Xero signals move into South Africa

Xero have held their first road shows in South Africa and look likely to launch their product in the region soon.  South African users are able to use a free trial or sign up but the functionality has not yet been fully developed.  The two roadshows were held in Cape Town and Johannesburg during May and while there does not yet seem to be an office, or many employees in the region there probably will be soon. Gary Turner lead the keynote speaking to more than 600 accounting and bookkeeping professionals. The event signals the next step as Xero( look to continue their  expansion across the globe following events in Asia earlier this year..

Prior to its entrance onto the South African market Xero carried out a survey across 400 small businesses in the country to discover attitudes and challenges in the region. This provides some interesting insights into the state of small business across the country.  The report highlights that 52% of South Africa’s GDP is generated by small businesses. This is not the only view though as the banking association of South Africa believes that “small and medium-sized enterprises make up 91% of formalised businesses, provide employment to about 60% of the labour force and total economic output accounts for roughly 34% of GDP”.

Where the percentage actually lies is less relevant, there is still a significant market for Xero to attack.  With only 8% of small businesses using cloud based accounting software, 51% of small businesses use desktop accounting tools that Xero will look to replace.

What is also interesting and plays to Xero’s strengths is that the smartphone market is not only increasing but also generated more than 66% of all internet traffic in the country according to a recent presentation by Kleiner Perkins Caufield & Byers’ (KPCB’s).

Is Xero ready for South Africa?

It is clear from the blog that Xero is working hard to deliver functionality for the South African market. As one of few remaining English speaking anglo-saxon countries it is an obvious opportunity.  Unfortunately Xero has not made clear whether it will be releasing the solution in Afrikaans. Xero’s lack of foreign language support is an issue that they will need to overcome. In fact South Africa has more people speaking Afrikaans as a first language than English.

In other ways it will be ready before the end of the year.  Support VAT is available now and the IFRS report templates for South African small business will be released soon.  Surprisingly billing in Rand will not be available until later in the year. No doubt Xero will also look to work with banks in the country to deliver automatic feeds into the accounting system.

The challenges remain the same.

In general the confidence in South Africa remains high with 58% of businesses expecting to grow over the next year. There are challenges though for these small business. Leaders, according to the survey are kept awake at night by several of these problems. The highest response was around the competitive threat at 27% with cash flow, cited by 20% as the second most popular thing that  concerns leaders. The latter issue plays into Xero’s hands as the availability of real time accounting through Xero on its cloud platform could deliver improvements to cash flow for many businesses.

What Xero will be hoping to accomplish by delivering the roadshow is the first step into South Africa with its software. The cloud based accounting system will be looking for bookkeeping and accountancy firms to partner with it as it seeks to enter the market.  With its impressive growth in other regions many will flock to its standard. Gary Turner, Xero co-founder and managing director for Xero in the Europe, Middle East and Africa region commented “Small businesses are significant economic drivers, improving their outlook lifts the entire economy. My advice to these businesses is to have a firm grasp on your finances and don’t be afraid to enlist the support of a strong collaborative network: family, advisor’s and mentors, an accountant or financial advisor. This is the formula for success.”

Conclusion

South Africa is not the obvious choice for a cloud solution to expand into. However the fact that a large proportion of the country is English speaking should see Xero gain market share before some of its competitors such as Sage Pastel produce cloud based solution in South Africa and enter the market. Xero will need to move quickly though having signalled their intent.

Correction: While Sage Pastel has not been moved fully to the cloud. Sage has offered a cloud based solution, Sage Live since 2014. This was brought to our attention by Sage, their full comment is below.

It is surprising that Xero has not yet launched into Europe. Xero has concentrated on expansion within English speaking locations, they still have room to grow, especially in the US and UK. However to continue the rate of expansion in the medium term they will need to produce a multi-lingual version.