How Western Tech Companies Are Avoiding China
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Right now, Oracle can cut your company's cloud bill in half if you move to Oracle Cloud Infrastructure. Minimum financial commitment and other terms apply. Offer ends March 31st. See if you qualify at oracle.com slash wsjtech. oracle.com slash wsjtech. Welcome to Tech News Briefing. It's Wednesday, February 19th. I'm Charlotte Gartenberg for The Wall Street Journal. ♪

Meta's artificial intelligence-powered Ray-Bans are designed for the general public. We'll hear about why they're gaining traction with visually impaired customers. Then, a growing number of Western tech companies are saying ABC, anything but China, as U.S.-Chinese tensions rise and many multinationals shift production out of the country. But could this supply chain migration be permanent? Our China tech reporter and editor, Li Zilin, tells us what it means for both China and the U.S.

But first, Meta's AI Ray-Bans are appealing to a growing group of blind users. The smart specs retail for $300 and look, well, like regular Ray-Bans. But integrated into them is a camera, microphone, and speakers, as well as an AI assistant. While users say there are benefits when it comes to everyday tasks, some critics have safety concerns. Tom Greida, a tech editor at The Wall Street Journal, is here now with more.

So, Tom, what are people using these glasses for? Actually, a lot of people who are visually impaired, they're using them to see objects around them. You might use it to open your freezer or your fridge to help identify what's there so you don't need someone else to help you do that. They can identify the difference between regular Coke and Diet Coke simply by asking the assistant. And it uses the camera and the AI that's integrated to identify

identify what's in front of you. And this one woman, Alison Pomeroy, was talking about how she was using it for things like reading a menu. Oh, yeah, totally. You could read a menu. It can help you sort your laundry. Her in particular, she uses it to help her read books to her granddaughter, as well as getting everyday stuff, what time it is and what the temperature is outside by asking the assistant and it would just tell her.

Wow, that sounds like a potential game changer. But what are some of the safety concerns according to, you know, some of the critics? These glasses were not designed for medical use, right? This isn't like a medical device.

So experts warn that you just have to be careful with that. They could be distracting. You could be using them and you're walking and that could be dangerous because it takes up some of your brain power to be managing this thing. And also because it is powered by AI, AI is not perfect. So there could be errors or so-called hallucinations as they say in the AI world. And unfortunately, because your vision is impaired, you're

you wouldn't know that. And so it might give you wrong information and you're acting on it, which could be risky. There's certainly some skeptics who think that this needs more testing. This is more of a consumer product being used for more of a medical use. And what has Meta's response been to this new use of its glasses?

Meta told us that they tried to build products with accessibility in mind, but they did not predict the impact that these Ray-Bans would have on visually impaired people. Once they started to hear about this from those kinds of users and their supporters, they saw that this was a use case that was important and started to look into ways to improve the product.

Meta partnered with a company called Be My Eyes that has a free app that connects people with core vision through video calls using volunteers that can help them find what they need. What Meta did was integrate this app into the glasses itself.

so that people who are visually impaired can use the app through the glasses. So you would say, hey, Meta, whatever it is you're trying to do by using Be My Eyes, and the volunteer would see through the camera on the glasses and be telling you through the speakers on the glasses what is in front of you. So you could then be hands-free. You don't have to hold the phone anymore. For someone who's visually impaired, that's a significant advancement. That was Tom Greida, a tech editor at The Wall Street Journal. ♪

Coming up, Western tech companies are shifting production out of China, perhaps for good. How this could impact everything from AI servers to consumer electronics, after the break.

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Tensions between the U.S. and China are heating up, and that's leading tech companies to accelerate their decoupling with China. In the past, companies moved only the assembly of products outside the country. Now, businesses are shifting whole factories making components. WSJ China tech reporter and editor Lisa Lin spoke to TNB producer Julie Chang about this new anything-but-China trend among Western tech companies. Here's their conversation.

So Lisa, before companies moved only the assembly of products outside of China. Now it sounds like they're shifting whole factories there. Is that right? Yeah. So Julie, I think we're seeing two different things happening here with the supply chain shift from China. The first thing we're seeing is companies who are moving assembly of their

products outside. To give you some background, supply chains shifting from China isn't like a very immediate and very recent thing. Supply chains have been pretty much starting to migrate since the first Trump administration. And just after the pandemic, we saw a huge wave of companies moving out because China's COVID lockdowns had caused production snarls in a

What we're seeing this time around, though, that's hugely important is it's not just the assembly of products that are moving. It's the supply chain supporting that assembly that's also moving with it. So think about if you're just making electronics, think about stuff like sensors that are moving, power electronics, printed circuit boards. All these are the components that go into consumer electronics such as laptops.

So all these factories are moving out of China as well. And according to an analyst report, these moves pretty much make the relocation in supply chains away from China much more permanent and irreversible because of heavy upfront investment in machinery and parts. The second wave is really driven by geopolitical tension and friction.

Because of the US imposing export controls on advanced chips to China, what you're seeing is certain products that contain such chips cannot be made in China anymore. What are some of the challenges associated with moving factories out of China? There are multiple challenges associated with this. Think about it. When you're moving the supply chain away from China, you're pretty much redrawing your entire supply chain, a supply chain that in the past has worked very efficiently for you.

and at a very low cost. So the first thing you need to think about is when you move your factories, you need to find logistic networks to bring your components in and to deliver your products out. You need to find new suppliers that can supply you at that new location. You need to adjust to a new working culture.

So, you know, the challenges are multiple. Firstly, it's the cost of investment, the cost of moving, and then you have the additional things that rack up. If something goes wrong, you have production stoppages or delivery delays and all these add cost as well. So a lot of these companies are moving their factories to Southeast Asia. Why there?

So Southeast Asia is attractive for a few reasons. The biggest reason is the cost. Southeast Asia still isn't a very expensive place to manufacture in and it's pretty close to China. That's the other reason. Southeast Asia is great for assembly, but it still doesn't have a component ecosystem.

So a lot of the supply for the components still need to come from places like the south of China. So Southeast Asia has an itch because it's easy to ship components down from China to Southeast Asia. On top of that, you have lower energy costs, you have lower water costs, utility costs. So all that just makes Southeast Asia a very attractive region for manufacturers. And in your reporting, you found that many Chinese companies are also moving out of China and overseas. Why is that?

It's because when you move factories, you also want to move your suppliers to the vicinity of the factory. And the supplier ecosystem, like the one you have in China, isn't easily replicated outside of China. It took China decades to become this manufacturing powerhouse. And China isn't just known for making one particular widget. It

is known for making all sorts of variations of this particular widget. And you don't get that in Southeast Asia or Mexico or any of the other places that have become alternative manufacturing locations.

So a lot of the Western manufacturers, for lack of better suppliers in the new places they're producing in, they've asked the Chinese manufacturers to move out and keep supplying the components to them. Let me give you an example of a company that I came across. And there are many of these Chinese companies. You can see a lot of these statements in their filings to the stock exchange.

One example I found was this company called Eptolink Technology. It's a Chengdu-based maker of optical transceivers for data centers. It expanded its Thailand factory just to increase supplies to overseas customers. And many of their overseas customers are major tech companies such as Meta and AWS. And the idea was to increase supply to them to avoid any fallout from worsening geopolitical relations.

So companies moving factories out of China and to Southeast Asia. How big of a hit is this for China? It's hard to quantify the scale of the hit. But what's really important to note is that the Chinese economy, it's in its doldrums and it is actually suffering the worst economic growth in decades. And China's plan to get out of that slowdown is to rely on more manufacturing. And in this case, manufacturing is leaving China and taking jobs elsewhere.

that would have gone into China away to the new locations with them. All in all, it's not a good sign for China. And how big of a hit is this for American companies doing business with Chinese companies? Firstly, there's definitely the cost factor. I spoke to one supplier in Malaysia that supplies to chip equipment makers such as Applied Materials and LAMM.

And he says just getting his components and switching them from China to a different country will cost him as much as 15% more. The cost is the biggest thing. And the second thing, this just accelerates the decoupling between American companies and the Chinese manufacturing base.

That was WSJ China tech editor and reporter Lisa Lin speaking with TNB producer Julie Chang. And that's it for Tech News Briefing. Today's show was produced by Jess Jupiter and Julie Chang with supervising producer Catherine Milsop. I'm Charlotte Gartenberg for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.

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