Manufacturing SMEs in Japan now face a difficult time. One of the important issues for them is to launch new products, but there are new problems. This paper aims to investigate a number of actual cases in Japan which show manufacturing SMEs' efforts of developing products based on more advanced technology or new business concepts and selling their products, to establish new footholds and the paths for growth in new markets. After carrying out around 30 detailed case studies between 1994 and 97, some findings are reported and their experiences discussed.

The result shows that SMEs' efforts are not always commercially viable. Their competitive edge is not dependent on distinguished technological innovations alone. Key issues for successful new product developments include: carefully organising the development process, thoroughly combining market needs and technological seeds; employing external resources, and developing bridging systems or sub-systems, in order to reduce the distance to the market and customers; as well as choosing saleable products and markets.

There appears to be a need to develop closer relationships with collaborating partners, or prime customers, in order to promote their competitive strengths and allow further developments. Closer relationships, however, carry risks, such as other parties' opportunistic behaviour or potential imitation by competitors. This raises the matter of how to protect their intellectual property and their 'masterly' competence and skills. In order to continue development or even survival, SMEs have to understand their market positions and conditions, organising systematic development processes, and enhancing more marketing efforts, which are often spontaneously based on their own experiences.

Very unfortunately, an once successful small manufacturing firm, which constitutes one of the cases examined in this paper, was reported to go bankrupt in November 1998. Nevertheless, its failure shows not only another typical story why a meteoric and growing SME faced a common barrier for its continuous growth and could not evade a tragic finale. It also suggests that the basic arguments in this paper are strongly supported by the reality.

*1　This paper was originally prepared for the presentation at the Institute for Small Business Affairs' 21st National Small Firms Policy and Research Conference on November 19, 1998 in Durham, England. Its second version was also presented at the Kingston Business School Research Seminar on February 8, 1999, in Kingston University, England.