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 / Spring 2012 / Issue 66(originally published by Booz & Company)


The Innovativeness of Nations

INSEAD professor Soumitra Dutta’s Global Innovation Index helps show which nations are on the rise and which are not.

Why do some nations prosper while others struggle? Businesspeople, policymakers, and social scientists have sought to answer that question for centuries, starting as early as 1776, when Adam Smith published The Wealth of Nations. A closely related question is, Why are some nations more innovative than others? Innovation is increasingly seen as the key to unlocking competitive advantage, as much for countries as for companies.

Comparing innovation on a nation-by-nation basis, however, is fraught with difficulty, given the diversity of national business practices, economic structures, and financial and economic reporting conventions. Resolving these difficulties is the main objective of the Global Innovation Index (GII), a research project conducted by INSEAD in partnership with Alcatel-Lucent, Booz & Company, the Confederation of Indian Industry, and the World Intellectual Property Organization (a specialized agency of the United Nations). The research measures innovativeness for 125 economies. This year’s report (available at ranked Switzerland as the world’s most innovative nation, followed by Sweden, Singapore, Hong Kong (SAR), Finland, and Denmark — and the U.S., in seventh place.

The GII complements, at the country level, the work that Booz & Company’s own Global Innovation 1000 study has undertaken for the past seven years at the company level. (See “The Global Innovation 1000: Why Culture Is Key,” by Barry Jaruzelski, John Loehr, and Richard Holman, s+b, Winter 2011.) Soumitra Dutta, the study’s primary author, is the Roland Berger Chaired Professor of Business and Technology and the founder and academic director of INSEAD’s eLab, which focuses on the digital economy. His current research is on technology strategy and innovation at both the corporate and national policy levels. Dutta discussed some of the GII’s findings with strategy+business in September 2011.

S+B: What was the motivation for the Global Innovation Index?
We saw that there were significant changes under way in innovation, especially in the developing world, that weren’t being captured well by the traditional metrics. When you look at traditional measures of scientific capability, like the number of researchers divided by total population, for example, we realized that it’s not very accurate for many emerging economies where large segments of the population are not well educated, or are illiterate in many cases.

So we devised a model to better capture the holistic nature of innovations happening in both developed and emerging markets. We measure five kinds of inputs — institutions, human capital and research, infrastructure, market sophistication, and business sophistication — and two kinds of outputs: scientific and creative. We face many limitations in terms of data availability and methodologies, but we have taken great pains to make sure that we normalize variables in a way that is equitable to the conditions of both emerging and developed economies.

S+B: What are some of the trends that this year’s study reveals?
The study confirms the dramatic rise of China in recent years. China is a low-middle-income country, but in the latest ranking it moved into the 30 most innovative countries — to number 29 from number 43 the year before.

If you look regionally, one interesting finding is that East Asia’s innovativeness is rising rapidly. Indeed, East Asia is closing the gap with Europe significantly. We also see that the South Asian economies are struggling, and that on the whole they are very comparable to many African economies in terms of innovativeness. It shows that many of these economies have much more to achieve in the years ahead.

S+B: What about India, specifically?
India is slipping. This year it ranks number 62, compared to 56 in 2010, and 41 in 2009. We’re seeing a distinct relative slippage in innovation competitiveness and innovation successes.

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