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Australia’s innovation ranking takes another hit while entrepreneurs rally

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According to the latest Global Innovation Index by INSEAD, Australia is losing its way as a country supportive of innovation. However, Australia’s innovation outputs are on the rise.

There are numerous programs and indexes launched each year to assess a country’s innovation capabilities (several are listed below). Among the most comprehensive and credible is the Global Innovation Index prepared by INSEAD, which last week released its 2009-2010 report, revealing some unexpected outcomes.

Firstly, the USA lost its number one spot, tumbling to 11th place. Secondly, the country to take its numero uno position is the troubled nordic economy of Iceland. Soumitra Dutta, an INSEAD professor of business and technology, who oversaw the survey, explains that, this year, size did indeed matter. But, in this case, it’s the smaller that have done better.

The most populous land in the Top 10 is Sweden, with 9.2 million people. It finishes second. Several of the biggest nations in the developed world cluster just below the US — Japan is 13, with Britain at 14 and Germany at 16. Of the so-called BRIC giants in emerging markets, China comes out best, at 43. Trailing are India (56), Russia (64), and Brazil (68).

Such an outcome should bode well for a remote island nation with a population just barely 22 million.

So, how did Australia perform?

Most innovation indexes rank countries according to innovation inputs and innovation outputs. If you’re keen to get your head around how the process works, these are the most widely cited of the global reports, excluding the INSEAD Index: The Economist Intelligence Unit (EIU) Report, The Atlantic Century Report, The European Innovation Scoreboard and the BCG Report.

What is an innovation input?

Inputs are factors that are influenced by the political environment, access to technology, education and government policy. Traditionally, Australia has ranked relatively well (in the teens) for its innovation inputs. This is not a particularly impressive claim, as most advanced, stable, western democracies perform strongly according to this metric.

What is an innovation output?

Outputs are the evidence of the results of innovation inputs, such as numbers of patents, trademarks, royalties, creative products and services, employment in knowledge-intensive services, high technology exports and business ownership rates.

Using a model that looks something like this (below), countries are measured according to their innovation inputs and outputs, giving an overall rank.

Global Innovation Index by INSEAD, 2009-2010

Australia’s Global Innovation Index Ranking

So, what is Australia’s overrall Global Innovation Index Ranking for 2009-2010?

Drum roll please.

In 2009-2010, Australia ranked at number 18, wedged between Belgium and Ireland. This is an improvement on 2008-2009, when Australia ranked 22.

While the PTBs (powers-that-be) are likely to hail this outcome as a triumph, it’s important to recognise that this improved placement came about despite an evident fall in the extent of innovation inputs.

Australia’s innovation ranking on the input index fell from 13 in 2008-2009 to 16 in 209-2010 (Sweden holds the top spot for innovation inputs), suggesting a decline in Australia’s capacity to support innovation.

As such, the true stars in this Index are the Australian entrepreneurs and innovators responsible for the ‘outputs’ of innovation over this period, which showed an improvement from 28 in 2008-2009 to 20 in 209-201, despite a tricky economic and, so it seems, policy environment.

Strengths and Weaknesses

According to the report, the following factors pose our greatest strengths and weaknessses.

STRENGTHS (Australia’s 10 best ranks)

Starting a business – Time (days) 2
Getting Credit -Legal rights Index 5
Regulatory Quality 6
Government Effectiveness 8
Culture to innovate 8
Publications 8
Trademarks 9
Availibility of Venture Capital 10
Quality of scientific research institutions 10
Strength of auditing and reporting standards 10

Interestingly, many Anthill readers might be surprised to discover that, in terms of availability of venture capital, Australia made it into the top 10. This might also have something to do with a global ‘tightening of the purse strings’ that strongly affected most capital markets last year.

WEAKNESSES (Australia’s 10 worst ranks)

Measure of Trade Barriers- “Trade-weighted average tariff rate” 96
Growth rate of Labour Productivity 82
Foreign direct investment 69
Burden of government regulation 66
Mobile phone subscribers (per 100 people) Pre-paid/post-paid 46
Creative products and services 43
Exports earnings of creative industries 43
Protecting Investors: Investor Protection Index 41
Education expenditure (% of GNI) 40
Gini Index 39

These weaknesses are obvious to most of us, perhaps with the exception of ‘Education Expenditure’. While Australia ranks highly for ‘Quality of education system’ (14) and ‘Quality of scientific institutions’ (10), it seems that we aren’t spending on this innovation input the way that we used to. I also found it personally frustrating that Australia should rank so poorly with respect to ‘Creative products and services’ as an innovation output.

To get full definitions of these strengths and weaknesses, please download the report (INSEAD Global Innovation Index)

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