Adoption of artificial intelligence (AI) in Southeast Asia is showing stronger momentum than the global average.

A new McKinsey study, which polled more than 2,000 respondents from companies worldwide, found that nearly half (46%) of Southeast Asian firms have moved beyond AI pilots, compared with 35% globally. According to the firm, this momentum stems from the region’s mobile-first consumer base, skilled talent, and local solution providers, which are creating fertile ground for rapid AI scaling.

The study, conducted in collaboration with the Singapore Economic Development Board (EDB) and Tech in Asia, also revealed that 8% of Southeast Asian companies have fully scaled AI initiatives, surpassing the global average of 6% and the Asia-Pacific (APAC) average, outside China and India, of just 2%.

However, the US remains ahead with 13% of firms fully scaling AI. This reflects the US’s advanced stage of AI deployment and its position as a pioneer in adopting cutting-edge technologies.

Singapore and Indonesia lead AI adoption

In Southeast Asia, Singapore and Indonesia are standing out as leaders in AI adoption, with 56% and 51% of respondents, respectively, reporting progress toward scaled adoption.

These countries benefit from a robust ecosystems of AI centers of excellences (CoEs), incubators and accelerators that nurture a growing pool of AI startups. Their national economic-development strategies further reinforce this momentum.

Singapore alone hosts more than 60 AI CoEs, including those of Alibaba Cloud, IBM, NVIDIA, and Oracle. SGInnovate, a government-owned innovation platform centered on the development of deeptech, develops deep tech talent, assists startups, and has invested in over 100 business-to-business (B2B) AI companies in industries ranging from marketing to healthcare.

Furthermore, the country’s National AI Strategy aims to develop and deploy AI solutions that deliver meaningful benefits to businesses, citizens, and for public good. A cornerstone of this strategy is the development of a pipeline of local AI talent across creators, practitioners, and users.

Indonesia, meanwhile, is driving AI adoption through a broader push toward industry digitalization via AI roadmaps and technology investments. A vibrant startup scene and a fast‑expanding digital economy, particularly in e-commerce, fintech, and software-as-a-service (SaaS), are further providing fertile ground for AI solutions that enhance customer experience and analytics.

According to some estimates, Indonesia accounts for about 20% of all of tech startups in ASEAN with nearly 1,800 startups, second only to Singapore, which holds around 44%, or more than 3,800 startups.

Drivers of the AI momentum in Southeast Asia

The McKinsey study highlights a number of factors driving the AI momentum in Southeast Asia. Firstly, more than half of the Southeast Asian executives polled cited the large, mobile-first consumer base, competitive costs for skilled AI talent, and the availability of regional AI solution providers as key drivers of adoption. In contrast, only about one in five respondents pointed to government incentives or fewer legacy system constraints as primary enablers. Collectively, these factors are creating a fertile environment for early AI scaling.

Furthermore, about half of Southeast Asian respondents believe that their use of AI is on par with or ahead of their global headquarters. This signals growing confidence and capability among regional teams.

Additionally, the report notes that lighter legacy burdens in Southeast Asia reduce the complexity and cost of upgrading core systems. With fewer entrenched legacy constraints, Southeast Asian organizations can modernize quicker, and deploy new technologies, including AI, with greater agility.

Large enterprises dominate AI usage

Although the use of AI in Southeast Asia spans companies of all sizes, larger enterprises lead AI maturity. Among companies with annual revenues above US$250 million, more than half (56%) reported being at the scaling or fully scaled stage, compared with 47% of medium-size firms, and 42% of smaller companies.

These findings show that larger firms have structural advantages when it comes to AI deployment, benefiting from greater data availability, more established digital infrastructure, and more resources to invest in scaling AI initiatives.

Industry-wise, technology, media, and telecommunications, and advanced industries dominate AI usage, with roughly six in ten (62%) companies in these sectors reporting scaling or having fully scaled their deployments. Other digitally intensive sectors, such as energy and materials, also show strong progress, with half of companies reporting AI application scaling.

In contrast, public sector, healthcare, and service-oriented industries remain in the early stages of usage. Nearly seven in ten companies (69%) in these sectors are still piloting or experimenting AI applications. This slower is likely due to more complex data environments, regulatory constraints, and limited access to AI-ready talent or infrastructure.

A booming AI ecosystem

Southeast Asia’s AI ecosystem has grown remarkably over the past years, now counting over 2,000 AI startups, according to a 2024 report by tech advisory firm Access Partnership. The figure positions the region competitively against other major AI markets including Germany with 2,508 AI startups, Japan with 2,216, and South Korea with 1,819.

Singapore, the region’s major business hub, ranks third in the Global AI Index 2024, a benchmark of national performance in the worldwide AI landscape. The city state is performing particularly well on AI development, research, infrastructure, and commercial deployment.

Featured image: Edited by Fintech News Singapore, based on images by End.ru99 and utaem2022 via Freepik