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An important factor affecting strategy is the environment in which the organization oprates. An environmental constraint is any limitation on strategy brought about by external differences in culture, competitive market structures, fiscal policy (such as taxation structures), laws, or political situations. Because an organization’s management cannot directly control environmental constraints, these factors tend to be long-run rather than short-run.
Wal-Mart provides an excellent example of the influence of environmental constraints on organizational strategy. Wal-Mart first entered Europe in 1997 by purchasing a chain of German retail stores. Germany, unfortunately, is known for high labor costs, surly employees, and a variety of arcane restrictions about zoning, pricing, and operating hours. Wal-Mart had to discontinue its “Ten-Foot Rule” requiring employees to speak to customers within ten feet of them and encouraging employees to be customer friendly.
Some stores do not bag purchases because the practice is unheard of in Germany. But the company cannot refund customers the price difference on an item sold elsewhere for less because it is illegal in Germany. Nor can the associates receive Wal-Mart stock options because they are difficult and expensive to grant under German law.
