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Despite the steady spread of information technology among smaller companies, firms are failing to utilize IT to expand their business and create new opportunities, according to a government report released Friday.

About 70 percent of small and medium-size companies were making use of IT as of August 2000, reflecting a positive attitude toward technology among smaller firms, according to the Fiscal 2001 White Paper on Small and Medium-Size Enterprises, approved by Cabinet the same day.

IT, however, is often used simply to exchange information within companies and with other companies. The use of IT has not reached the stage where it is expanding business by launching new services or acquiring new customers, according to the report compiled by the Ministry of Economy, Trade and Industry.

The annual report calls on smaller businesses to make further efforts to increase efficiency and improve corporate strength through IT.

The report also points to the difficulties faced by smaller businesses during the ongoing decade-long economic slump, as shown by the increase in bankruptcies of smaller businesses on a year-on-year basis.

The number of bankruptcies of enterprises with less than 100 million yen in capital increased about 22 percent from the previous year to 18,500 in fiscal 2000, according to the report.

Of these, about one-third were in the construction industry, which was hit by a decrease in public works projects. The high level of bankruptcies is likely to continue for the time being, according to a ministry official.

The report says the biggest challenge facing smaller firms is slackening demand as big companies become more selective in choosing subcontractors and consumer trends change.

The report also states that smaller firms tend to face a longer repayment period for debts and also have difficulty hiring engineers and other skilled workers.

As prospective business fields for smaller firms, the report cites nursing care and recycling because customer demands tend to vary in those fields and smaller companies can meet such fragmented needs.

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