This paper discusses transformation and business conversion as critical aspects that have historically characterized Japanese manufacturing small and medium-sized enterprises. The system of technology management and the method of business conversion are critically analyzed with a view that the insight gained in the two areas may offer practical implications for positive transfor-mation of similar enterprises in Kenya. Practical implications are with regard to the method of technological improvement, capability accumulation through production clusters, and industrial organization typified by intense networking at both inter-firm and firm-government levels initiated by national and local government agencies responsible for SMEs development in Japan.