Japan's small and medium-sized business will increase spending on hi-tech products and services by more than five per cent to $67.5bn this year, analysts predict.

Cheaper communications technology such as VoIP will be one of the main factors behind the rise in spending, according to forecasts from US-based analyst firm AMI-Partners.

"Overall market size for IP-based communications is still embryonic in the Japanese small and medium business space, but IP-based Centrex services are rapidly replacing conventional PBX," said Yuki Uehara, a research analyst at AMI-Partners.

"Wireless IP phones integrated with IP communications are becoming relatively popular among medium businesses. Small businesses, on the other hand, are attracted by Windows Mobile-based smartphones."

AMI-Partners defines medium-sized businesses as those with 100 to 999 employees, and small businesses as those with up to 99 employees.

Japanese firms are increasingly opting for cheaper IP-based communications as low-cost, high-bandwidth internet connections become ubiquitous in the country.

The immediate and obvious benefits of VoIP provide an easy entry point for hi-tech products and services into more conservative firms, analysts believe.

"Small and medium businesses are often uncertain about the bottom-line benefits of sophisticated IT products and services available in the market today," said Uehara.

"However, it is relatively easier to justify the investment in IP communication services because the cost saving and efficiency are more tangible.

"Integration with mobile communication devices is likely to be the driver of IP communication services in the next few years."