Imports of electronic cash registers (ECR) and point of sale (PoS) terminals has become a lucrative business, especially over the last year, thanks to the acceptance of retail automation, implementation of GST and the government’s thrust on making India a digital economy. An analysis of whether it makes sense to import these products in volumes. And from which supply markets.

By Niladri S. Nath | October 2017 Issue | The Dollar Business

Growing up, you may remember walking to the local kirana store, where along with the comforting smell of spices and soaps you would be welcomed by the sight of a calculator and a meticulously handwritten bill. Not any more.

Welcome to digitisation. Today, retail stores and even small neighbourhood stores are moving towards electronic cash registers to tally up bills. Hand-written receipts are being replaced by itemised printed bills. These machines are also a familiar feature at most restaurants and smaller eateries where they are used to print cash receipts or tokens to manage orders. Electronic cash registers (ECRs) are steadily becoming a standard feature across all retail formats, and across tiers.

While ECRs are used for cash payments, with the growth of credit and debit card payments, ECRs with PoS terminals, the hand-held debit and credit card machines have also become quite ubiquitous. And since domestic manufacturing in this sector is lacklustre, rather non-existent, it is no surprise that imports of these machines have been on the rise, with China, Vietnam and Malaysia being the sourcing destinations of choice for importers. Together they fulfilled 98% of India’s demand for imported ECRs and PoS terminals in FY2017.

A quantum leap

Looking at the numbers, one can say without a doubt that last fiscal has proven to be quite the turning point for importers – in FY2017, India’s imports of ECRs registered a y-o-y growth of 288.20% .

Although importers are not expecting such a large-scale increase in the coming years, they are confident that the growth in imports will remain healthy and steady in the near future. “One shouldn’t expect such a gigantic uptick in imports next year. But, the growing adoption of ECRs and PoS terminals in the domestic retail market will keep the numbers strong in the future,” says D. Baskaramoorthy, Vice President – Sales & Services, Posiflex Technology India Pvt. Ltd., a PoS terminal manufacturing brand from Taiwan. “The supply of ECR and PoS terminals is mostly dependent on imports. So, the growth in retail will surely have a positive impact on the imports. In the last three years, we have been witnessing 25-30% growth in business. And, in FY2018, we expect a 35% y-o-y growth,” adds Baskaramoorthy.

Growth triggers

The question now is what triggered such a massive import influx and will the imports business still be worth the investment in the next five years? Demonetisation is said to be a major reason for the sudden rise in imports of PoS terminals.

One of the aims of demonetisation, as announced by the government in November 2016, was to promote a digital and cashless economy. As a result, PoS terminals became one of the tools necessary for retailers to keep up with the hi-tech mode of transactions. “The importers actually struck a deal with the banks to supply PoS terminals to the banks and imported them in large numbers,” says Bhaskar Venkatraman, Group CEO and Director of Millennium Retech Ventures India Pvt. Ltd., a Chennai-based importer of ECR and PoS terminals.

After demonetisation came the Goods and Services Tax (GST), which has made ECRs and PoS terminals more relevant than ever before. “To file a GST return, retailers must keep their accounts in order, making these devices even more indispensable,” explains Baskaramoorthy.

Sounds logical! However, the key factor which will drive domestic demand for ECR and PoS terminals going forward is the growth of the Indian retail sector, both the organised and unorganised retail segments, and the adoption of retail automation products by retailers. As per a 2016, Federation of Indian Chambers of Commerce and Industry (FICCI) and PwC report, the domestic retail sector in India is likely to double to $1.1-1.2 trillion by 2020 from $630 billion in 2015, growing at a CAGR of 12%.

The India Brand Equity Foundation (IBEF) estimates that the share of organised retail sector will grow to 24% in FY2020 from the 8% in FY2015. The projection indicates a high adoption rate of new systems, processes and technologies by Indian retailers. More specifically, the report also states that the transformation from manual accounting to machine-led systems will gain momentum. These numbers certainly indicate that importers of ECRs will continue ringing in profits in the near future.

"China-made ECRs are 20-30% cheaper than ECRs from other countries"

The dragon rules

At the global level, China holds a significant share of the exports pie. In CY2016, China accounted for 30% of the world’s exports of ECR, by value – followed by Vietnam with a 14% share. In India too China’s dominance is rather overwhelming, though Vietnam has been giving it a stiff competition of late. Although China shipped 50% of the total ECRs imported by India in FY2017, Vietnam continues to capture a significant share by fulfilling 37% of the import requirement.

Price is the only factor which is keeping China ahead of other sourcing destinations, feel importers. “Products from China are 20-30% cheaper compared to products from other countries,” says Mohit Kaushik, CEO of Swaggers Technology, a Delhi-based ECR importer whose business has been witnessing a dramatic growth because of GST.

However, while comparing the quality of imports from China and Vietnam, Baskaramoorthy says that companies from Vietnam and Taiwan focus on quality whereas the Chinese ones stick to the volume game. “The companies in Vietnam and Taiwan invest a lot on research and development. Hence, they can’t offer products at a lower price like the Chinese,” he adds.

In China, Guangzhou and Shenzhen are the leading sourcing destinations. Importers usually take trips to these cities to finalise the deals. A trip which they say is worth the costs involved.

Overall, importers say that importing these machines is usually challenge free, barring the usual procedure-related issues with Customs and issues related to efficiency at ports. GST (18% IGST) too has not been a major deterrent to the import of these machines.

Although large-scale importers are not facing any issue with Bureau of Indian Standards (BIS) certification, for medium and small-scale importers like Mumbai-based Rais Pardesi, Owner of Real PoS Technology, the cost of getting a BIS certification is a crucial factor. “The manufacturer and importer bear the cost of BIS certification equally. The actual cost of a BIS certification is Rs.45,000. However, if you hire a consultant to get the certification done, the cost goes up to Rs.1,20,000,” he explains.

In addition, according to Dinesh Bhatia, Director of Grandmaster Innovations Pvt. Ltd., importers usually face documentation related issues with manufacturers and exporters in China while applying for BIS certification. However, importers say that these challenges seem minor compared to the opportunities they offer.

Opportunities galore

The domestic market for ECRs and PoS terminals is maturing fast, says Venkatraman. “The acceptability of ECRs and PoS terminals has increased tremendously in the unorganised retail sector. Earlier, there was a lot of reluctance in using these machines amongst small retailers. They were under the impression that these devices were only for big retail houses. There was also a lack of effort on their part to understand the operations and utility of these devices. But things have changed for the better. We don’t have to educate them anymore, they now know about the benefits these machines can bring to their business,” he adds.

Interestingly, some importers are also importing various components of ECRs and assembling the machine in the country to cater to the local markets. They import completely knocked down (CKD) and semi-knocked down (SKD) units, mainly from China.

Big potential

Not only is the potential huge, the margins are equally attractive in this business. Importers make anywhere between 8% and 30% in profits, depending on the region and market competitiveness. Some importers also provide after-sales service to their clients.

Venkatraman feels the domestic ECR and PoS terminals market is growing at a healthy rate of 15-20%, year-on-year. “The traders who are still not initiated into retail automation are now upgrading themselves to ECRs to have better control over their businesses,” he adds. 

The domestic ECR and PoS terminal market is growing at a healthy rate of  15-20%, year-on-year.

In addition, the retailers who are ahead of the curve are switching to full-fledged PoS systems. Newer forms of PoS have also emerged in the market such as devices to convert any computer to a PoS or tablets with the software and facilities to send an electronic bill to the customers thereby saving on paper and space. The importers are confident of new and continued opportunities for both basic as well as sophisticated models.

With the absence of domestic manufacturing and the growth in popularity of credit and debit cards, importers feel that cashless India just might be their ticket to becoming cash-rich! Good idea.