Xero's Shaun Burke sees "massive potential" for sales growth among the millions of small and medium-sized businesses in ''English-speaking'' southeast Asia, provided the cloud-based accounting firm can wean them off Excel and hand-written ledgers. In Singapore alone, where Asia sales director Burke has been stationed for the past three months at Xero's first base in the region, some 30,000 new SMEs are registered each year. But Xero's penetration in Asia, where it is targeting Singapore, Hong Kong, Malaysia and the Philippines, among others, is tiny. It's included in "rest of the world'', or the company's "new markets" outside its core markets of Australia, New Zealand, the UK and the US. ''Rest of the world'' accounted for just 3.4 percent of subscribers as at March 31. While revenue for "rest of the world" jumped 93 percent to $9.4 million last year, this made up just 4.5 percent of total sales. "We've got a huge opportunity here in the tens of millions of SMEs across what we would consider English-speaking southeast Asia," Burke says. While mobile penetration is huge, with many people having two or three phones, "the adoption of cloud and integrated solutions at the business level is still something that's a little bit new here and I think from an accounting firm perspective, moving over to those technologies is a bit of a step change when some firms are still using Excel. "We're training people in accessing cloud solutions, integrated solutions and then accessing Xero as part of that." Unlike Xero's core markets, which have cultural similarities, Asia's cultures are diverse. The Asia Cloud Computing Association says the Asia Pacific (APAC) region's unique challenges to moving to the cloud include highly fragmented markets, diverse regulations, users with a preference for controlling their own IT assets, and essential technology such as broadband that "still have not yet fully penetrated some countries, inhibiting the growth of multi-tenant infrastructures." The ACCA's 2016 cloud readiness index ranks Hong Kong No. 1 overall in the APAC region on measures such as international connectivity, broadband quality and privacy, while Singapore ranked second, ahead of New Zealand and Australia. The region's biggest nations, China and India, lag behind the field, with low scores for connectivity, data-centre risk, privacy and freedom of information. Neither China nor India are near-term targets for Xero, with Burke saying they are "a larger step-change" beyond English-speaking southeast Asia although they are both "far too big to ignore" and "very interesting" for the company. Consultancy firm Bain & Co last year estimated that China's cloud computing market was worth US$1.5 billion in 2013 but was forecast to grow at an annual compound rate of 40-to-45 percent to reach US$20 billion by 2020.
"We've got a huge opportunity here in the tens of millions of SMEs across what we would consider English-speaking southeast Asia."Despite the success of consumer portals such as Alibaba, Baidu and Tencent, China had to overcome hurdles including slow broadband speeds and penetration, and "cultural and business norms hinder cloud adoption", such as "heightened awareness of the vulnerabilities of information security". The ACCA has previously identified China's so-called Great Firewall and the threat of theft of intellectual property as hurdles in the way of China's widespread adoption of cloud-based technologies. The Philippines ranks ninth on the ACCA index, being marked down for connectivity and cyber-security. In the Philippines, says Burke, "there's places there where they're crunching the books, they're hand-writing in the ledgers." Xero faces some old rivals in southeast Asia including Intuit, the California-based owner of the QuickBooks Online (QBO) accounting software, which estimates that 73 percent of its licence revenue will be from cloud-based subscriptions by fiscal 2017, and ASX-listed MYOB is a competitor too. Burke says Intuit's QBO has been moving its existing customers to the cloud. "In a funny, roundabout way they're probably doing a lot of marketing for the cloud proposition and then we come in as the better solution. It's kind of a double-edged sword for them, I imagine." Xero's shares have fallen 9 percent on the NZX this year and last traded at $17.99. First NZ Capital is forecasting the company will reach positive operating earnings in 2018. It has accounting firm partners in about 25 countries across the APAC region, including KPMG, Hong Kong's FastLane Pro, Moore Stephens and Mazars. Accounting firms and some direct customers straddle more than one country, says Burke. "Lots of businesses won't operate in Singapore alone, they'll have something here, something elsewhere, I mean you could drive to Malaysia in 20 minutes." Malaysia introduced GST in April last year and the country is still learning how to implement it. "So the bottom line is they've introduced a huge compliance aspect into the SME market that . . . will be great for Xero because, if GST is there and it's not 100 percent straightforward to implement for businesses that aren't used to it, what are you going to use? Xero." (Jane Shanahan travelled to Singapore courtesy of Singapore Airlines.)