Setting the Pace for Global Innovation

Singapore, Hong Kong and Japan are at the front of the pack as Asia’s innovation leaders, according to 2015’s Global Innovation Index

Written by Dr. Rafael Escalona Reynoso, Lead Researcher at The Global Innovation Index

With half of its economies ranked in the top 40, Southeast Asia and Oceania maintain their innovation dynamism this year, according to The Global Innovation Index (GII), 2015. Recognised as a hub for technology and innovation, the region is home to some of the world's largest and most prosperous economies; namely Japan, Singapore and Hong Kong (China) are helping set the pace of innovation globally and are noted to be major contributors to industrial-commercial growth and prosperity in the region.

In innovation, the region’s performance is led by high-income economies like Singapore, South Korea and Japan. These nations perform above the regional average in all areas measured by the GII and are on-par with nations at the top of the global rankings. This is especially true for human capital and research, and infrastructure, two of the pillars of the GII, areas in which these nations perform above the global leader, North America. Singapore, in particular, brings to the region outstanding performances in infrastructure and business sophistication, categories in which it holds the highest rankings globally.

The GII, which is co-published by Cornell University, INSEAD and the World Intellectual Property Organisation (WIPO) and surveys 141 economies around the world, shows how China and Malaysia, two upper-middle income economies, also help boost the region’s innovation performance. These two are the only non-high-income nations approaching the top 25 economies in the rankings.

China displays a strong performance in areas associated with knowledge and technology outputs and is also highest among the middle-income economies in terms of quality of innovation. Quality, in this sense, is measured by high rankings in three indicators: University rankings, patent families filed in at least three offices and citable documents. China ranks globally 11th, 29th and 16th, respectively. Malaysia, on the other hand, holds the top spot in both net high-tech imports and exports, and also makes the top 10 in quality of innovation for middle-income economies.

Slightly further down the rankings, however, are a series of fast-moving economies, and these are the ones to watch. Although most of these economies perform below the region’s average in all GII pillars, they exhibit notable performance progress in certain areas. This group is led by a subset comprised of Vietnam, the Philippines and Cambodia. For example, Vietnam shows strength in knowledge and technology outputs, an area in which it performs above the region’s average. It also performs well in the indicators of credit and knowledge absorption. The Philippines demonstrates high levels of research & development expenditures by the business sector, while Cambodia performs above the regional average in market sophistication, reaching the top of the global rankings in microfinance gross loans.

This entire group of movers is notable because it shows the widest margin of improvement in the region. And there is potential for further progress with common areas of opportunity for this entire cluster including institutions, human capital and research, and infrastructure. These areas are critical for the development of a solid innovation framework as illustrated by growth in other regions.

In particular, a more solid institutional framework helps attract business and fosters growth by offering better governance and adequate levels of protection and incentives for innovation. In order to make human capital and research prosper, higher standards in education and research activity - determinants for local innovation - are key. Effective and ecologically-friendly communication, transport, and energy infrastructure facilitate the production and exchange of ideas, services and goods. They also feed into the innovation system by enabling increased productivity and efficiency, lower transaction costs, better access to markets and sustainable growth.

For some nations in this emerging cluster, innovation is viewed as essential to addressing pressing societal problems such as pollution, health issues, poverty, and unemployment. GII analysis also shows that increasing business linkages to science and its institutions - including foreign subsidiaries and the recruitment of scientists - is often the single biggest challenge in developing economies. The design of policies to promote innovation while taking into account these factors is central to the advancement of local plans and strategies in these nations. These are all areas of opportunity that, if addressed locally, can help further boost Southeast Asia and Oceania’s innovation performance.

The latest GII also highlights a number of nations that have, in recent years, shown a consistency in innovation performance as compared with their income group peers. Within this cluster, four economies from the Southeast Asia and Oceania region have been identified: China, Malaysia, Mongolia and Vietnam. Since 2011, these countries have displayed a measured capacity to innovate above their expected level of economic development and have consistently excelled above their peers in various areas measured by the GII. For these economies a continuity of efforts and practices can guarantee their position at the forefront of innovation globally, further helping the region to maintain its notable innovation performance.

While large upper-middle income economies are clearly the innovation motor of Southeast Asia and Oceania, there is clearly a dynamic group of middle and lower income nations that are helping boost the region’s overall performance. Recent structural changes at the core of economies like China, Japan and South Korea will continue to foster suitable environments for industry and commerce in the region. These nations’ abundant natural resources and plentiful supplies of relatively low-cost skilled and adaptable labour will also allow for their innovation performance to thrive in years to come. As for those emerging economies in the region, it is critical that they explore avenues to achieve higher levels of innovation-led development locally and more efficiently. We can see from The Global Innovation Index 2015 that a well-coordinated innovation policy plan with clear targets and a matching institutional structure have proven to be an adequate tool for success, especially for economies at lower levels of development. And while significant resources are often devoted to attracting foreign multinationals and investments, policymakers in developing countries should also consider how to capture and maximise knowledge spill-overs to the local economy. Focusing on the design and enhancement of these types of policies at a national level could have a dual benefit, helping bolster innovation performance not only in the country itself but in the region as a whole. 

This article received further contribution from Dr. Soumitra Dutta, Anne and Elmer Lindseth Dean and Samuel Curtis Johnson, Graduate School of Management, Cornell University

Read the full illustrated article in October's Asia Outlook magazine here.