, and talent retention. On the other hand, the US legislation has allowed employers the freedom to fire and hire, where the employee’s fate lies in the employer’s hands. The policy on hiring and firing as related to HRM may be the best approach in the context of the US, but it can be considered irrelevant when viewed from the perspective of European laws.
Proponents of divergence theory emphasize the role of MNCs in advancing the narrative in the national context. According to Harzing et al. (2016, p. 685), most MNEs use their subsidiaries at the international level to push for HRM approaches that suit the company’s interests. For instance, a multinational company with subsidiaries in China and others in the US may opt to develop a path-specific approach by adhering to different HRM policies depending on the policies and regulations where the business operates.
It is possible to see a company employing and firing employees freely in the US, where there is no national intervention, while avoiding such practices in China, where trade unions protect workers’ rights. However, Wang et al. (2009, p. 23) noted that companies have to be careful when pushing for nation-specific HRM practices as they are required to maintain a positive image in today’s age of information. For instance, Chinese employees may opt to strike on behalf of their counterparts in the US when they learn that a global company such as Facebook is developing a policy that will harm their counterparts back home.
Culture is also a factor that directly impacts the thesis of divergence. Culture is the product of shared values, historical factors, social beliefs, and practices that determine the relationship between people within the business environment (Yahiaoui et al., 2021, p. 770). The operations of MNCs at the international level can be affected by Christianity, Islam, Hinduism, Buddhism, and other socio-cultural practices that vary from one country to another.
For instance, Christians consider Saturday and Sunday days reserved for resting, while Muslims are comfortable resting on Friday and praying during lunch hours. Coming up with a cultural policy to suit employees’ interests and varying needs in these diverse cultures is unrealizable. In the end, MNCs will only pursue HRM policies and approaches specific to the country or culture where they operate.
Power distance culture affects the adoption and implementation of IHRM in multinational enterprises. Power distance is the degree to which individuals, organizations, or businesses accept or resist power and social status inequalities. According to Colakoglu and Caligiuri (2008, p. 230), different cultures have different power distances that have a direct impact on the nature and type of leadership and management styles. The power distance as an element of IHRM determines how the management team sets policies regarding reward systems and the relationship between subordinates.
A company from an individualistic culture in the US may be forced to adjust the management style to suit the collectivist culture in Asia (Edwards et al., 2022, p. 166). Similarly, Asian MNCs may be forced to alter IHRM policies to reflect the foreign culture. Additionally, cultures that emphasize respect for elders may create room for exploitation of junior employees, considering the norm that junior employees are not supposed to argue or complain against elders. When this happens, the company may be forced to withdraw expatriates and focus on hiring local employees who understand the company’s specific culture and where it intends to expand its subsidiaries. This also justifies the divergent thesis, where MNCs will maintain a path-specific approach when engaging in international businesses.
Case studies on the collectivist culture in China and the individualistic culture in the US have pointed out how culture facilitates and supports the divergence theory in IHRM. A recent study on individualistic culture in Asia by Collings and Isichei (2018, p. 17) pointed out the impact of cronyism on the IHRM practice. Cronyism refers to showing favour to an individual based on relationship qualities instead of qualifications. This consideration directly impacts HRM practices, considering that it affects the quality and services delivered by employees.
Multinational companies operating in collective cultures in Asia may find it challenging to navigate cronyism when seeking to focus on quality and talent acquisition. They may be forced to import labour from home countries to overcome issues associated with quality and productivity. In the end, these decisions end up perpetuating divergence.
Critical Analysis of Divergence Thesis
A critical view of divergence theory in a practical business environment indicates that businesses are more likely to take a path-specific approach to resolving international human resource management issues. MNCs are more likely to use an approach that allows multiple strategies to respond to the situation. In this case, businesses are more flexible in embracing a strategy that does not harm their subsidiaries and the parent company, as explained by Welch and Welch (1997, p. 409).
The divergence theory has gained significant traction based on the evidence that companies are not constrained to work towards a given direction. Still, they can make decisions depending on the situation on the ground. Bader et al. (2021, p. 699) further argued that there is no evidence for partial or complete convergence, considering that MNCs are constantly responding to the issues on the ground depending on the country where the subsidiary company is located.
Hybridization from “Cross-Vergence”
The convergence/divergence debate has triggered a hybrid model of debate that scholars are currently investigating. Scholars contend that MNCs neither pursue a convergence nor a divergence framework when operating internationally. Instead, companies mix the two theories to remain competitive and gain a competitive advantage. To remain effective in both production and standardization of practices, companies are forging a strategy to take advantage of nation-specific localization policies while tapping into the advantage of HRM policies that competitors use at the international level.
For instance, Collings and Isichei (2018, p. 170) outlined how MNCs have been using technology to recruit and train staff in environments where local laws emphasize the employment of local talent. The advantage of a hybrid model in the IHRM is that it allows the company to pursue a strategy that suits its goal. This indicates that neither the convergence nor the divergence thesis is correct. However, a combination of the two could be realized in the future.
Conclusion
The convergence/divergence debate is a live topic still gaining traction from IHRM scholars. Market economies and forces of globalization drive the debate. Advocates of the convergence thesis believe that MNCs will reach a time when they will adopt similar IHRM practices. Contrary to this, advocates of divergence theory use institutional and cultural differences to argue that MNCs are actively pursuing IHRM policies that are culture/nation specific to the market environment.
In tapping into the benefits of IHRM, international firms are not restricted to pursuing a given direction. Despite the arguments raised by either side of the debate, international firms are likelier to take a nuanced approach by combining the two theses to produce a hybrid model. Companies are likely to combine the benefits of globalization with localization to reap the benefits of a hybrid model that does not have a specific direction.
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