How can emerging economies climb the innovation rankings?

Increasingly, countries are searching for new sources of growth to maintain and improve living standards, create sustainable employment, diversify their industrial base and address critical challenges of growing and ageing populations, among many challenges.

The annual Global Innovation Index, or GII, prepared since 2007 by INSEAD and the World Intellectual Property Organization, or WIPO, measures innovation in a holistic way, scoring and ranking more than 140 countries. It combines an innovation input sub-index and an innovation output sub-index, plus an innovation efficiency ratio, to produce an overall Global Innovation Index.

According to the Global Innovation Index 2015, the developed countries occupy the upper echelons, that is, rankings 1-28 and this has remained stable since 2011. It is sometimes said of successful sporting teams that it is harder to get into the top spots than to get out and so it seems to be with the innovation rankings when it comes to the developed world.

For the positions 29-100 in the Global Innovation Index rankings, 47 countries are either upper middle income or lower middle income. Thus their middle income status aligns neatly with their middle innovation status.

Of the 47 middle income economies in the range 29-100, 11 are from Europe, seven are from South East Asia and Oceania, only three from Central and South Asia, 12 from Latin America and the Caribbean and nine from Northern Africa and Western Asia, including Middle East countries.

In our view, the relative absence of middle income Asia from the 29-100 group reflects the wide disparities within Asia in terms of stages of development. Thus the often touted view of the Asian Century might not fully apply when considering innovation (there are only six Asian economies in the high income category in the top 29 countries).

Our focus is on middle income economies, which include those emerging economies which are increasingly prioritising innovation. These countries have been investing in education and training, research and knowledge diffusion.

However, considerable challenges still remain in the areas of quality of education and research, the strength of the overall enabling environment they offer and development of links between various actors within innovation systems.

Once the domain of developed nations, emerging nations are increasingly investing in innovation, not just in the form of borrowing and adopting technologies from elsewhere, as postulated in traditional development models, but of developing their own unique advantages and addressing their particular challenges. It takes time, however, to build innovation capabilities as this is an area that places a premium on 'patient' investment.

Country focus

Drilling down further we focus on the following middle income economies for 2015: China, India, Malaysia, Vietnam, Jordan, Hungary, Colombia and Costa Rica.

The first five were chosen, because, according to the GII, for the period 2011-2014 they were 'innovation outperformers' due to:
  • • (a) their overall innovation scores relative to their gross domestic product, or GDP, being higher than for other economies in their group;
  • • (b) the fact that they outperformed their peers on a minimum of four innovation input or output pillars for two or more years.
Colombia and Costa Rica are included for geographic balance and because they outperformed the average ranking for their region while Hungary is included for a European perspective and also it has been described as a 'pillar outperformer', that is, performing better than peers in a least four of the input or output pillars or critical criteria during the period 2011-14.

What is observable from the 2015 results is that, with the obvious exception of Vietnam, there is reasonable consistency in ranking between 2014 and 2015.

Vietnam is a big mover, up 19 places to reach 52nd place in 2015. Vietnam has made significant improvements in its regulatory framework, institutions, integration into the Global Value Chain (including through Foreign Direct Investment and high technology imports) and labour productivity.

China and Malaysia are 'knocking on the door' of developed economy status in innovation terms. China and Malaysia have scores approximating high income countries in four pillars: market sophistication; business sophistication; human capital and research; and knowledge technology outputs. China and Malaysia have committed to long-term, large-scale investments and, importantly, to long-term vision as a way of bringing together the constituent elements in their economy and society, providing clear goals and aspirations.

Some countries such as India, Jordan and Costa Rica, despite being tagged as innovation outperformers due to their performance between 2011 and 2014, have fallen back in the rankings to a reasonably significant degree in 2015. In part, this reflects, in the case of India, a lack of data, methodological changes, the introduction of new categories and the emergence of new players.

Nonetheless, two points can be made. Firstly, rankings of this type can be volatile when looked at on a year on year basis. Secondly, to make large leaps on a sustained basis and enter the ranks of the developed countries will present very significant challenges.

Most countries have a significant gap between their innovation input sub-index ranking and their innovation output sub-index ranking, that is, their ranking on output is higher than on inputs, even if the raw scores do not reflect this to the same extent.

This suggests that there are still challenges to be addressed in terms of the innovation building blocks (for example, institutional performance, including the business and political environment, quality of infrastructure, access to credit, competition at home, and the strength of education and training). Despite these issues, countries still appear to be able to generate knowledge outputs as underscored by their relatively better performance on output rankings.

Areas of focus for improvement

Of the middle income countries that we have considered, China and Malaysia stand out in terms of their innovation efficiency, that is, their ability to effectively transform inputs into outputs. If significant and sustained improvements can be made on the input side this might provide the quantum leap they need to improve their overall rankings.

Some areas of focus for improvement in the Global Innovation Index are:

Institutional reform is needed in the main, addressing key weaknesses in the political, regulatory and business environment.

Further investments in tertiary education are required both in terms of volume and quality. A number of countries tend towards the lower reaches in tertiary education with the exception of Malaysia and Colombia which ranked 29th and 37th, respectively, on tertiary education. Even China, despite its investments, ranks 121st on tertiary education and India is ranked 123rd.

Improving access to education for large populations is clearly an ongoing issue for both countries. Tertiary education ranking is measured by tertiary enrolments, science and engineering graduates and inbound mobility. Both India and China, as expected given the size of populations and capacity constraints, lag on inbound tertiary mobility.

With the exception of Vietnam and Costa Rica, which are in the lower reaches on research and development, or R&D, a number of other countries are moderately ranked on this criterion. China is a standout, ranked 21st in the world on research, while India is 44th and Malaysia is 31st. These countries, especially China, have been making significant investments in research and development. China in particular is also seeing a dramatic rise in research outcomes in terms of papers, citations and patents.

What is interesting is the apparent disconnect between ranking on tertiary education and research. Better linkage between teaching and research could be an important factor going forward.

In a number of countries, attention to market sophistication (access to credit, investment climate, trade and competition) is required which is consistent with improvements needed in the overall political and business climate.

Attention is also needed on business sophistication (knowledge workers, innovation system linkages and absorption of knowledge). Vietnam is a leader and is, in fact, the best ranked country in the world on knowledge absorption, that is, 'openness' to knowledge from abroad. However, a critical challenge for Vietnam is to develop its own 'in-house' research and knowledge capability. India presents the obverse case – it is ranked 99th on knowledge absorption suggesting a still closed, insular approach to innovation.

In a world where ideas and knowhow move relatively seamlessly, national progress depends on striking a balance between local and imported knowledge, and being able to mesh these two sources of knowledge effectively.

Nearly all of the countries fare better on knowledge and technology outputs (knowledge creation, diffusion and impact) compared to their performance in creative outputs (creative industries, online creativity and intangible assets).

This may be a reflection that these newer creative areas are still strongly the domain of developed countries and that emerging economies (with the exception of Malaysia which fares well in the creative sector) need to invest heavily in these capabilities and move beyond a 'catch-up' mode to capitalise on their distinct offers.

China stands out on knowledge and technology outputs, within which it is ranked the world’s number one on knowledge impact (GDP per person, new business density and computer software spending).

Parting thoughts

Overall, we find that although emerging economies are making progress, particularly China and Malaysia, they are still not in the upper echelons of the innovation rankings. It would appear that all parts of the innovation system need to be in 'synch' to make significant progress. This will take time.

This includes building the foundations, such as education and training and research, having a pro-innovation enabling environment, including fundamentally strong political and regulatory environments, building strong linkages across the whole system of constituent actors (industry, research and education institutions) and ensuring an appropriate balance between imported and local knowledge.

One should also not underestimate the value of a vision since this provides both focus and commitment, including for long-term capability building.

In addition, there is no 'one size fits all' policy that works. Countries need to carefully tailor their innovation policies to reflect their institutional structures and traditions of excellence as well as the challenges and opportunities that they confront.

The Global Innovation Index is to be commended for its vast information and useful analytical framework. It could, however, be further enhanced, despite the difficulties in doing so, by the following:
  • • A stronger emphasis on the nature and extent of the challenges faced by countries which would help to contextualise their innovation effort;
  • • Attention to community engagement and social metrics;
  • • Removing performance metrics that favour developed economies and work against emerging countries, such as inbound tertiary student mobility;
  • • An even greater focus on the natural environment (although the infrastructure pillar has environmental sustainability metrics);
  • • More focus on enabling emerging technologies beyond ICT to include biotechnology and nanotechnology;
  • • More focus on recent developments in global labour mobility, including return migration to some developing countries and the impact of diasporas on host economies;
  • • Collaborative research papers, including international collaborations.
Anand Kulkarni is senior manager, Planning and Research, and Angel Calderon is principal advisor, Planning and Research, at RMIT University, Australia. Kulkarni is having a book published next year titled "India and the Knowledge Economy: Progress and perils". Calderon is working on an edited volume about higher education towards 2040.