Malaysian SMEs are embracing AI at an impressive speed, but a new report by Xero suggests this enthusiasm masks a deeper uncertainty that could hinder long-term progress. The study, Building a Future-Ready Economy: Examining AI Readiness and Adoption Among Malaysia’s MSMEs, describes this divide between optimism and confidence as a widening “confidence gap.”
According to the report, an overwhelming 81 per cent of Malaysian SMEs surveyed have already adopted some form of AI. Many see the tech as an essential part of future business operations, with 77 per cent believing AI will be standard practice by 2030. Another 75 per cent say AI will be beneficial to their business.
For now, most Malaysian SMEs are prioritising practical, short-term gains. The top expected benefits of AI include increased efficiency (63 per cent), cost savings (52 per cent) and improved employee productivity (48 per cent). As one business owner quoted in the report put it, companies are drawn to AI tools that “solve today’s problems before tomorrow’s ambitions.” Only 47 per cent associate AI with driving innovation, while a mere 33 per cent see it as a means for competitive differentiation.
Many firms are starting small, experimenting with accessible tools such as general-purpose conversational AI (55 per cent) and creative generative AI tools (38 per cent). These early steps suggest that Malaysian SMEs are primarily utilising AI for routine tasks rather than integrating it deeply into their core operations.
Yet the report’s central finding is that this enthusiasm is not matched by strategic confidence.
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Although adoption is high, 82 per cent of respondents say they need more education before they can implement AI with certainty. Only 56 per cent say they are familiar with business-relevant use cases, and 61 per cent admit they are overwhelmed by the sheer number of AI solutions and tools on the market.
This hesitancy results in what the study refers to as low intentionality—SMEs recognise the need to use AI, but many are uncertain about how to utilise it effectively. One respondent admitted that while AI tools are helpful for daily tasks, “trusting the technology with bigger decisions still feels risky.”
That lack of trust is one of the most significant barriers highlighted in the report. Data privacy and security top the list of concerns at 59 per cent, followed by fears of over-dependency on AI (51 per cent). Nearly four in 10 worry about the accuracy or quality of AI outputs, while 38 per cent point to ethical or plagiarism-related issues.
This uncertainty is reflected in the sharply divided attitudes toward AI-led decision-making. SMEs are split three ways: 33 per cent trust AI to make critical business decisions, 33 per cent do not trust it, and the remaining third remain neutral. According to the report, such indecision limits the value Malaysian SMEs can ultimately extract from AI.
Governance is another stumbling block. Among SMEs that have already adopted AI, 30 per cent have no policies or guidelines in place to govern its use. Without structured rules, many businesses are reluctant to expand their reliance on the technology. As the report notes, trust and responsible use are still “underdeveloped pillars” in Malaysia’s AI landscape.
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Interestingly, cost is no longer the main obstacle to adoption. Instead, SMEs emphasise knowledge and guidance as their top priorities. When asked what would help them adopt AI more confidently, 61 per cent cited training and education, followed by access to technology (52 per cent) and advisory or consulting support (50 per cent). Financial assistance ranked far lower, with just 37 per cent saying grants or subsidies would make a significant difference.
This shift highlights a broader concern that businesses do not simply need more tools; they require the expertise to deploy them effectively.
The majority of SMEs also want stronger oversight. Nearly 68 per cent believe authorities should play a more active role in regulating AI in business, signalling a desire for structured safeguards and clearer national standards.
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Image Credit: Nicholas Chester-Adams on Unsplash
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