This research examines the adoption of information technology in small and medium sized enterprises in Japan. SMEs comprise more than 99 percent of the total Japanese enterprises. These one million-plus businesses employ 72.7 percent of workers and account for more than 50 percent of the total value and almost 60 percent of the value added. SMEs are not only a crucial source of employment, but through extensive subcontracting networks forming the basis of the Japanese production system, they are also essential participants in global business practices. Furthermore, they constitute a critical segment of the Japanese innovation and economic systems. This investigation explores institutional changes in Japanese SMEs and identifies the current uses of information technology, factors driving these uses, and implications for the continuing evolution of SMEs. This research shows that Japanese SMEs are beginning to use information resources to enhance their operations and strategic relationships.