SOUTHERN CALIFORNIA ENTERPRISE : Golden Systems Finds Success Is in the Pricing : Manufacturing: The Simi Valley electronics firm’s cheaper labor costs have made the difference.
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, so price--not technical prowess--is all that matters in Golden Systems’ marketplace.
But Golden Systems may have an advantage in that it does all of its manufacturing in India, where labor costs are low and where the work force includes many well-educated and technically skilled people.
To keep growing, the 3-year-old company must make its product even cheaper than that of competitors, who are also busy cutting their costs.
It’s not easy. Even giant General Electric abandoned the market, partly because of difficulty in getting an edge on the competition, according to Mohan Mankikar, president of Santa Rosa, Calif.-based Micro-Tech Consultants.
Engineers in India are “a dime a dozen; they are galore all over the place,” said Vasisht Malhotra, a professor of international relations at USC and a specialist on India.
Jay Tandon, Golden Systems’ 43-year-old president and chief executive, is of Indian descent. He is also the younger brother of Jugi Tandon, who built Tandon Corp. into a highly successful PC maker in the 1980s. Tandon gave Golden Systems its start in 1991 by purchasing power supplies from the firm.
Golden Systems grew quickly, supplying larger firms. Sales increased 38% to $29.4 million in the fiscal year ended March 31.
Recent sales figures have been disappointing, but the company still appears to have a bright future, said James Reynolds, an analyst with Los Angeles-based Wedbush Morgan Securities, lead underwriter of Golden Systems public stock sale last November.
But others aren’t so sure. “If Golden Systems can do it, 50 other companies can do the same thing,” Mankikar said.
Indeed, Golden System’s use of cheap Indian labor is critical to its ability to keep costs a notch below those of its competitors.
Young Indian engineers hired by Golden Systems earn about $150 a month, while Golden Systems’ high-school-educated manual laborers earn about 40 cents an hour, said Jay Thomas, Golden Systems senior vice president and chief financial officer.
According to Reynolds, manual laborers in Taiwan, where many of Golden Systems’ rivals are based, can earn several times as much.
India’s desperate unemployment can lead to exploitation of workers by foreign manufacturers. But Mankikar, who has visited the 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 country’s standards, help feed a growing appetite for consumer products.
But production in India alone won’t guarantee Golden Systems’ success. The company’s price advantage may amount to only a few dollars on a $25 power supply, Thomas said. When service agreements and other factors are taken into account, Golden Systems’ margin narrows further, Mankikar added.
To keep besting its competition, Golden Systems must increase its production, Thomas said. The company is scrambling to open two new plants, one in Madras and the other in Sri Lanka.
The company produced 275,000 power supplies in its fiscal third-quarter 1994, and hopes to produce 950,000 units in the last quarter of 1995, said Ian Gilson, an industry analyst.
