Despite a generally favorable policy landscape and widely available AI tools, Malaysia’s small and mediumsized enterprises (SMEs) persistently have low adoption of AI technology. This study aims to explore the frictions around this tension by interviewing 20 leaders in the manufacturing, technology, and professional services sectors. Findings reveal that the constraints are more cognitive and cultural rather than technological or financial, knowledge deficits, collectively termed “AI illiteracy”, and organizational inertia far outweigh the resource constraints. The most effective adoption enablers were localized training initiatives and an “AI-first” leadership mindset, not large-scale infrastructure investments. Value creation was primarily operational efficiency, speed, and quality, while strategic innovation remained unrealized. Through incorporating a human capital factor, this study reported that workforce literacy is a more significant factor in AI adoption than capital investment. Policymakers should shift from infrastructure subsidies to capability grants, while SME leaders should treat employees’ up skilling as a prerequisite, not an afterthought for AI procurement.

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M. Falahat, Q. Y. Thong, M. Raman and D. Kaur “Qualitative Study of Organizational and Behavioral Barriers to AI Adoption among Malaysian SMEs”, International Journal of Technology and Engineering Studies, vol. 11, pp. 18-27, 2025.