Small and medium--sized enterprises (SMEs) in Malaysia are facing increasing growing pains as they attempt to attract and retain talent, due to digitalisation, experts have said.

Approximately 63 per cent of CEOs in Asia (including Malaysia), cited ‘critical skills shortages’ as one of the top people challenges their companies were facing, in the Aon Best Employers 2016 study, according to Prashant Chadha, managing director for Malaysia and Brunei at Aon Hewitt.

For SMEs – which, according to government data, make up 97 per cent of all businesses in Malaysia – getting the right talent is key, not least because it brings the “brand appeal” which will in turn attract even better employees in future.

The country has been a regional and global hub for hi-tech companies, with the majority of big names located in Penang. But the small army of SMEs supporting these businesses have been feeling the heat to “adapt and transform” – often driven by changes at the top levels of global companies and the advancement of ‘Industry 4.0’, said Chadha.

Last month, the government-run Malaysian Investment Development Authority (MIDA) urged SMEs to increase efficiency by turning to smart technologies, local media reports said. MIDA deputy CEO Datuk N Rajendran was quoted as saying: “Local companies, particularly those in the labour-intensive industries such as the furniture sector could benefit by embracing Industry 4.0 technologies. This includes smart manufacturing, robotics and the Industrial Internet of Things (IIOT) to significantly increase production volume and reduce dependency on foreign labour.”

The call to embrace technology followed the announcement that there would be a new National Policy on Industry 4.0, which is scheduled to be tabled in its Cabinet later this year, MIDA said in a recent statement. It said the new policy was part of “intensifying efforts” to create a conducive environment for Industry 4.0, through education, technology and innovation.

MIDA also urged companies to utilise the Automation Capital Allowance – a government scheme introduced in 2015 to help businesses go digital. At June 2017, only 41 applications have been approved by MIDA for this scheme, the note said.

A lack of local talent has led SMEs to depend on expats but technological improvements could help to cut down on the need to hire foreign workers. Companies should “review their current processes to create efficiencies through technological enhancements,” said Ridhima Khanduja, Aon Hewitt principal – talent, rewards & performance, Malaysia & Brunei.

Many companies have proactively initiated the process of “building the next generation of leaders and employees”, in response to growing digitalisation. This needs to be done through structured programmes around development and a culture change across the organisation “instead of just making future plans in executive board rooms,” Khanduja said.

Quoting from Aon’s 2016 Developing the Next Generation of Chief Human Resources Officers (CHROs) in South East Asia study, she said HR leaders needed to take up the role of being a ‘decision advisor’ where decision making is based on data and analytics – being a ‘digital champion’ – and leveraging technology to transform HR.