Xero PESTLE analysis

Xero is a public company that deals with cloud based accounting software such as payroll and bookkeeping systems. It helps small and medium businesses with accounting services. It offers accountants tools that aids in managing reports and final accounts production, client accounting for small businesses and personal financial management. It was founded in 2006 and started to expand in other countries in 2011. The company headquarters are in Wellington, New Zealand. Xero has expanded rapidly in the last few years and have reached the North American Market competing with leaders in domain specific software solution organizations.
Xero competitors include Freshbook, Intuit, Wave, Zoho. It is one of the major players in North America in terms of tax software market.

The growth rate in North America market as compared with other countries.
PESTLE analysis
PESTLE is an acronym for Political, Economic, Social-Culture, Technology, Legal and Environmental factors. PESTLE analysis presents information on the business operation challenges that are faced by Xero in the extensive macro environment apart from competitive forces.
This tool helps Xero to analyse how external factors influence its operations and how these factors can make the company more competitive in the market. The business does not have control over these factors. These facets also affect other players who offer accounting products and services.
Political factors
Political factors that affect xero include government policy and legislative changes that have impact on a country economy such like employment laws and tax. This factor affects the profitability of xero in North America market share.
Anti piracy policy has a positive and negative impact on xero as it operates its business in North America. North America countries expect xero to produce legal copies of their software. This protect the company intellectual property from being stolen by the competitors. Therefore, xero is able to market and maintain their brand image. On the other hand, the company can be sued by their competitors if they take their ideas and implement it. Xero research and design team needs to be more attractive and careful in order to avoid piracy.
Xero is a financial accounting company which provides accounting product as a service which requires it to observe various laws in regards to data and point of sales (POS) systems. This allows Xero to provide a package that businesses can access all business areas under one product. This is an opportunity for xero since they can come up with a system that is fully integrated or collaborate with the existing providers. Developing their own system will help the company to have fully control over their customers experience and make sure that the product quality is high which will helps to build their brand image and value.
North America countries such as US and Canada have an online system that allows businesses and individuals to file their tax returns online and manage key aspects of their relationship with government agencies such Canada Revenue Agencies (CRA) Australian Taxation Office (ATO) and Internal Revenue Service. Xero can integrate its main product with the government online platform which will help them to offer easy way to file tax and manage goods and services tax (GST).
Due to COVID-19 impact on business, United States and Canada government has deffered tax for corporates at no interest charges. Xero will be able to cater for other expenses using the money it could have used to pay their tax. The company rivals are also experiencing this relief and it needs to invest on things that will be beneficial in future in order to stay competitive even after this pandemic.
Economic factors
This factor helps to investigate the position of Xero limited in terms of economy. This has an explicit and an intended impact on the accomplishments of the business.
Xero Limited can use North America economic factors like growth rate, inflation and industry’s economic indicators such as Software and Services industry growth rate, consumer spending in order to forecast the growth trajectory for the finance industry nad the organisation.
In North America market, the number of subscribers increased by 21 percent to 215,000 in 2019 as compared to the previous year financial record. Its revenue rose by 34 percent. This financial year the number is expected to be constant or decrease due to the impact of COVID-19 on the global economy.

The economy of North America in recession stage and it will continue to be worse until the virus is succumbed. This has affected customers’ purchasing power which has led to decrease in xero sales. Their customers wants have shifted to purchase of most basic and more important product rather than subscribing to accounting software from Xero. Some customers have not renewed their subscriptions because they are focusing on basic needs. This has a negative impact on Xero revenue.
Unemployment rate in North America is low, therefore, the demand for highly skilled professional is high as compared to supply. There is competion for skilled professionals. The shortage of skilled affects business efficiency since it will be difficult to attract professionals and retaining them will be challenging. Xero needs to come up with a strategy that will help them to attract skilled and talented employees and increase the retention rate. The company can decide to higher the best employees and communicate their culture and rewards in order to attract highly skilled potential employees. They can increase the retention rate by offering ongoing education and clear peth for employees advancement.
COVID-19 has impacted negatively on exchange rate in New Zealand and North America. This has affected xero profits and their trade in North America
Social- culture factors
Xero social-culture factors have a direct reflection of the society that it operates in such as culture, beliefs, values, and attitude. Identifying impact of Social-Culture factors on Xero is important for their operation and the marketing aspect. This factor helps businesses to understand their customers lifestyle, level of education and beliefs in a society, type of business that their customers operate in and the stage of their businesses. This helps them to develop a product and create appealing marketing message that would communicate the intended message to the right customers.
The class distribution among the population in North America market is high. Therefore, Xero is able to promote their premium products to the public and their market focus is wide. North America has different cultural practices values with New Zealand. These culture and values plays a vital role on customer behaviour. Therefore, Xero needs to create a team of locals and establish a local partnership in order to understand the societal norms and attitudes and how they may change in future. This will help the company to be competitive since their marketing strategy will be inline with the cultural and values of their customers.
Online shopping has taken over around the globe. The use of social media and e-commerce has changed customers shopping behaviour. In order to stay competitive, Xero needs to understand their customers shopping behaviour and experience by analysing the difference in generation since young consumers have a high chance of purchasing online as compared to old customers.
The growth usage of mobile phone and social media platforms need to be considered when designing marketing and communication strategies.
Technological factors
Nowadays, the business environment is not static but dynamic due to rapid change in technology and competitive market. Every business must have clear knowledge of new technology and how it influences their business operation through opportunities or challenges. Challenges helps businesses to innovate new products or advance the existing ones.
The accounting industry has continously evolved over the past decades. This is due to innovation and use of technology. There is a consistent development and adjustment from use of traditional approach to use of technology which has made accounting easier for professionals and individuals.
Development in new technology results to new opportunities, new market and creates new goods and to customers and create threats in business environment. Growth in technology is shortening the life cycle of a product. More investment in Research and Development(R&D) aids companies in technological innovation. Companies are improving their businesses through IT by transforming to digital economy.
Internet usage has made it easier for Xero to sell their accounting software through online platforms. Customers are able to make purchase regardless of their location. They are able to select a software package from Software as a service (Saas).
The US cloud accounting software market is huge but its penetration rate is low as 25 percent as compared to New Zealand which is 50 percent. This is an opportunity for Xero to penetrate in this market and gain its market share before the market saturate.
The company has a great opportunity in Canada market since there is less than 10 percent of small businesses in North America who have adopted the use of cloud accounting services. Toronto is one of the most attractive cities for tech talent in North America. This creates an opportunity for Xero since there will be increase of the number of companies in the city who will requires Xero products and services. The company revenue and sales will increase.
It also creates a threat since other companies that offers cloud accounting software will enter in this market in order to gain their market share. This will create competition to Xero and will invest more in R&D in order to be ahead of their competitors.
The use of technology helps to automate most of the accounting activities which reduce or eliminate errors. Due to COVID-19 impact on businesses, some employers have opted to reduce the working hours of employees and others have sent employees home for a mandatory leave. Keeping records for these changes can be overwhelming. Xero can make this simple and automate businesses payroll changes by upgrading their payroll system.
Most customers have access to almost all social media platforms. This is due to growth and use of technology and Internet. It creates an opportunity for Xero to market their products online where they will be able to reach a large number of customers and no extra cost. The company can utilize this opportunity by developing creative social media campaigns online brand communities.
Legal factors
Legal environment and regulatory structure must be understood before entering to a new market by a business. Xero is expected to adhere to customers, employees and environmental protection standards.
Customer protection law in North America protects customers privacy and security. Xero must ensure that their customers data is secure.
The company needs to collaborate with the government agencies in North America in order to identify changes that will be possibly made in future and how they can impact their customers business and revise and redesign their products to suit these changes.
North America countries have a law that protects employees in terms of health and safety. Xero is required to provide a save working environment for their employees. The anti-discrimination law requires the company to create equal employment opportunity regardless of race, and disability. The company needs to develop human resource practices in every market in order to avoid cases of discrimination which can ruin the brand image of the organisation and they can reduce their chances of attracting professionals and talented employees.
Intellectual property law and regulations protects xero patents and valuable ideas. This helps the company to maintain its competitive advantage and strengthen its position in the market share. The company is not supposed to steal its rivals ideas or patent.
Environmental factors
There has been a continuous growth in environmental awareness and change in climatic conditions plays a big part in environmental analysis as an important part of PESTLE analysis. Countries have imposed environmental standards, laws and regulations which varies in different market.
Changes in weather and climatic conditions have an impact onbusiness efficiency. The cost of operations by Xero can increase due to extreme weather conditions. It can also affect consumers spending especially those that are mostly affected by climate change. Due to this, the company will be forced to redesign its products and the marketing strategies.
The use of eco-friendly products is growing and xero has taken an opportunity to adopt green business practices which has helped to win trust of stakeholders. Xero is helping many companies to reduce waste material by replacing the traditional accounting bookkeeping with digital bookkeeping. The company products is created, purchase online and used online. Due to this the company product does have waste materials which pollutes the environment.
Xero needs to understand how their competitors operates their business. This will help the company to acquire information on how they can remain competitive in the market and how they can gain a bigger portion of North America market.
Xero can develop other software such as procurement system, payroll system, and customer relationship management (CRM) since it is an opportunity for them. Most of North America countries market has not yet been saturated with use of cloud computing in the organisations, it is a great opportunity for the Xero to penetrate to this market and gain their market share.
Xero can take advantage of AI and machine learning automation in order to advance their products. This will ease their customers accounting work since it will be able to learn how businesses categorize their invoices.
PESTLE analysis is an important business tool that helps to determine the macro environment factors that affects a business. Businesses does not have control over these factors but they can look for opportunities to invest on and learn how they can turn challenges that are brought about by these factors to opportunities.
International market is crucial for business survival. Companies need to research and understand international market, in terms of political, economic, social-culture, technology, their legal requirements and legal factors. These factors influence xero strategic decisions.
Businesses operating in foreign market must adhere with the laws and regulations set by North America government. Understanding the competitive environment helps to identify and eliminate risks that is brought about by environmental factors.
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