It’s easy to get lost in the hype surrounding artificial intelligence (AI), but Malaysia is taking a distinctly pragmatic approach by focusing its AI strategy on small to medium enterprises that make up the backbone of its economy.

Mimos Bhd, Malaysia’s leading government technology provider, alongside Microsoft, recently revealed that they are setting up a Centre of AI For Future Industry, aimed specifically at SMEs to learn about AI and the Internet of Things.

“We want SMEs to adopt (the) latest technologies in the face of Industry Revolution 4.0 and one of the key elements is AI,” says MIMOS chief technology officer Thillai Raj. “Companies who want to conduct research and technology development could not do so as cost is quite high and moreover, there are not many capable AI technology companies in Malaysia.”

“Hence, MIMOS will develop the infrastructure using Microsoft technology to enable SMEs and young entrepreneurs to adopt AI in their business.”

The projections for how these new big data, machine learning (ML) and automation capabilities will transform countries, companies and societies are startling. By 2021, AI will allow the rate of innovation to almost double and increase productivity improvements by 60% in Malaysia, according to a study from Microsoft and IDC Asia/Pacific. And previously published MGI research estimates that currently demonstrated technologies have the potential to automate 51% of the work activities in Malaysia.

The focus on building up SME’s AI capabilities is a smart move by the Malaysian government as they account for 98.5% of Malaysian businesses and contribute 36.6% of the country’s GDP.

Malaysia has made “promising early signs” in AI adoption, according to a McKinsey report on Artificial Intelligence and Southeast Asia’s Future. The country is the second most prolific contributor of AI-related papers within Southeast Asia. Since 1985, the country has produced 8416 publications, which make up almost 34% of the total for the region.

Hazlina Selamat, director of the Centre for Artificial Intelligence & Robotics (CAIRO) at the Universiti Teknologi Malaysia, which has overseen several AI application pilots, agrees that Malaysia’s focus has to be on the country’s core sectors.

“AI and robotics firms in Malaysia need to focus on technologies for specific local applications (such as palm oil or fisheries) and affordable technologies for local and regional industries,” she says.

Yet certain challenges still stand in the way of Malaysia’s AI ambitions, such as the lack of talent. According to a survey conducted by MIT Technological Review on Asia’s AI agenda, some 47% of Malaysian respondents said that the shortage of internal talent was the biggest challenge to deploy AI in their company.

This is by no means a Malaysia-centric problem, however, as respondents from almost every other country in Asia from Indonesia to Singapore have also singled out the lack of talent as their biggest challenge. The Centre of AI for Future Industry is definitely a great start to SME’s AI education. But the imperative also lies with Malaysia’s SMEs to take up these opportunities, or risk being side-lined by bigger, cheaper and more tech-savvy competitors.