To analyse the nature of R&D and HRD among Japanese SMEs, the Japan Team selected the following three firms from the manufacturing industry, depending upon size in terms of the number of employees, types of products, orientation toward innovation and so on. The three firms selected were Dynic, Kyokko Electrics (Kyokko for short) and Maeda Precision Manufacturing (Maeda for short). In the context of formal or informal R&D, Dynic and Kyokko own R&D centres, while Maeda does not, which is due to the size of firms. This study analyses their R&D and HRD organizational structures and implementations and identifies factors which determine the nature of their R&D and HRD. The factors promoting innovation extracted based on the in-depth interviews are (1) the size of firm, (2) types of product and production, (3) seeds of innovation, (4) attitude toward risk and (5) learning process. The common factor acting as the basis for the firms' R&D structure was identified as ISO9001 which three firms commonly introduced and applied. Their HRD are also different, which are due to (1) level of new employees and (2) the size of firm. The policy implications for further promotion of innovation are also discussed.