Cost-effective automation future for Malaysian MSMEs: Adapt or transform?

Beyond the wage-productivity nexus, automation and digitalization can position MSMEs to face future trends

June 27, 2024

This blog is produced under UNDP Malaysia Accelerator Lab, authored by Wang Siyu (Intern); co-authored by Subash Jai Devaraj (Research and Writing Associate) and Dr. David Tan (Head of Exploration)

The Malaysian Government has been seeking to raise wages—increasing minimum wage and piloting a prospective wage policy—to alleviate poverty and enable retirement savings. However, increased wages pose a challenge to micro, small and medium enterprises (MSMEs), which tend to be labour intensive and run on small profit margins. With MSMEs employing almost half of Malaysia’s workforce (1), increasing their productivity and profitability is a critical piece of the wage puzzle. 

Government policy has encouraged automation and digitalization as a solution. In the Malaysia Robotic Roadmap 2030, Malaysia aims to raise robot density from the present 55 units per 10,000 workers to 195 units per 10,000 workers by 2030—more than double the baseline projection of 82 units per 10,000 workers (2).  Meanwhile, the Malaysian Investment Development Authority (MIDA) has set up automation capital incentives specifically for the service sector (3).  Specific allocations have been made for automation and digitalization MSMEs, including, RM 1 billion was allocated in bank schemes in Budget 2023 (4).  Will all this investment secure the future for employers and employees of MSMEs?  

Specific allocations have been made for automation and digitalization MSMEs.

Marvin Meyer / Unsplash
Increasing MSME’s Future-Readiness

Beyond the wage-productivity nexus, automation and digitalization can position MSMEs to face future trends – increasing resilience toward threats and positioning them to leverage opportunities, including: 

(i) Foreign labour disruptions

Malaysia has relied on low-skilled foreign workers to sustain labour-intensive business models. Now, sending countries are demanding increased protections for their workers. Meanwhile, multinational corporations are being held accountable for labour rights in their supply chains. Both trends will raise the cost of migrant labour. Meanwhile, the COVID-19 pandemic has demonstrated the vulnerabilities that many industries face when supply of foreign labour is disrupted. Adopting automation can reduce MSME vulnerability to future changes to migrant labour. 

(ii) Diversifying workforce

The labour force will shift as Malaysia’s population ages. Workers may want to work longer to stretch out limited retirement savings. More women may enter the workforce if Malaysia achieves its long-standing aim of raising the female labour force participation rate. Alternatively, prime age working adults may step out of the labour force to care for their aging parents. SMEs may find themselves at a disadvantage in integrating and supporting these evolving workforce demographics. Automation could serve as a crucial equalizer for SMEs, enabling them to offer work environments that are inclusive and adaptable to diverse needs.

(iii) Shifting global supply chains

Major shifts are taking place in global supply chains, due to increased emphasis on resilience and because of a trend towards ‘friend-shoring’ amid global tensions. Malaysian MSMEs that are able to navigate global supply chains can capitalize on these changes. However, increasing complexity of supply chains, now intertwined with digital solutions and e-commerce, demands agility and integration from participating MSMEs. Automated systems offer a solution by conserving resources and reducing costs, allowing the team to focus on more complex and creative responsibilities instead of handling routine documents that can be efficiently processed by reliable software tools which streamlines processes, increases the accuracy of data and ensures transparency. 

More women may enter the workforce if Malaysia achieves its long-standing aim of raising the female labour force participation rate.

UNDP Malaysia
Barriers and Way Forward

While adoption of automation and digital tools can prepare MSMEs for the future, there are systemic and structural barriers to investment in these tools: 

In the evolving landscape of Malaysian MSMEs, there are financial pressures compounded by factors such as the Capital Gains Tax (CGT) (5), that intersect with challenges posed by participation in intricate supply chains. Engagement in complex supply chains exposes these enterprises to risks associated with investing in capital, such as machinery, which may become obsolete due to shifts in demand. To address these intertwined challenges, the Malaysian government's provision of grants and loans becomes a pivotal remedy. By strategically deploying financial support and simultaneously fostering local ecosystems for specific industries, the government can empower MSMEs to navigate challenges, invest in innovation, and fortify their resilience, thereby promoting economic diversity and sustainable growth within the Malaysian context.

In the era of automation and digitalization, the knowledge and talent necessary for MSMEs to thrive are paramount. However, many Malaysian SMEs may face challenges in acquiring the skills needed to effectively utilize these tools. Remedies include the promotion of knowledge-sharing platforms, collaborative networks, and vocational training programs. By fostering an ecosystem that encourages the exchange of expertise, MSMEs can tap into a collective pool of knowledge. The government, in partnership with industry stakeholders and educational institutions, can champion initiatives that provide accessible training, ensuring that Malaysian SMEs are equipped with the digital literacy required for sustainable growth.

These barriers are not unique to Malaysian SMEs, and there are lessons to be learned from initiatives in other contexts. For example, a dedicated database scheduled for its debut in 2024, has been developed by the Robot Industrial Basic Technology Collaborative Innovation Partnership (ROBOCIP), which promises to open up automation access for small enterprises. This collaborative effort by prominent robot manufacturers will disseminate fundamental information on robot specifications, operations, and software, offered free of charge for smaller enterprises. By facilitating the sharing of information on robot operation and adjustments, the system aims to streamline the introduction process and simplify the selection of the most suitable equipment. By democratizing access to robotic technology for SMEs, this initiative could potentially reduce their cost of integrating automation by up to 60%, narrowing the productivity divide between Japan's smaller businesses and their larger counterparts (6)

A similar initiative is also seen in Hong Kong where major players in the office automation sector, such as Canon, are directing their efforts towards Hong Kong's 300,000 small and medium-sized enterprises (SMEs), offering a comprehensive suite of packaged hardware, software, and services to enhance efficiency and productivity within these businesses (7). Meanwhile, the UNDP Global Centre Singapore is working with the Monetary Authority of Singapore to develop unique digital identities for MSMEs, providing an ecosystem that strengthens confidence, transparency, and trust in digital transactions. These strategies could serve as a guidance in adopting automation and digitalization for the Malaysian context.

Many Malaysian SMEs may face challenges in acquiring the skills needed to effectively utilize these tools.

Amina Flik / Unsplash
Potential Futures

What might automation and digitalization of Malaysian MSMEs look like? Here are some possibilities:

1.    Strong financial support by the federal government creates a wave of automation and digitalization among MSMEs. However, because of regional disparities in know-how and capacity to adopt these tools, transformation of MSMEs is concentrated in urban centres and trade hubs. In contrast, MSMEs in less developed regions—particularly MSMEs in agriculture or other primary industries—remain stagnant. This widens geographical economic disparities in Malaysia.

2.    Widespread adoption of smart farming and automation in primary industries propel MSMEs to international competitiveness. Tailored solutions for MSMEs emerge through a comprehensive approach involving state-government initiatives, SME associations, cooperatives, and industry-specific consortia. State governments incentivize technology adoption and provide training, while SME associations and cooperatives foster collaboration, shared resources, and advocacy for favourable policies. Industry-specific consortia facilitate innovation, and financial support mechanisms, including technology financing programs and insurance, therein making technological advancements more accessible to MSMEs.

3.    As Malaysia actively pursues opportunities created by foreign reshoring and friend shoring policies, local MSMEs struggle to adapt. The domination of the market by large Government-Linked Companies and Multinational Corporations leads to a concentration of economic power in the hands of a few major players, resulting in wage stagnation or disparities, as negotiation power shifts towards employers. The business ecosystem’s attractiveness diminishes for local entrepreneurs, stifling innovation and diversity. Additionally, the increased reliance on foreign entities makes the Malaysian economy more susceptible to global economic fluctuations, affecting resilience and self-sustainability.

Widespread adoption of smart farming and automation in primary industries propel MSMEs to international competitiveness.

UNDP Malaysia

The evolving landscape of technological advancements and economic globalization presents a dual challenge and opportunity for Malaysia's MSMEs. While federal financial support and technological trends create avenues for growth, regional disparities and international competition threaten to exacerbate economic inequalities and stifle local enterprise. To navigate this future successfully, a holistic approach is imperative.

Malaysia must pursue comprehensive policies that not only drive digital transformation but also ensure its equitable distribution across regions and industries. This involves targeted interventions to uplift less developed areas, promoting inclusive technological advancements, and fortifying local MSMEs against global competition. Collaborative efforts between government bodies, urban and rural enterprises, and international and local players are essential to foster an environment where innovation and economic growth are shared by all. By embracing a balanced and inclusive strategy, Malaysia can harness the benefits of technological progress while safeguarding the resilience and diversity of its MSME sector in the global marketplace.


This is #3 of 6 blogs about Malaysia's future of climate and demographic shifts, ahead of the launch of an upcoming report, Transitioning Futures, Anticipating Change: Socioeconomic Futures of Malaysia’s Climate & Demographic Transition. Watch this space or follow us on social media for the report. 


  1. ‘Perusahaan Mikro, Kecil Dan Sederhana 2022’ by Department of Statistics Malaysia, page 24
  3.  ‘Guideline and Procedure for the Application of Automation Capital Allowance (Automation CA) For Services Sector – For Existing Company Only’ (effective since 1.1.2020 to 31.12.2023)
  4. Lampiran 1: Touchpoints Belanjawan 2023, page 72
  5. ‘SMEs disappointed with introduction of capital gains tax’ by S Birruntha (13 October 2023), Business Times: 
  6. ‘Japanese Industry Giants Team Up to Aid SMEs with Cost-Effective Robotics’ by Marcin Frackiewicz:
  7.  ‘SMEs get big boost from office automation giants’ by Bien Perez (3 September 2013):