Global innovators should watch out for China

Innovation is becoming increasingly important for the competitiveness and prosperity of nations. The 2018 Global Innovation Index, prepared annually by Cornell University, INSEAD and the World Intellectual Property Organization, examines 126 countries’ performance against approximately 80 indicators and comprises innovation input measures (Institutions, Human Capital and Research, Market Sophistication and Business Sophistication) and output measures (Knowledge and Technology Outputs and Creative Outputs). Inputs and outputs are combined into an overall index.

What is clear is that it is difficult to break into the top ranks. The last two years have shown that there is stability at the top with Switzerland, the Netherlands, Sweden, the United Kingdom, Singapore, the United States, Finland, Denmark, Germany and Ireland occupying the top 10 positions (with changes of order). Remarkably, for the past six years, Switzerland has been ranked number one in the world.

The key to being a strong innovation player is all round capabilities, both in input and output terms, rather than having narrow pockets of excellence. This means that institutions with the right political and regulatory environments, investments in research, education and training, the ability to translate inputs into outputs through skilled employment, patents, exports and value-added production, all matter for strong innovation performance.

What also matters is being alive to the ideas, knowledge, technology and insights that others bring through imports of technology-intensive goods, foreign direct investment and inward student mobility. It also means strong links between academia and industry and effective industry clusters to capitalise on synergies in knowledge and complementary capabilities.

Achieving this is no mean feat. It is generally the case, as the Global Innovation Index finds, that higher levels of economic development are associated with stronger innovation performance. Another interesting fact that is less conclusive by way of explanation is that the top 10 performers comprise a number of smaller economies. Does small mean focused effort on building core capabilities?

China’s charge forward

However, changes are afoot. The rise of China in the rankings is becoming more apparent, while, to a lesser extent, India is seen to be performing better than its level of economic development would indicate.

China is now ranked 17th in the world and has steadily improved its ranking from 29th in 2015. India is ranked 57th and progressively improved from 81st in 2015, although it is harder to move up the rankings the closer you are to the top.

China is reaping the rewards of large-scale, long-term investments in capability building and clear goals and objectives. In particular, building strong foundations and a sustained focus on human capital in all its dimensions has been key. Human capital is seen as a major driver of competitiveness and growth.

China is ranked at 23rd in human capital and research, with core strengths in school assessments in mathematics and science and expenditure on research and development.

In tertiary education in particular, China is rated fifth in the world on ‘university rankings’, which is a measure of the average score of its top three universities in the QS World University Rankings, although its record on overall enrolment is weaker. The importance of a strong base of skills and research is also reflected in the translation of knowledge to outputs in China.

China is ranked 12th in the world on high and medium outputs, equal first on patents and equal first on high technology exports – in spite of China shifting towards a more domestic-led consumption model of development in recent years. Industry also builds well on the capabilities that are fostered in higher education institutions through supplementary training. These factors reflect the nexus between China as a manufacturing powerhouse and an emerging knowledge superpower.

China has also positioned itself as being open to the flow of ideas and knowledge from abroad, even though there has been criticism of the way it has acquired knowledge from abroad. It is ranked 12th on the knowledge absorption criterion, with particular strengths in imports of high technology products and research talent in business enterprise.

India’s fragmented innovation base

At 57th place India is performing reasonably. Unlike the top 10 economies, and China to a varying degree, it has a fragmented innovation base.

There are pockets of excellence: for example, it is number one in the world on ICT services exports, reflecting its niche capabilities in this field, and well placed on its ‘university rankings’ performance (21st). However, the latter is a little misleading in that, beyond a few elite institutions, there is a ‘soft underbelly’ when it comes to the bulk of institutions in higher education in India, with major questions around quality, employability, accountability and governance.

While India is ranked sixth on science and engineering graduates, unfortunately this does not necessarily capture quality metrics. There have been many studies that have questioned the employability of Indian graduates.

However, it should be noted that there appears to be the semblance of an innovation ecosystem taking hold, with industry-university research collaboration at 25th place – and interestingly ahead of China at 27th place. India performs only moderately in the knowledge translation-type indicators such as high technology exports, patents and knowledge and technology output, and a sharp contrast can be found with China in these areas.

While India is ranked sixth in science and education graduates, it is ranked only 84th in tertiary enrolments. This suggests that there are issues regarding a considerable lack of access to tertiary education for its large population and possibly a lack of diversity in course offerings.

Moreover, there is a weak ‘pipeline’ in education when viewed more broadly, with India ranked 112th on education overall, with this metric capturing expenditure on secondary school, expenditure per secondary student, school performance in mathematics and science and pupil-teacher ratios.

Beyond this there are still many challenges confronting India: improving female access to employment opportunities (93rd); employment generally in knowledge intensive services (91st); and number of researchers relative to population (74th). India still remains somewhat insular, as reflected in its 66th place on knowledge absorption. It needs to be more open to ideas and know-how from abroad so these can mesh with its own domestic capabilities.

Challengers to the top 10

India’s age-old issues with the quality of its institutions and infrastructure remain significant challenges despite various reforms of recent years. China too needs attention to its institutions, being ranked a relatively lowly 70th. Across the board at this stage, though, China is ahead of India. High quality institutions are a major strength in the leading economies.

Finally, both China and India are ranked at the lower end when it comes to inbound tertiary mobility. This is not surprising to some extent since both countries are ‘stretched’ with regard to meeting domestic requirements. Both countries recognise the need to open up their education systems to the world, to enhance export revenue and to capitalise on the global flows of ideas and people-to-people connections.

Although the top echelons of innovation rankings are seemingly entrenched, there is more than a hint that in the years to come the status quo will be challenged, particularly by China, but don’t discount India.

Dr Anand Kulkarni is consultant and principal adviser for Victoria University, Australia. His book India and the Knowledge Economy is to be published by Springer later this year.