The backbone of Malaysia’s business landscape comprises SMEs, making up 98.5 per cent of all enterprises. SMEs have an influential contribution to Malaysia’s economy, acting as the nation’s next growth drivers, and attracting foreign investments to Malaysia’s SME market. The government in turn has also reinforced the competitiveness of the Malaysian SME market by introducing comprehensive initiatives to push the capital of Malaysia, Kuala Lumpur, into the ranks of the top 20 global startup hubs by 2030.

 Despite the government’s efforts to reinstate Malaysia as a country that is forefront of innovation and technology, SMEs still lag in digital adoption, not recognising the benefits and impact of digital processing. Malaysian companies have always been considered the late majority in the technological adoption life cycle. This is evident when 79% of companies in Malaysia are still lagging in digital agility.

Inexperience and the inability to adapt to new business models and operations pose a barrier to the adoption of digital agility. This article highlights some of the challenges Malaysian SMEs face in transitioning to a more digitally and technologically savvy business model.

Resource constraints

Due to the nature of the size of SMEs and their operational costs, SMEs tend to lack the necessary resources required to fully optimise their operational activities. This proves to be a significant barrier to digitalisation for SMEs as the investment needed to properly transition is high. SMEs lack several types of resources to be fully agile in the digital operating environment. These include but are not limited to:

• Financial resources: Many SMEs in Malaysia operate with limited financial resources. They may struggle to allocate funds for technology adoption due to competing priorities such as day-to-day operational expenses, inventory management, and marketing efforts. Without adequate capital, investing in new technologies can be perceived as financially risky or unfeasible. 40% of SMEs are forced to halt operations due to a lack of finance, causing a delay in adopting digitalisation processes. 

• Technological access: Access to technology can be uneven across different regions and industries in Malaysia. Rural areas and less-developed regions may have limited infrastructure and connectivity, making it difficult for SMEs located there to access advanced technologies. Additionally, SMEs in certain industries may face barriers in acquiring specialised technologies tailored to their sector-specific needs. 

With the lack of a foundation in technology, transitioning to a more digitalised approach requires extensive effort and a hefty price tag. Most SMEs are unable to afford the costs of implementing new technologies. Without a clear understanding of the long-term benefits and cost savings associated with technology adoption, SMEs may hesitate to invest.

• Lack of skilled workers: Another challenge is the availability of skilled workers to implement and manage technological innovations. SMEs may lack employees with the necessary technical expertise to assess, select, and integrate suitable technologies into their business processes. Hiring or training skilled personnel can be costly and time-consuming, particularly for smaller businesses with tight budgets and limited HR capabilities. Transitioning towards a more digitalised business model also requires time and the necessary knowledge to ensure that data migration will have a seamless experience.

Lack of knowledge of technological innovations

Understandably, as technology evolves, it shapes the future of business landscapes with digital agility and effective operational tasks causing SMEs that have previously relied on the teachings of their predecessors to fall behind in technological adoption. The overreliance on legacy systems poses a barrier to the transformation of operations. This is due to the reluctance and negligence of wanting to acknowledge the importance of technological innovations. There is an unwillingness to disrupt established routines and processes, even if it means missing out on potential improvements.

Despite the efforts of the Malaysian government, there is still a lack of awareness from SME owners on the potential benefits of digitalisation. Many SME owners may not fully understand how technological innovations can enhance their businesses’ efficiency, productivity, and competitiveness. This lack of awareness can stem from factors such as limited exposure to technology trends, insufficient access to information about available technologies, and a focus on day-to-day operational challenges rather than long-term strategic planning. Shortsightedness to achieve business goals has caused SMEs to be stuck in the past, employing older systems to minimalise change.

Additionally, there is a lack of demonstrated value causing SMEs to have a perceived complexity of adopting technological innovations. Unlike other countries, 86% of Malaysians seek affirmation of success based on word-of-mouth, influencing their decisions based on success stories as well as a historical succession of technological adoption. Without clear evidence of the return on investment and tangible benefits of technology adoption, SMEs may hesitate to take the plunge. This indirectly affects their perspective on digitalisation, assuming digital processes have high risks associated with it allowing only bigger companies to undertake the potential risks. 

Addressing these challenges requires proactive efforts to educate SME owners about the potential benefits of technology, demystify the process of technology adoption, and to showcase real-world examples of successful implementations. This could involve initiatives such as workshops, seminars, case studies, and industry collaborations aimed at raising awareness, building confidence, and fostering a culture of innovation among SMEs in Malaysia. SMEs can also look to cut down daily operating costs or seek temporary funding to digitalise their business, allowing them to operate at the most optimal level achieving maximum results with minimum spending.

In conclusion

Malaysian SMEs play a big part in shaping the future of the Malaysian business landscape. By first highlighting the main issues that plague SMEs and halt their progress to digitalisation, other parties affected will be able to come up with solutions customised to solve every problem. Therefore, SMEs should look to be proactive in creating preventative measures and have a clear outline for their company to avoid potential issues that may arise.