AI in Southeast Asian and Indian SMEs: Beyond the Hype to Intelligent Growth

Artificial Intelligence (AI) has rapidly transitioned from a futuristic concept to a critical business tool reshaping operations and strategy for small and medium-sized enterprises (SMEs) in Southeast Asia and India. SMEs account for over 97% of businesses in Southeast Asia and constitute a vital segment of India’s economy, contributing significantly to employment and GDP. Across both regions, these firms are increasingly exploring AI to enhance customer experience, streamline operations, and drive smarter marketing strategies. However, amid this surge, many CEOs and CXOs are adopting AI driven more by trend than strategic necessity, often without clarity on where it can truly add value. This has created a “hype-driven herd” mentality that risks misaligned investments and missed opportunities.

The Growing Importance of AI for SMEs

The imperative to adopt AI is not merely fashionable. Today’s customers expect personalized interactions, rapid responses, and seamless engagement, areas where AI excels. For resource-constrained SMEs, AI offers scalable solutions to meet these expectations efficiently.

• Customer Support at Scale: AI assistants can now handle FAQs, booking processes, and even personalized product recommendations. For instance, a Singapore-based café chain leverages AI to manage 80% of its reservations, freeing staff to focus on the in-person customer experience. However, excessive reliance on AI can backfire. Non-tech-savvy customers often struggle with automated call lines, WhatsApp chatbots, or complex self-service portals, leading to frustration and dissatisfaction. SMEs must ensure a human escalation option is always accessible to maintain trust and inclusivity.
• Personalization and Sales Uplift: AI enables SMEs to segment customers, suggest product bundles and deliver targeted promotions. An Indonesian e-commerce startup using AI for product recommendations reported a 25% increase in average basket size. With 63% of customers likely to abandon brands that fail to personalize communications, AI-driven personalization is critical, but it must complement, not replace, human engagement, particularly in after-sales support.
• Operational Efficiency: AI automates repetitive tasks such as invoicing, scheduling, and social media management, freeing teams for strategic priorities. Yet over-automation can diminish the human connection that has long underpinned customer loyalty. Transparency about AI’s role reassures both employees and clients, showing that technology supports rather than substitutes human judgment.

The CEO/CXO Dilemma: Hype or Strategy?

While AI adoption grows, a significant number of executives pursue it without strategic intent. Many boardroom discussions revolve around “we need AI” rather than identifying critical areas where AI can deliver tangible value. This leads to scattered pilots, underutilized tools and inconsistent returns on investment.

IBM’s 2024 study revealed that 59% of Indian enterprises have actively deployed AI, the highest rate among surveyed countries. Yet, in Southeast Asia, while 85% of firms recognize AI’s potential, only 23% achieve transformative impact. Furthermore, 64% of Indian CEOs report realizing value from generative AI beyond cost reduction, indicating a shift toward strategic, high-value applications. Despite these gains, many leaders still struggle to integrate AI into core business processes effectively, highlighting the gap between adoption and meaningful utilization.

Agentic AI: A Strategic Leap

Emerging agentic AI represents the next frontier for SMEs. Unlike traditional AI, which relies heavily on human input, agentic AI autonomously sets goals, makes decisions and adapts to dynamic environments. This capability allows SMEs to scale operations efficiently, enhance decision-making and deliver superior customer service without proportional increases in human resources.

However, the effectiveness of agentic AI depends on high-quality data, robust governance frameworks, and clear alignment with business objectives. Poor data quality or misaligned goals can significantly undermine outcomes. Additionally, an over-reliance on agentic AI without human oversight can alienate customers, particularly those who value human interaction for complex queries or after-sales support. Successful SMEs blend agentic AI with accessible human guidance, ensuring technology enhances rather than diminishes the customer experience.

Practical Steps for SMEs

To derive maximum value from AI while maintaining human touchpoints, SMEs in Southeast Asia and India should adopt a structured, phased approach:

1. Identify Clear Objectives: Focus on high-impact tasks like customer support, email automation or predictive analytics while considering human touchpoints for sensitive interactions.
2. Pilot Small, Scale Gradually: Test AI in a single function, measure results and refine implementation before full-scale deployment.
3. Invest in Data Quality: Ensure data is accurate, clean and relevant especially for agentic AI applications.
4. Develop AI Literacy: Equip leadership and staff with skills to understand AI capabilities, limitations and ethical considerations.
5. Establish Governance Frameworks: Implement policies for monitoring AI usage, maintaining ethical standards and ensuring compliance.

A Malaysian fintech company illustrates best practice by using AI for credit assessments while disclosing that every decision undergoes human review. This balance of automation and human oversight builds trust and ensures operational efficiency.

Moving from Hype to Strategic Growth

AI is not a cure-all; it becomes transformative only when aligned with business objectives, strategic planning, and careful governance. SMEs must resist blindly following trends and instead focus on where AI creates measurable value. Strategic integration of AI particularly agentic AI allows businesses to automate intelligently, personalize interactions and enhance operational efficiency while keeping human judgment central.

For Southeast Asian and Indian SMEs, the key advantage lies in leveraging AI as a tool to complement human intelligence rather than replace it. Maintaining accessible human support ensures inclusivity, strengthens trust, and preserves long-standing customer relationships. By combining thoughtful adoption, governance and human oversight, SMEs can move beyond hype-driven experimentation to achieve sustainable growth, operational resilience and stronger customer loyalty. AI, when deployed strategically and responsibly, becomes not just a technology investment but a driver of intelligent, scalable growth.