Why AI’s Next Leap in Southeast Asia May Begin in Malaysia
Scaling in ASEAN isn’t plug-and-play. Here’s what works
By Thulasy Suppiah, Managing Partner of Suppiah & Partners
ASEAN Is the Next AI Frontier — with young digital natives exploding growth in data consumption, businesses surging cloud computing demand, and governments actively promoting digitalization. 40 percent of governments are already implementing national cloud adoption strategies. These trends are driving the region – with its 680 million population – to undergo rapid digital transformation. With demand rising for digital and data infrastructure, ASEAN has become a critical hub for technology, connectivity and data-driven growth. Although underdeveloped in terms of AI penetration, the World Economic Forum notes that this region is more interested in AI’s potential benefits and less concerned with its risks, reflecting a culture of acceptance and exploration. It also noted that strong government support and investment are fostering AI adoption and deployment, with several countries already developing their own national AI frameworks. At the same time, funding for research and development has increased, and regulatory sandboxes allow for experimentation.
What AI Firms Need to Scale in ASEAN — and Where They Struggle
In the first half of 2024 alone, more than USD30 billion (almost RM128 billion) was committed to building AI-ready data centers across Singapore, Thailand, and Malaysia; laying the foundation for accelerated computing, AI services and data growth. It has positioned the region for long-term success. Opportunities abound for language AI, logistics, fintech, and public sector applications. Many ASEAN countries are still in the “greenfield” stage of AI adoption, so early movers here will have an advantage.
However, it would be wrong to assume that one playbook works across all the borders. AI firms looking to expand in ASEAN should understand that each country has different laws, diverse data sovereignty baselines and no common AI standard. Expansion in this region will require planning, not brute force.
- Start by understanding unique local industry objectives
While ASEAN’s diverse user base provides for unique product market-fit opportunities, it also means that ICT providers must co-develop industry-specific solutions, strengthen ecosystem collaborations, and drive data-led sales and commercial strategies before businesses can unlock the full potential of their digital transformation efforts. Companies should not just push for technology adoption but align AI initiatives with core objectives of local businesses. They should identify specific challenges and deploy AI solutions strategically, for businesses can unlock new levels of efficiency, productivity and innovation. Success hinges on a strategic approaches, focused on creating tangible value.
- Pivoting and Adding Value Where There are Constraints
There is high friction entering certain countries in ASEAN. Firstly, the AI expertise pool is still limited and unequally distributed. There is a shortage of skilled personnel across the AI spectrum, from machine learning engineers, data scientists and professionals in algorithm development and those able to critically evaluate AI solutions.
Secondly, the investment cost of implementing AI solutions remains expensive, if considering changes and transitions from legacy applications. Current cost structures often reflect US, UK and Japan’s benchmarks while local AI companies tend to cater to clients in developed regions due to higher margins. This limits their resources for domestic projects. This means that some ASEAN nations will require subsidies to see return on investments (ROI).
Thirdly, typical Initial Setup Costs for AI Projects, especially large scale implementations involve substantial write-off costs, anywhere from USD5,000 to USD500,000 (RM21,274 to RM2.12 million) depending on tools, machine learning models, data security, and requirements for hardware. This leads some companies to favour smaller-scale data analytics solutions.
Fourth is the ethical concern of job displacement. While AI could increase productivity, it will also disrupt the workforce significantly. McKinsey estimates the loss of 23 million jobs to automation by 2030. New jobs will replace old jobs. How will the job market shape up? How will governments cope with unemployment? These considerations may delay decisions around AI projects.
Finally, legal uncertainty in some markets causes deployment paralysis. AI-specific regulations are either absent or under discussion in many ASEAN countries. Current regulations are mostly focused on the existing Personal Data Protection Act (PDPA) based on the European General Data Protection Regulation (GDPR) model. The localisation of these could take more than three years, with further delays during election cycles.
Malaysia vs. Singapore: Overflow Strategy in Action
EY ASEAN’s Joongshik Wang, remarked, “While enterprises (in Singapore) are keen to invest in emerging technologies, many businesses struggle to bridge the gap between pilot and full-scale implementation. This is often due to integration challenges, lack of clear return on investment (ROI), and the need for stronger ecosystem support to drive business value.” While Singapore boasts the most robust legal framework, it lacks in other areas.
Higher costs for utility, employment and land in Singapore, also make it less attractive for AI infra buildout. But on the other side of the straits, along with high quality and ubiquitous connectivity, Malaysia has larger tracts of land available, a cheaper workforce and the necessary infrastructure. It also has the physical space for data centers and manufacturing parks to scale.
While Singapore is a great environment for firms to set up their headquarters, Malaysia is an excellent cost-effective complement to Singapore’s HQ functions.
Why Malaysia? It’s ASEAN’s Shortcut for Getting Things Right
As ASEAN Chair, Malaysia is in an enviable position to lead the digital transformation of the region. Benefiting from its close proximity to Singapore, along with ample power and water resources, Johor (a state in Malaysia’s southern tip) has in recent years attracted major hyperscalers including Microsoft, Equinix and NTT; with Stack’s 220-megawatt facility being the latest. Other hyperscalers such as Amazon Web Services, Google, Alibaba, and Huawei also have a firm footing here.
Their presence is evidence of the trust they have in Malaysia’s resources and connectivity, high quality ports and cloud zones, and dependable infrastructure and logistics.
- Malaysia Actively Promotes and Welcomes AI Collaboration Initiatives
At a recent “Strengthening ASEAN-China Cooperation” forum, Chairman of the Centre of Regional Strategic Studies (CROSS), Lee Chean Chung said that Malaysia is well positioned to lead the regions digital transformation. “Malaysia’s strategic location, diverse and multilingual talent pool, robust infrastructure and collaborative mind-set make it a natural hub for AI development in the region.”
CROSS is already actively promoting AI policy development and facilitating regional cooperation. By encouraging policy frameworks supportive of responsible AI development and deployment, Malaysia is helping to shape a future where AI drives economic growth and fosters shared prosperity and equity.
Through CROSS, Malaysia has promoted forward looking AI policy development and cooperation. It has encouraged the establishment of joint ASEAN-China AI research centers, cross border innovation hubs and regional talent development programmes.
Malaysia is also visionary and focused, able to articulate its need for on the ground support to ensure a long term globally ready workforce. In this, Lee hoped ASEAN and China will collaborate to invest in science, technology, engineering and mathematics (STEM) education, launch AI fellowship programmes, and expand youth exchange initiatives.
- Malaysia’s Digital Government Is Laying Serious Groundwork
Beyond just policy and ideas, the Malaysian Government has set an example by driving its own AI adoption and readiness. Malaysia’s Digital Ministry has harnessed generative AI under its five year AI technology plan. Recently 445,000 public officers were given access to Google Workspace’s latest generative AI capabilities to scale up AI adoption across the civil service and enhance government service delivery. The first phase of the programme, AI at Work, was introduced in December 2024 alongside the launch of Malaysia’s National AI Office (NAIO). As the central authority to champion Malaysia’s AI agenda, the NAIO is a further show of Malaysia’s commitment to position the country as a regional leader in AI technology and applications.
- Malaysia’s Existing Industries create real AI demand
Malaysia’s manufacturing sector (with an expected GDP contribution of RM587.5 billion by 2030), has been actively integrating AI in automation, logistics and quality control.
For instance, SMART Modular Technologies (SMART), a global leader in specialty memory and storage solutions, uses AI-powered high-speed precision industrial robots at its Malaysian facility to identify and isolate manufacturing defects.
Another example is KVC, a leading B2B distributor of electrical products, solutions, and related services. It has leveraged IBM Robotic Process Automation (RPA) to enhance the finance department’s Procure-to-Pay processes, improving operational efficiency, reducing errors and lowering costs by automating key tasks such as invoice extraction, matching, and accurate payment processing; accelerating workflow and driving efficient financial management.
Similarly, the retail and food and beverage (F&B) sector are also using AI. From marketing to inventory management, and analyses of past sales to predict demand and seasonal trends more accurately, restaurants can now order just the right amount of stock to reduce waste and protect profit margins.
Some F&B businesses are even using AI to test new flavour combinations, cutting down on research and development (R&D) time.
Customer service in Malaysia has evolved too. Many online retailers like Zalora use AI chatbots to answer FAQs, and even suggest popular add-ons based on customer preferences.
Nevertheless many businesses, especially the Small and Medium Enterprises in Malaysia, struggle to bridge the gap between pilot and full scale implementation.
Malaysia’s Legal Framework Isn’t a Hurdle — it’s a Filter
Malaysia has been one of the first countries in the region to have adequate legal frameworks in place to regulate the use and misuse of internet technology and continues to draw up new laws accordingly.
The recently established Data Sharing Act 2025 establishes a legal framework for data sharing between government-to-government public sector agencies and between government agencies and businesses. It aims to improve government efficiency, enhance transparency, and ensure data security. The Act also seeks to protect sensitive and confidential information, strengthening data security through structured, and accountable data governance. It proves Malaysia’s recognition that data continues to drive decision-making and digital transformation, and its commitment to navigate this new digital regulatory environment effectively.
Malaysia was also among the first ASEAN nations to establish the Personal Data Protection Act (2010) to regulate the processing of personal data in commercial transactions by Data Users and protect the interests of Data Subjects.
The government has also issued the National Guidelines on AI Governance & Ethics (AIGE) which outlines the obligations of end users, policymakers and developers. Although not legally binding, it proposes seven core principles which are: Fairness; Reliability, Safety, and Control; Privacy and Security; Inclusiveness; Transparency; Accountability; and Pursuit of Human Benefit and Happiness.
While there is no dedicated AI law yet, an AI Bill is in the works. But Malaysia’s policy environment is made predictable and stable through its existing Local Government, Intellectual Property, Contracts and Employment laws.
Malaysia also has skilled local legal navigators present to help AI firms avoid missteps in interpretation and execution of Malaysia’s regulatory framework.
Conclusion: Malaysia Doesn’t Replace ASEAN — It Unlocks Its Pros:
Firms entering Malaysia gain operational clarity and regional access. It’s where complexity becomes manageable — and strategy beats speed.
As a start, Malaysia is definitely looking for firms able to deploy capable AI solutions with lower burn rates and faster iteration cycles. Those deploying affordable, efficient AI stacks (e.g. from China) can leapfrog into ASEAN from here. Chinese technology companies such as Baidu, Alibaba and Tencent have been active in developing open-source AI models for many years. Their strategy, supported by Chinese universities and the government, can be seen as an “open innovation” model aimed at accelerating research and development and leapfrogging past the US. The fact that high-quality open-weight Large Language Models (LLMs) are now available means that Malaysia can access them at far lower cost than before and can now run its own LLMs without having to transfer sensitive data to commercial third parties or foreign countries, giving it greater data autonomy.
- Success Requires a Local Partner and a Legal Firm to Navigate and Execute
Successfully setting up in Malaysia will also require a local partner, good legal counsel and a local IT firm for execution. As the regulatory environment is constantly in flux, legal firms with full understanding of local laws are a crucial first step for AI firms entering Malaysia to make vital decisions. With AI is already having an impact on everything from risk assessment and insurance underwriting to policies and claims processing, AI firms should look for attorneys who are also competent and current with the latest developments in AI and technology to help them find their firm footing in Malaysia, and beyond to ASEAN.
References
- Malaysia rolls out generative AI tool to 445,000 civil servants
- ASEAN Embraces AI, But Hurdles Remain
- Study finds Singapore businesses struggle with tech scaling
- Malaysia: Well-positioned to Lead ASEAN’s Digital and AI Innovation
- Why AI is Southeast Asia’s new engine for profitable growth
- The Latest F&B Trends in Malaysia for 2025 & Beyond
- US Hyperscaler Stack Enters Malaysia with 220MW Johor Campus
© 2025 Suppiah & Partners. All rights reserved. The contents of this newsletter are intended for informational purposes only and do not constitute legal advice.
