Insead has just released InnovaLatino, the result of a two-year collaboration between Insead and the OECD Development Centre, and funded by the Telefónica Foundation. The objective of InnovaLatino was to research innovation dynamics in the business and public sectors in Latin America, drawing attention to and learning lessons from innovation experiments underway in the region, and advocating greater policy attention to innovation in the national development strategies. To go in depth in the survey, RCR Wireless Newsasked questions to co-authors Soumitra Dutta, Roland Berger professor of business and technology, and academic director, eLab at Insead, and Daniela Benavente, senior research fellow at Insead.
The Global Innovation Index (GII) adopts a holistic approach to innovation in which all sectors have a role in fostering innovation. Governments have a primary role regarding the development of sound institutions and regulatory frameworks, elementary and tertiary education, investments in infrastructure, and ensuring optimal conditions for credit, investment and trade. Businesses must then take the lead through entrepreneurship, ensuring that tertiary education and R&D respond to the development needs of the country, facilitating credit and investment through the banking system, the stock market, and venture capital deals; dynamic trade flows; the employment of knowledge workers, linkages and partnerships with academia.The third input pillar, infrastructure, includes one sub-pillar on information and communication technologies (ICT). This sub-pillar is built around four indicators: two composite indicators developed by the International Telecommunication Union, on ICT access and use, which include variables such as fixed telephone lines, mobile cellular subscriptions, Internet users, mobile broadband subscriptions per 100 inhabitants; and two indicators developed by the United Nations’ Public Administration Network, on governments’ online service to citizens and on e-participation. Here again, there are roles for the private and the public sector. In addition, the sub-pillar on scientific output includes the value of spending on computer software as a proxy for knowledge impact, next to measures on labor productivity growth and creation of new businesses.
The study says that “despite lagging behind, things are on the move in Latin America’s innovation ecosystem.” What do you point out that could serve as an example?
That quote comes from the InnovaLatino Report, a collaboration between INSEAD and the Development Centre of the OECD, and not from The Global Innovation Index 2011. However, The Global Innovation Index 2011 Report includes, in addition to the discussion of the country rankings, five analytical chapters that illustrate the type of innovation found in the world today, from diverse perspectives and angles. Chapter 2, Innovation in Latin America: Recent Insights, draws precisely on the InnovaLatino Report, to highlight results from an exclusive survey of over 1,500 manufacturing firms from eight countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, and Uruguay) and 50 mini case studies, or ‘vignettes,’ developed for various innovation leaders within their own sectors.Drawing on these data, the authors show that in Latin America, innovation means more than catching-up or even leapfrogging by imitating innovative firms from more developed economies. In several revealing cases, Latin American companies are even redefining global business by developing new business or marketing models, with the examples of Cinépolis in Mexico, which converted the traditional movie theatre into an entertainment multiplex space, and which recently entered the Indian market, or of the Havaianas flip-flops in Brazil, which were successfully repositioned from the low-end of the market to the high end, on a global basis.
When compared to the U.S., European countries, Japan and even China, Latam still has to improve its rankings. What has been done? Which Latam’s countries are working hard to bring more innovation?
Twenty countries from Latin America and the Caribbean (LCN) are included in this year’s Global Innovation Index (GII). None of them reaches the top 30 on any of the three main indices (GII, Input, and Output), and three are ranked among the bottom 25: Venezuela, Nicaragua, and Bolivia. Trinidad and Tobago, the only high-income country in the region in the sample, is ranked a disappointing 72nd position. That said, the GII reports on the rankings by income level, and LCN countries, which, for the most part, are middle-income countries, fare rather well when compared to other regions. In particular, three upper-middle-income (UM) countries hold top positions within their income group: Chile (38th overall and 2nd among UM countries after Malaysia), Costa Rica (45th and 5th after Lithuania and Bulgaria), and Brazil (47th and 6th), ahead of other UM countries such as Lebanon, Romania, Mauritius, Serbia, the Russian Federation (56th) or South Africa (59th). Some lower-middle income countries, however, achieve better scores: China (29th), the Republic of Moldova (39th), and Jordan (41st).Otherwise, on the GII, among upper-middle income countries, Argentina, Uruguay and Colombia are in the third quintile (at positions 58, 64 and 71 respectively); Panama, Mexico, Peru, and Jamaica are in the fourth (positions 77, 81, 83, 92); and Venezuela is down among the bottom 25 at rank 102. And among lower-middle-income countries, Guyana and Paraguay are in the third quintile (61 and 74); Guatemala, El Salvador, Ecuador, and Honduras are in the fourth (86, 90, 93, 98); and Nicaragua and Bolivia are among the bottom 25, ranked 110 and 112 respectively.
Among Latam countries, which one do you highlight as most innovative and least innovative? And why?
The Global Innovation Index (GII) is calculated as the simple average of the Innovation Input and Output Sub-Indices. Chile is the only Latam country in the top 40 on the Input Sub-Index (at position 36). This shows that much more needs to be done in the region on the input side, which includes indicators that gauge performances on five enabling dimensions: Institutions, Human capital and research, Infrastructure, Market, and Business sophistication. In addition, Chile lags behind in fulfilling its innovation potential, since it achieves only position 57 on the output sub-index, which includes variables on actual Scientific and Creative outputs. Chile’s weaknesses are precisely in the two areas traditionally linked to innovation: Human capital and research (71st) and Scientific outputs (85th).Brazil, Costa Rica and Argentina, on the other hand, made it to the top 40 on the Output Sub-Index. Brazil and Argentina are in fact among the top 10 on the Innovation Efficiency Index (the ratio of the output over the input score), at positions 7 and 8 respectively, showing a capacity to overcome their weaknesses on the input side and achieve commendable innovation results from inferior enabling conditions. One striking feature of this year’s ranking is that the top 10 on the innovation efficiency index includes a majority of densely populated countries, such as China, India, Nigeria and Bangladesh.
A heat-map included in the report shows that the LCN region comes in fifth place in terms of the sum of average regional scores, after North America, Europe and Central Asia, East Asia and the Pacific, Middle East and North Africa, but ahead of South Asia and Sub-Saharan Africa. While this order is kept for all input pillars, Latam countries come behind South Asia (which includes India, Sri Lanka, Bangladesh and Pakistan) on all output dimensions and on the Output Sub-Index. Much needs to be done at that level.
What did China do to improve its position in ranking?
China is the only non-high income country in the top 30, achieving positions 29 on the GII, 43rd on the Input Sub-Index and 14th on the Output Sub-index. It tops the ranking among lower-middle income countries on all three indexes and is among the top 10 efficient innovators. China exhibits several strengths: it ranks among the top 30 on Market (26th) and Business sophistication (29th), and achieved a commendable 9th position on Scientific Outputs.
At the indicator level, on the input side China is ranked 1st on the OECD PISA scales on reading, maths and science (Shangai), 24th on gross expenditure on R&D (at 1.4% of GDP), 2nd on gross capital formation (at 47.7% of GDP), 13th on domestic credit to the private sector (at 127.3% of GDP), the 5th most dynamic stock market (stocks traded reaching 179.7% of GDP), 1st on firms offering formal training (84.8%), 10th and 6th on R&D performed and financed by business, and 4th on high-tech imports (26.8% of total imports).
On the output side (14th), China ranks 12th, 9th and 21st on knowledge creation, impact and diffusion, obtaining its leverage from top 10 positions on patent, utility model and trademark applications by residents at the domestic level, growth rate of labor productivity (at an impressive rate of 8.4%), high-tech exports (at 29.9% of total exports) and creative goods exports (at 5.9% of total exports).
What could Latin America learn from China?
China’s results are a bit puzzling. It shows weaknesses on the Institutions pillar, with some of the worst scores on political environment (108th) and on two indicators which are key to entrepreneurship: time to start a business (ranked 104th with 38 days) and total tax rate (ranked 115th at 63.5% of profits). It also lags behind in the elementary and tertiary education sub-pillars, with low levels of expenditure, school life expectancy, tertiary enrolment and mobility. It also shows relatively poor performances on the enabling conditions for credit, investment and trade, with scores on the third quintile on strength of legal rights for credit, depth of credit information, strength of investor protection, applied tariff rate.
And yet China is among the most dynamic markets for credit, stocks, venture capital, joint venture and strategic alliance deals, with high levels of spending on computer software and growth of GDP per person engaged, together with good scores on knowledge absorption and diffusion and on intellectual property indicators.
China’s dynamism might be due to some policy-mix that allows for pockets of excellence around key regional clusters (China ranks 7th on state of cluster development) or industries, driving upwards the IP results, growth, productivity, etc.; while large areas of the territory might still be under-developed, explaining the lower average scores. A similar pattern can be found in most of the large, low-income efficient innovators.
Regarding BRIC countries – from innovation in ICT perspective – how do you analyze each country?
Three of the BRIC countries are among the most efficient innovators: China (3rd), Brazil (7th) and India (9th), while the Russian Federation is ranked 52nd. Brazil tops the Output Sub-index among upper-middle income countries (exhibiting an overall balanced position), with a poor 68th position on the input side bringing it down to 47th place on the GII.The Russian Federation is ranked 56th, an improvement of eight positions from 2010 and of 12 positions from 2009. This result is driven by a relatively better performance on the Innovation Output Sub-Index, at position 50, as compared to the Innovation Input Sub-Index (at position 59). The Russian Federation has an interesting profile, as its strengths are precisely on the two pillars traditionally linked to innovation: Human capital & research (an input pillar), where it is ranked 38, and Scientific outputs (an output pillar), where it is ranked 34, and a position 37 on Business sophistication, which is at the crossroads of the two.
India is ranked 62nd and 8th among lower-middle income countries, with a commendable 44th position on the Output Sub-Index and position 87 on the input side. India achieves positions among the top 40 on R&D (35th), General infrastructure (11th), and Investment (15th). On the output side, it is 33rd on Knowledge diffusion (32nd on high-tech exports, 4th on computer and communication service exports, and 38th on FDI net outflows), and 38th on Creative outputs.
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