Golden Systems’ Perpetual Price War : Technology: Low-cost Indian labor is key to the power supply firm’s success. But competition remains a threat.

Computer parts manufacturer Golden Systems Inc. has almost everything a young company could want--a price advantage, growing demand and cash to spend.

Everything, that is, except a unique product. What Golden Systems makes are power supplies--the small boxes that regulate the electric current for personal and portable computers. The devices are relatively simple to make, and so price--not technical prowess--is all that matters in Golden Systems’ marketplace. To keep growing, the 3-year-old company must make its inexpensive products even less so, and best a host of competitors trying to do the same.

It’s not easy. Even a giant like General Electric abandoned the market, partly because of difficulties in getting an edge on the competition, according to Mohan Mankikar, president of Santa Rosa-based Micro-Tech Consultants.

Golden Systems competes against much larger firms, including several Taiwanese companies and Hong Kong-based Astec (BSR), which has yearly sales of more than $300 million.

But Golden Systems may have a family advantage in its quest to keep costs down. Golden Systems’ president and chief executive officer is Jay Tandon, 43. Tandon is a member of a family from India, where Golden Systems does all its manufacturing, availing itself of some of the lowest-cost technically skilled labor in the world.

Jay Tandon is also the younger brother of Jugi Tandon, who built Tandon Corp. into a highly successful PC maker in the 1980s.

Golden Systems owes its start back in 1991 to its role as supplier to Tandon Corp. It swiftly grew into larger markets, though. Sales increased 38% to $29.4 million in the past fiscal year ended March 31, up from $21.3 million a year earlier.

Recent sales figures have not been as high as expected, but the company’s future still looks bright, said James Reynolds, analyst for Los Angeles-based Wedbush Morgan Securities, lead underwriter of Golden Systems’ public stock offering last November.

But others aren’t so sure. “If Golden Systems can do it, 50 other companies can do the same thing,” said consultant Mankikar, referring to the market the company competes in.

Indeed, Tandon’s use of cheap Indian labor is critical to the firm’s ability to keep costs a notch below those of its competitors.

Like its Third World peers, India longs for foreign currency. But unlike most, it boasts one of the best-educated pools of technical workers in the world.

Engineers in India are “a dime a dozen, they are galore all over the place,” said Vasisht Malhotra, a professor of international relations at the University of Southern California and a specialist in India. In Indian culture, “the most revered professions are medicine and engineering,” added Mankikar, himself an engineer from Bombay.

Young Indian engineers hired by Golden Systems earn about $150 per month, while Golden Systems’ high school-educated manual laborers, the vast majority of whom are women, earn about 40 cents an hour, Thomas said. According to Reynolds, manual laborers in Taiwan can earn several times as much.

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India’s desperate unemployment can lead to exploitation of workers by foreign manufacturers. But Mankikar, who has visited Golden Systems’ plant in Bombay, said many of the Indians who work there are firmly ensconced in the ranks of a privileged middle class.

Their salaries, large by the standards of the country, help feed a growing appetite for consumer products there. And India’s government is now pursuing an aggressive policy of opening the nation to increased foreign investment.

Despite this, manufacturing products for export in India is not easy. That’s where Jay Tandon’s roots come in. As a member of the Tandon family, whose success both in the U. S. and India has made it well-known, Jay Tandon is likely to have an easier time negotiating India’s labyrinthine bureaucracy than the average non-Indian investor, said Mankikar.

But India-based production alone won’t guarantee Golden Systems success.

To keep besting its competition, Golden Systems must increase its production, Thomas said. In addition to its plant in Bombay, Golden is scrambling to open two new plants, one in Madras and the other in Sri Lanka.

The company produced 275,000 power supplies in the third quarter of the 1994 fiscal year, and hopes to produce 950,000 units in the last quarter of 1995, said Ian Gilson, an industry analyst.

Some analysts find fault with Golden Systems’ heavy reliance on a few big customers, including Compaq Computer Corp. and IBM.

But Gilson said that in recent months, Golden Systems has actually turned away business from some of its largest customers in an attempt to curb its dependence and find other buyers.

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Additionally, the company is seeking to break into other power supply markets.

The firm is discussing possible deals with AT&T; and Hewlett-Packard Co. to produce power supplies for everything from cable television to telephone systems.

But even in those markets Golden Systems is likely to face stiff competition.

“Power supply is a strange business,” Mankikar said. “Entry into the marketplace is very easy. But growth is very difficult.”