September 6, 2020

Global Innovation Index 2020 Focuses on Who Will Finance Innovation

According to the 13th edition of the Global Innovation Index (GII), "As long as innovation has existed, a central challenge facing innovators worldwide is the mobilization of stable and accessible financing mechanisms. Financing affects all stages of an innovation cycle, from ideation to commercialization, expansion, and, eventually, long-term business sustainability."

The Global Innovation Index 2020: Who Will Finance Innovation? is the result of a collaboration between Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO) as co-publishers, and their Knowledge Partners including the Confederation of Indian Industry, Dassault Systèmes, The 3DEXPERIENCE Company, and the National Confederation of Industry Brazil.

The Global Innovation Index 2020 provides detailed metrics about the innovation performance of 131 countries and economies around the world. Its 80 indicators explore a broad vision of innovation, including political environment, education, infrastructure and business sophistication. The 2020 edition sheds light on the state of innovation financing by investigating the evolution of financing mechanisms for entrepreneurs and other innovators, and by pointing to progress and remaining challenges – including in the context of the economic slowdown induced by the coronavirus disease (COVID-19) crisis.

Below are the six key findings of the GII 2020:

1. The COVID-19 crisis will impact innovation—leaders need to act as they move from containment to recovery

"The coronavirus disease (COVID-19) pandemic has triggered an unprecedented global economic shutdown," the report notes. "Now that global economic growth will fall deeply in 2020, the question becomes—will R&D, VC, IP, and the political determination to foster innovation also slump? As innovation is now central to corporate strategy and national economic growth strategies, there is hope ahead that innovation will not slump as deeply as foreshadowed."

2. Innovation finance declines in the current crisis, but there is hope too

"In the context of the GII 2020 theme 'Who Will Finance Innovation?', a key question is the impact of the current crisis on start-ups, VC, and other sources of innovation financing."

The report provide some home noting that in "key VC hot spots—Singapore, Israel, China, Hong Kong (China), Luxembourg, the United States of America (U.S.), India, and the United Kingdom (U.K.)—will continue to be magnets for VC. They are likely to bounce back quickly, in part due to the thirst for return on capital worldwide. Chinese VC deals, which halved earlier this year, are already rebounding strongly. Importantly, the direction of VC and innovation seems to have been redirected towards health, online education, big data, e-commerce, and robotics."

3. The global innovation landscape is shifting; China, Viet Nam, India, and the Philippines are consistently on the rise

"This year, the geography of innovation is continuing to shift, as evidenced by the GII rankings. Over the years, China, Viet Nam, India, and the Philippines are the economies with the most significant progress in their GII innovation ranking over time. All four are now in the top 50."

The report adds that "Switzerland, Sweden, and the U.S. lead the innovation rankings, followed by the U.K. and the Netherlands. This year marks the first time a second Asian economy—the Republic of Korea—cracks the top 10, next to Singapore."

What is more, "The top-performing economies in the GII are still almost exclusively from the high-income group. China is the only exception, ranking 14th for the 2nd time in a row and remaining the only middle-income economy in the GII top 30. Malaysia (33rd) is the second-most innovative middle-income economy. India (48th) and the Philippines (50th) make it to the top 50 for the first time. India now ranks 3rd among the lower middle-income group—a new milestone. The Philippines achieves its best rank ever—in 2014, it still ranked 100th. Viet Nam ranks 42nd for the second consecutive year—it ranked 71st in 2014. In the lower middle-income group, Indonesia (85th) joins the top 10.

"The United Republic of Tanzania tops the low-income group (88th)."

4. Stellar innovation performance found in developing economies

"Beyond GII top-level rankings, innovation performance reveals itself in a few other ways, highlighting that some top innovation performance takes place in emerging markets too."

The report "assesses which economies consistently hold the top global spots on particular GII innovation facets, such as VC, R&D, entrepreneurship, or high-tech production. Hong Kong (China) and the U.S. lead on this count; Israel, Luxembourg, and China tie for 3rd place; Cyprus ranks 4th; and Singapore, Denmark, Japan, and Switzerland tie for 5th place."

However, "Some top spots on selected innovation indicators are not held by high-income economies. In South East Asia, for example, Thailand is 1st in business R&D globally, and Malaysia is top in High-tech net exports globally. In Sub-Saharan Africa, Botswana ranks 1st in Education spending globally and Mozambique leads in Investment globally. In Latin America, Mexico is the largest creative goods exporter worldwide."

5. Regional divides persist, yet some economies harbor significant innovation potential

The report remarks that "Despite some innovation 'catch-up,' regional divides exist with respect to national innovation performance: Northern America and Europe lead, followed by South East Asia, East Asia and Oceania, and more distantly by Northern Africa and Western Asia, Latin America and the Caribbean, Central and Southern Asia, and Sub-Saharan Africa, respectively."

Moreover, "Latin America and the Caribbean continues to be a region with significant imbalances. The region is characterized by its low investments in R&D and innovation, its incipient use of IP systems, and a disconnect between the public and private sectors in the prioritization of R&D and innovation. With low innovation inputs, the region also struggles to translate these efficiently into outputs. Only Chile, Uruguay, and Brazil produce high levels of Scientific and technical articles, and only Brazil ranks high in Patents by origin."

With respect to the African continent, which the GII includes both Sub-Saharan Africa and Northern Africa, the continent "has one of the most heterogeneous innovation performances across continents. While some economies rank in the top 75 (e.g., South Africa, Tunisia, and Morocco), others rank much lower.

"Innovation systems in Africa are broadly characterized by having low levels of science and technology activities, high reliance on government or foreign donors as a source of R&D, limited science-industry linkages, low absorptive capacity of firms, limited use of IP, and a challenging business environment.

"But these are broad regional generalizations. Some economies within regions stand out because they harbor significant innovation potential.

"For example, the typical innovation leader in Africa usually has higher expenditure on education (Botswana, Tunisia) and R&D (South Africa, Kenya, Egypt), strong financial market indicators such as venture capital deals (South Africa), openness to technology adoption and inward knowledge flows, an improving research base (Tunisia, Algeria, Morocco), active use of information and communication technologies (ICTs) and organizational model creation (Kenya), as well as a stronger use of their IP systems (Tunisia and Morocco). Innovation is also more pervasive in Africa than what existing innovation data suggest."

6. Innovation is concentrated at the level of science and technology clusters in select high-income economies, plus mainly China

The report explains that "Divides also exist as to the ranking of the global science and technology (S&T) clusters. The top 100 clusters are located in 26 economies, of which 6—Brazil, China, India, Iran, Turkey, and the Russian Federation—are in middle-income economies. The U.S. continues to host the largest number of clusters (25), followed by China (17), Germany (10), and Japan (5).

Furthermore, "In 2020, Tokyo-Yokohama is the top-performing cluster again, followed by Shenzhen-Hong Kong-Guangzhou, Seoul, Beijing, and San Jose-San Francisco."

Readers will appreciate how the GII 2020, for the first time, "presents the top 100 clusters ranked by their S&T intensity—that is, the sum of their patent and scientific publication shares divided by population. Through this fresh lens, many European and U.S. clusters show more intense S&T activity than their Asian counterparts. Cambridge and Oxford in the U.K. emerge as the most S&T-intensive clusters. These two clusters are followed by Eindhoven (the Netherlands) and San Jose-San Francisco (U.S.)."

My colleagues and I find reports like the GII useful in understanding how the world is changing and how that creates opportunities to be seized and risks to be managed. How does this report help you make strategic decisions for your business?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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