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Published: February 28, 2012
 / Spring 2012 / Issue 66
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The Innovativeness of Nations

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

Photograph courtesy of INSEAD

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 www.globalinnovationindex.org) 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?
DUTTA: 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?
DUTTA: 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?
DUTTA: 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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By jeffreylinton
Why do some nations prosper while others struggle? #innovation
By Pradeep Goorha
India's potential has never been in doubt - at least not in last four decades. It has been commented upon in almost all international forums. The hard reality is that India seems intent of not realising that potential. The problem is India is more like a tangled ball of wool, and it hasn't been easy to grab the loose end. The governance is lost in its stated platitudes which often are at cross-puposes with the need of the day. Its socioeconomic initiatives are short-sighted and dysfunctional. There is lack of visionary leadership and political governance is rotten to its core. In such environment it is a marvel that some islands of excellence exist and perform meritoriously. I believe India is at crossroads and next three years will tell the world whether it will break ranks with his sister-countries and forge ahead or it will fall back into a subliminal existence.
By Dillip Das
A slightly deeper look at this and we would know the pocket of innovation ( group / region ) is reached when the said group or economy directly or indirectly has effected a transition from unskilled working to semi-skilled / skilled working, which means the group has brought in the priority, relevance and profitability to their actions/activities as a practices discipline. The question of when and how they did, could be exemplified for others to emulate provided the other's have reached a critical state of desire or need , for the same i.e to innovate and survive else perish.
By Kari Egge
Had expected more insights in how the NII is used,from whom and how data are collected and an analysis on how you think the NII will contribute to bring more focus on innovation in those countries that score low. The article was too short to provide the necessary insights on such issues and could have moved beyond the emergencing economies to e.g. take on a few other MICs in Africa that have an average of more than 7 per cent growth in GDP per annum. Namibia and South Africa are examples. How is their innovation approach and is it really innovations that cause their top of the world growth?
By Venkatesh V.C.
Innovation is lacking in India, China vis-a-vis US, Europe or Singapore because of rampant corruption and access to funds. China's rise in large measure can be attributed to its war on corruption. India's fall can be attributed to the rise in corruption. As long as there is rent seeking behavior demostrated by the government officials, entrepreneurism and the constant need to innovate will suffer. Bribery raises the entry barrier for innovators and prevents new entrants to enter and alter the industry. Just containing corruption in India will unleash a wave of entrepreneurism and thus ensure improvement in employment that is bound to increase innovation.
By Umesh Dhand
Moving beyond country related comments... The challenge is well articulated "Multinational firms face a challenge: to innovate by rapidly integrating their global knowledge with local relevance."
Whether MNCs originating from Europe, Asia or America, clearly this is the challenge. Would like to read about successes & setbacks on this challenge.
By Vishal Kale
First Things First... Dear Daniel, I appreciate your viewpoint. However, as regards Indian History, we are a fairly new as a nation-state. I say this because the concept of India as a nation only arose post-1857 after the british atrocities started unfolding. We were always one from a cultural perspective, but political boundaries separated us. It took the atrocities of an external people for us to unite. So it is quite natural that each state has different voices. A unitary structure is frankly not feasible in our nation, given that language, and culture change every 100 kms - no exaggeration there. Pure and simple fact!

Coming to the article, I have 2 significant take-aways: first, China's innovativeness ranking compared to India's. Despite a low innovation ranking, we are very highly placed - no 9, no less - in terms of income levels. We can surmise from this firstly, as correctly pointed out, that there is significant potential that remains to be tapped, and secondly that unless this potential is tapped there is real danger of the momentum slipping - in other words, we need to get our house in order to ensure sustainability.

The second take-away is pretty straight-forward - I quote " Companies have to recognize that many key innovations will be coming from markets where there are large numbers of people who are becoming consumers for the first time in their lives." Necessity is the mother of invention!
By Daniel Chang
India, best view them as a federation of nation in pot, it had different fragment of voices in every states, and had been under invest in her Human Capital. Still suffering from over democratic situation, it had never been stable since its separate from the British colonial.
By Daniel Chang
In reading this articles, I think the nation leaders had almost a direct impact on the nation innovativeness. In ASEAN, most nation can be on the level playing field due years of political instability and only over the last 20 years this nation begin to leverage on human capital. Malaysia is laggig due to race affirmative policies, meanwhile Indonesia is playing catch up after years of insufficient investment in their people education, Thailand had that opportunity but lack of political stability over the last 15 years to create that platform. Singapore been a city-state, is able to create that platform due its size and agility. Singapore only capital is their human capital.
By Bob Jacobson
I suspect that a good deal of the innovativeness credited to developing nations still has to do with how they deploy their labor and the conditions under which they organize and -- dare I say? -- exploit their labor. It's not that Western nations are a slouch in this regard: except for the social democratic nations, they too exploit their labor (as witness the forced deunionization and impoverishment of workers in the USA). But the developing nations seem to do it with greater panache -- and besides, what we in the West might call exploitation is to workers who have known only abject poverty for generations possibly a very good labor arrangement. Vast internal markets are a plus for innovative developing nations. Not to slight China, India, and Brazil, but their still large "armies of the unemployed" provide a constant engine of growth so long as the priceline of goods and services does not exceed the descending priceline for Western goods and services. In short, there is a great deal of fragility in all nations right now and innovation may be a reaction to this condition. Great while the balancing act can be maintained.
By Satya Banerji
Countries are not homogenous. Swiss dairy and watch industries have not shown the innovation capabilities of their healthcare kin. India may be slipping in some context, but this cannot apply to major IT corporations that buck all macro trends in their quarterly business results. Should we not move from a general index to steps that individual bodies can take to improve their innovation environments?