Global Innovation Index 2018: What does it tell us?

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The 2018 Global Innovation Index (GII) was published on the 10th July this year, focusing on bringing together and analysing data on global economies and their innovation capabilities. Since its introduction in 2007, it has quickly become one of the leading measures of global innovation levels. Each year the report has a different focus, this year’s being “Energising the world with innovation”.

The good news for the UK economy in the latest GII rankings is that we have moved up to 4th place from 5th last year, overtaking the US in the process. The US performed poorly, falling two places, behind the UK and Singapore; a significant setback for the US after topping the table in the first GII back in 2007. Experts have commented on the fall to 6th place and blamed the US’s decline in human capital, research and infrastructure outputs. Topping the table is Switzerland, who have maintained their lead since 2011.

1 – There is optimism about global innovation and belief that growth is possible

The index shows us that there has been a positive shift in investment in areas like technology, science, education and human capital. In most developed and developing countries policies have become more centred around innovation, research and development. This is evident in the fact that global R&D expenditures have continued to rise, having doubled in the last twenty years.

The UK’s solid performance in innovation, earning us 4th place in this year’s index, can be partly accredited to our government’s strong support for investment in innovation. The recent Spring Statement and Autumn Budget highlight this R&D focus, calling for more investment in the future of technologies. In the most recent Autumn Budget the government stated that they aim to pump an extra £2.3billion into R&D by 2021/22, raising planned government spending that year to £12.5billion. They also look to work more closely with the private sector and increase R&D spending by more than £80billion in the next ten years.

More optimism can come from the fact that the countries with the biggest developing economies are currently far behind that of North American and European Countries in terms of their GII score. The economies of Russia, India and Brazil are all growing quickly and have large potential for continued growth. If these countries and others in similar positions can begin to mirror their economic growth into innovation growth it will have a big impact on global innovation growth and possibly create new markets as they begin to explore areas useful to their country’s requirements. Their potential growth is positive for the UK as the country looks to strengthen relationships with countries outside the EU in light of Brexit.

2 – Continued investment in breakthrough energy innovations are essential for global growth and to avert an environmental crisis

By 2040 it is projected that the world will require 30% more energy than it does currently. This is a problem, given that the current approaches to energy supply will be unable to support this. The fact that much of the world is still dependent on the earth’s finite resources is a big factor in this, and we are already seeing price fluctuations due to lack of coal, oil and gas reserves.

The 2018 report has produced 5 key messages for environmental innovation and the environmental crisis:

  1. Environmental innovation is key in meeting the global energy demand.
  2. Innovation focused on energy is happening all over the world. However, there is a difference in objectives across borders. Countries are focusing on the industries and developments that impact their nation’s economy directly and will look at output, research, human capital to match this.
  3. New energy innovations need to appear across all stages of the energy industry and its processes, including energy storage and distribution.
  4. There are still numerous barriers to the adoption of energy innovations, such as the development of relationships between innovative SMEs and energy suppliers.
  5. Public policy is vital in driving the transition we are facing in energy types and usage.

Although noting that it is an uphill task to reach the energy production level we will require in the future, the GII does acknowledge that significant improvements are already being made. In particular, it notes the fact that renewable energy methods are becoming more efficient and their costs lower at the same time. Going on to then highlight offshore wind and solar power technologies as being increasingly relevant. These are boosted by the ultra-high voltage lines and smart grids being established around the world.

In the UK, renewable sources currently produce 20% of electricity being used, and this is set to increase with the UK’s goal to reach 30% by 2020. Key energy sources enabling the UK to prosper include:

Wind power – The UK has some of the best wind conditions in Europe, with high average wind speeds both onshore and offshore. The UK has invested significantly in offshore wind farms and has already installed as many as the rest of the world combined.

Marine, wave and hydroelectricity – Already well established in the UK and continuing to improve. The UK’s marine and wave energy industries expect to grow as increasingly innovative designs are being developed. The government expects these new technologies to make a significant contribution as soon as 2020.

Solar – A decade ago solar power generated next to nothing for the UK energy network. Now however, it has become a viable energy solution for the country. This has been highlighted recently due to the cloudless and hot weather, as solar power generation has been hitting new highs in the UK – becoming the UK’s top power source, above gas and nuclear, on several occasions.

New technology innovation predictions for the future are looking positive, with the number of patent applications in energy technology almost doubling between 2005 and 2013, though growth in the number of patents filed has decreased since 2012. Registered patents are important to a nation’s economy for numerous reasons; they encourage innovation and R&D projects, they increase competitiveness of exported skills and products, and they reward businesses innovating and, consequently, boosting the economy.

In the UK, the government is looking to promote innovation through funding schemes such as Patent Box. This scheme rewards companies who acquire UK or EU patents by giving them a reduced rate of 10% Corporation Tax on revenue acquired through the registered IP. As with any properly managed scheme, HMRC guidelines around Patent Box can appear complex to many businesses. MPA however, has the experience and expertise to interpret these guidelines correctly, with a history of success in working with HMRC and our clients.

3 – China’s rapid rise shows the way for other middle-income economies

With a very clear divide in innovation between high and low-income economies, China has proven to be an example of how to translate economic growth into innovation growth and vice versa. As mentioned under point 1, countries in North America and Europe have high GII scores which match their economic status’s. Of the BRIC countries (Brazil, Russia, India, China) India, Brazil and Russia still rank relatively lower than their rising economic status would suggest. China, however, has been a great success for innovation in recent years. Becoming the only middle-class income economy that ranks within the top 25 in the GII rankings at 17th place this year.

China has thrived and moved up the GII rankings mainly due to their high number of high tech imports, good quality publications, and an increasing number of R&D support centres (of which they have close to 1,750 today). Most importantly, China is now ranking either 1st or 2nd in the world for R&D expenditure, number of researchers, patents and publications. China’s success may have inspired other countries, particularly outside Europe and North America, to begin prioritising innovation. Interestingly, countries which are now outperforming relative to their economic size and power include South Africa, Costa Rica, Serbia, Thailand and Georgia.

4 – Richer economies, with more diverse industry and export portfolios are likelier to score high in innovation

The GII league table for 2018 is surprising in that countries with relatively small populations and small economies are dominating the top 20. Countries including Luxemburg, Israel, Singapore, The Netherlands and the EU Nordic countries all have small populations and economies in comparison with powerhouses like the UK, the US, Germany and China. A look into why smaller countries are able to compete with the powerhouses on the index for innovation considered whether there is any correlation between size and economic power. But in fact, found the more diverse a country’s economic structures, and subsequently their industry portfolios, the better their standard of innovation and higher they will rate on the GII. Income score does also seem to be crucial for innovation.

5 – Focusing on translating investments into results is key

Another key takeaway from this year’s GII is that although some countries have very strong economies, large populations and invest heavily in innovation, they don’t always receive a large output. The opposite can also be found however, as some countries receive huge output for relatively little investment. This success can often be attributed to the relationships within the country; universities partnering with private sector companies or matching national development programs, for example.

Amongst the countries who over-achieve in this regard are the Netherlands, Sweden, Germany, Ireland and Hungary. Countries who can be deemed to be under-achieving include the resource rich Saudi Arabia and Qatar and economically developed Japan, Hong King and Canada.

Rather than looking at outputs as a sole measurement for innovation, it is also recognised that some countries have quality centric policies. Focusing on producing innovations to a high standard, giving them longer life and larger industry impact. By focusing on quality, these nations do not target quantity in university spending, publications or patents. Instead they focus on helping the top ranked universities, publications and patents live up to and surpass their high standards. For example, in Switzerland, the world leading Swiss Federal Institute of Technology works with various innovation parks around the country, giving them access and support from entrepreneurs, industry analysts, scientists and engineers.

The top high-income economies in quality of innovation in 2018 are Japan, Switzerland, the US, Germany and the UK. The UK’s situation is similar to that of Switzerland, where universities and businesses are both supported by innovation schemes and facilities all over the country. This is evident in high innovation areas like Cambridge and Oxford.

6 – Strong regional innovation imbalances persevere, hampering economic and human development

In past GII’s it’s been identified that there are still very large innovation imbalances in different global regions of the world. This year’s index proved no different, although some regions did show some much-needed improvement.

Topping the regional table as you would expect is North America, followed up by Europe. As previously mentioned the USA fell to 6th in the overall table, but with the world premier innovation clusters such as Silicon Valley and the Boston area alongside their large economic contributions enables them to stay firmly near the top of the index.

Europe also performed well, largely due to their consistency and culture of innovation across multiple European nations. This idea is supported by the remarkable stat that of the top 25 innovation nations, 15 of them are in Europe, and many of them within the EU as well. The GII does also attest that entrepreneurial activity in the EU is sometimes more constrained, however in recent years there has been renewed start-up capital cities like Berlin and Paris.

Sub Saharan Africa continues to struggle in the GII. The top spot in this region was achieved by South Africa, who still only placed in 58th overall. There is hope in the region though, as South Africa demonstrated long term thinking by ranking 24th in the table for % of GDP being spent on education. This shows that they’re currently in the process of building a workforce that will have the required skills to increase innovation in the future.

7 – Most top science and technology clusters are in the US, China and Germany. Brazil, India and Iran also make the top 100

In order to identify innovation within nations more accurately, the GII also looks at subsections of industry. There is a special section that ranks the largest cluster for science and technology activity. This is ranked on international patent filings, but this year’s GII also takes into consideration any scientific publishing to measure cluster performances. The result shows the USA has the most clusters with 26 out of the top 100, followed by China with 16, Germany with 8 and the UK with 4.

The UK’s four largest science & tech cluster areas listed were:

  • London – There are currently over 90,000 science and tech businesses and more than 50 incubators / innovation centres here.
  • Cambridge – Businesses are supported by world-leading Cambridge University, over 57,000 people are employed by more than 1,500 technology based firms which create over £13billion revenue a year.
  • Oxford – Oxford University Innovation, a wholly-owned subsidiary of Oxford University, has successfully launched hundreds of spin-outs from the university, who’ve grown into global R&D leaders – such as our own client Brainomix, who developed life-saving imaging software.
  • Manchester – Popular tech innovation support group CodeUp Manchester has over 3,000 business members. Similar groups have appeared, earning themselves thousands of members for the informative support they provide.

 Contact Us

Is your business going through the vital R&D process that is helping the UK maintain its strong position in the Global Innovation Index? Have you successfully obtained UK or EU registered patents?

Get in touch with MPA today and see if your business qualifies for R&D tax credits or Patent Box. Working with MPA will help you to meet HMRC’s rules and regulations and provide extra funding to support your next innovation.