The role of information communication and technology (ICT) as key factor to industries development in Japan is inevitable. The development of ICT through the u-Japan policy program has put Japan as leader in ICT utilization in the world. This study will explore functions and roles of ICT utilization for business, which is known as electronic commerce (e-commerce), in small medium enterprises (SMEs) in Japan. Field survey was conducted to study the development process of digital network in Japan and to identify the level of e-commerce that is most appropriate for various types of characteristics of SMEs in manufacturing industry. The failure and success in developing digital network, as well as the supporting and obstructing factors in implementing ICT or e-commerce in SMEs will be discussed. The paper shows that the most appropriate level of e-commerce utilization depends highly on readiness and capability of SMEs in adaptation and utilizing ICT. The paper also gives suggestions in how e-commerce can be adopted to be implemented in Indonesia as part of strategy to develop SMEs and what kind of policy is needed to support ICT implementation among SMEs. The result of this study hopefully can be used as basis for policy making in Indonesia particularly in incorporating ICT into urban and regional planning.