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 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.
S+B:
Many readers may find that surprising. I think there is a general perception
that India is a more innovative country than China.
DUTTA: Well, by
another measure we use — innovation efficiency, or the innovation outputs
divided by inputs, which discounts for the fact that different economies are at
different income levels — India ranks number nine in the world, meaning it’s
producing a high level of outputs compared to its level of innovation inputs.
But if you look at many of the measures of innovation input, such as
infrastructure and human capital issues, India doesn’t perform very well. This
is hurting its overall innovation ranking.
Clearly,
India has clusters of excellence that are creating a disproportionately high
level of innovation, but the mass of the country still has a lot of
underdeveloped potential.
The
innovation efficiency measure is interesting. If you look at the top 10, it
includes six of the most densely populated economies in the world. In addition
to India, there are Nigeria, China, Pakistan, Brazil, and Bangladesh. What this
tells us is that these countries have the potential to move forward
significantly in the future.
S+B:
What are some of the study’s other major messages?
DUTTA: One is that,
clearly, innovation has become global. If you look at the top 20 or 30 ranks,
you find economies that are successfully innovating from all parts of the
world. Singapore, Hong Kong, Israel, Korea, Japan, Estonia, Qatar, China — you
see a range of economies besides the usual suspects you might have from Europe
and North America.
S+B:
What about the implications for companies?
DUTTA: Corporations
have to have a much more global perspective about their innovation strategies.
It’s no longer enough to focus on only one market or region. And that has a
number of follow-on consequences and implications in terms of how one might
design innovation hubs, and how one might think of connecting them. You need to
create the right culture to support the integration of ideas from different
parts of the world. (See “How to Make a Region
Innovative,” by Ernest J. Wilson III, s+b, Spring 2012.)
Another
implication is that you see some emerging markets are moving very rapidly. The
fact that China has moved into the top 30 is not trivial, and as I mentioned,
many East Asian economies today have reached levels of innovation
competitiveness similar to those of European countries. What this means is that
European nations — and many other developed nations — will have to run hard to
maintain an edge.
And
this is especially significant in today’s climate of global financial crisis,
especially in Europe, where many sense a lack of leadership and are questioning
the commitment of Europe to innovation.
The low
rankings for South Asia should concern both corporate managers and
policymakers. The question this raises is, Will these economies be able to take
off like their neighboring East Asian economies, or will they get stuck in the
same way that many of the economies in Africa have gotten stuck in the last
several years? That question has implications both for the innovation
strategies of global companies and for the strategies that policymakers in
government might want to follow.
S+B:
Do you have any specific advice for multinationals that want to maintain an
edge in innovation?
DUTTA: 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. These new consumers have rising demands for products, and services
such as education and healthcare, but at very different price points.
Multinationals will have to innovate to satisfy these new demands in a
sustainable and scalable manner.
At the
same time, companies will be facing new competitors in these markets that may
have a better understanding of the local markets’ needs. And some of these new
competitors will soon be competing with the multinationals in global markets.
So multinational firms face a challenge: to innovate by rapidly integrating
their global knowledge with local relevance.
The whole
idea that innovations can come from different places, that innovation can
happen in different ways, and that it can move and travel in different
directions is something that companies will have to adapt to, and prepare
themselves for.
Rob Norton
strategy-business.com
Business & Investment Opportunities
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