Artificial Intelligence Adoption in Malaysian SMEs: When to Optimise and When to Transform Business Models?

Abstract

Artificial Intelligence (AI) has become an essential driver of innovation, operational efficiency, and competitive advantage in business settings. Despite national efforts to promote digitalisation, its adoption among small and medium-sized enterprises (SMEs) in Malaysia remains limited and inconsistent. One of the core challenges lies in deciding whether to deploy AI for optimising existing processes or to leverage it for broader transformation in business models and value delivery. This study explores how Malaysian SMEs approach this strategic decision through a qualitative methodology involving ten in-depth interviews with owners and managers from four key sectors: retail, education and skills training, home-based food services, and personal health services. The findings show that AI is primarily used for operational convenience, such as automating scheduling, responding to customer queries, and content generation. These decisions were often shaped by peer influence, affordability, and perceived usefulness, rather than formal planning or strategic foresight. Notably, businesses in the education sector displayed greater willingness to explore AI for service innovation and personalised learning delivery, reflecting a higher degree of digital openness. Sectoral differences, owner mindsets, and contextual readiness significantly shaped AI adoption patterns. The study concludes that while AI optimisation remains the dominant approach among Malaysian SMEs, there is a growing awareness and readiness for transformation, signalling the need for policy frameworks and digital support systems that are contextually responsive and practically aligned with SME realities.