Role of Generative AI in Small and Medium Enterprises: Opportunities & Challenges

Abstract

Small and Medium Enterprises (SMEs) are essential contributors to global economic growth, innovation, and employment, yet they face unique barriers in their digital transformation journeys. The emergence of generative artificial intelligence (AI) presents a significant opportunity for SMEs to enhance productivity, strengthen customer engagement, and build competitive advantage. Applications of AI in areas such as process automation, predictive analytics, and personalised services offer potential for innovation and long-term growth. However, adoption remains limited due to persistent challenges, including high implementation costs, shortage of technical expertise, organisational resistance to change, and cybersecurity vulnerabilities. This paper synthesises findings from recent studies (2022–2025) to examine both the opportunities and challenges associated with AI integration in SMEs. The review highlights that while awareness of AI technologies is rising, practical implementation is slow, indicating a critical awareness–adoption gap. To bridge this divide, SMEs must adopt phased and strategic approaches, supported by employee training, enabling policy incentives, and human-centred AI practices that balance technological potential with ethical considerations.