Top Seven Most Innovative Countries

Updated on March 31, 2018
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Hanh has a Master's Degree in Economics. She enjoys researching and writing about economic and business issues.

According to Joseph Schumpeter, the “godfather of innovation,” there are five types of innovation including bringing a new product or a modified product to the market, coming up with a new process, finding a new market, discovering or inventing new sources of supply, and organizational transformation (Schumpeter, 1934). Schumpeter maintained that to stay profitable, businesses must innovate, and through innovation, an organization can change itself from the inside, turning technological innovation into a new source of growth. More interestingly, innovation is also referred to as the ability to see normal or usual things in a new way that creates value added (Evans, 1991). Sometimes a disruptive new product is not necessary. By combining existing ideas, developing new relationships among existing products or carrying out the same process with a new protocol can improve the outcome tremendously. Hence, innovation is also described as an incremental improvement to an existing product or process.

On the national level, innovation is expected to drive economic growth, boost productivity, upgrade a country’s competitive edge and bring about prosperity. When driven by innovation, countries are less susceptible to external shocks and global macroeconomic instability. Determinants of innovation vary across research studies, but most agree that they consist of institutions, business networks and supporting industries/ services, government size, education, market efficiency, infrastructure, and culture. There are many leading institutions compiling the list of the most innovative countries such as International Monetary Fund, Bloomberg, World Economic Forum, etc. According to various research studies, these countries are among the most innovative countries:

1. Sweden

Sweden has long boasted a thriving economy with a GDP per capita of $51,300. Through all the global economic ups and downs, Sweden manages to maintain a steady economic growth rate of 3.3% in 2017. Moreover, the country enjoys stable political conditions, enduring almost no war in its modern history – Sweden maintained neutral during both World War 1 and World War 2, saving it from all detrimental war destructions. According to the Heritage Foundation’s Economic Freedom Index, Sweden is also among the freest countries in the world, ranking 15th out of nearly 200 countries. The government has implemented market-friendly and transparent policies which support trade, investment and entrepreneurial activities. Sweden pioneers in bio-technology, sustainable growth, and digital revolution. Its innovation capacity not only restricts to big corporations’ names but also relies on the initiatives and inspirations of thousands of individuals and small enterprises all over the country.

Sweden's economic freedom score by Heritage Foundation
Sweden's economic freedom score by Heritage Foundation

2. South Korea

Called an economic miracle, South Korea amazed the whole world with its impressive economic achievements, transforming itself from a poor, war-torn country with a GDP per capital of $79 in 1960 to the fourth largest economy in Asia with a total GDP of $1.4 trillion in 2016. With low starting points, poor natural endowments, and lack of capitals, at the beginning of the economic reform and restructure, the Korean government encouraged export of industrial products and imported technologies from foreign countries to build up the technical capabilities of the country. This strategy proved to be effective, enabling South Korea to close the technological and scientific gap with other developed countries, learning from their mistakes, and focusing the country’s resources on developing new technologies.

Samsung Galaxy 8 - a product by Samsung,  the largest South Korean chaebol
Samsung Galaxy 8 - a product by Samsung, the largest South Korean chaebol

In addition, South Korea’s economy was characterized by chaebols, the century-old family-run conglomerates with big names such as Samsung, LG, Hyundai, etc., making half of the Korean stock index. As chaebols accumulated profits and cash, they also spent big on research and development to innovate their production, enhance creativity, and bring about breakthrough technologies. Many of these companies become world’s leading innovators in their fields.

3. Singapore

Singapore, a vibrant city-state
Singapore, a vibrant city-state

A tiny island with an area of 719.9 squared kilometer and a population of around 5.6 million, Singapore is yet the biggest economy among ASEAN nations, and one of the four Asian tigers. Though small in size, Singapore features a diverse culture and multi-lingual workforce which many studies believe would increase a country’s propensity to innovate and come up with creative solutions. Most Singaporeans are bilingual; they speak English and other languages including Malay, Mandarin, and Tamil. In addition, Singapore is very appealing to foreign workers who come from all walks of life. In fact, it was estimated that around 1.3 million foreign nationals worked in Singapore, accounting for around 36 percent of Singapore's labor force. Furthermore, the corporate income tax system in Singapore is very attractive and the effective tax rate is one of the lowest rates in the world, ranging from 0% to 17%, thus encouraging entrepreneurial and start-up activities. Singaporean companies are mostly praised for their ground-breaking financial products and services.

Singapore's attractive corporate tax system
Singapore's attractive corporate tax system

4. Germany

Germany is argued to be the EU’s powerhouse in innovation, and the country spends approximately more than 2.5% of its GDP annually on research and development. In the past, Germany has acquired unrivaled reputation for its precise mechanics, automation technologies, navigation devices, surgical equipment, and household appliances. Manufacturing continues to be a big part of German economy, contributing nearly 23% to its GDP (2016), featuring big old names such as Siemens Group, Volkswagen Group, BMW Group, SAP, etc. which introduce numerous state-of-the-art technologies and inventions. What’s more, German companies are also adept at applying leading-edge inventions to industrial products and spreading them across the economy. Germany also promotes a start-up culture, witnessing a surge in the number of start-up companies especially in the fields of automation and internet-of-things. Besides, education is of high-quality and low price in Germany, resulting in a literacy rate of 99%, and an upper secondary attainment rate of 86%. Couple with a relatively free and stable political condition, Germany is a paradise for the free minds and young talents to innovate and prosper.

German spending on R&D as a percentage of GDP
German spending on R&D as a percentage of GDP
BMW, a proud brand of Germany
BMW, a proud brand of Germany

5. Japan

With a culture emphasizing conformity and collectivism, it sometimes comes as a surprise that Japan outperforms many countries when it comes to innovation. Nonetheless, the country gives the world various inventions and disruptive technologies such as Humanoid robot ASIMO, hybrid vehicles, LED (Light-emitting diode), LCD (Liquid-Crystal Display), etc. Many big Japanese corporations including Daikin, Panasonic, Nissan, and Mitsubishi are known for their huge spending on research and development of new products and advanced technologies. In terms of management practice, the Japanese invented and promoted many efficient workplace organization methods such as 5S (sort, set in order, shine, standardize, and sustain), kaizen (continuous improvement), just – in – time, total quality management and so on. These methods are highly welcomed and adopted by not only Japanese companies but also companies around the globe.

ASIMO robot - Japan leads the world in robotics
ASIMO robot - Japan leads the world in robotics

Home to one of the most unique, profound and beautiful heritages and cultures in the world, Japan is where the old and the new co-exist, collide, and find ways to reconcile. Many people describe Japan as a place where things exist in extremes, the most virtuous, the most lunatic, the freest, and the most disciplined. It is also how the Japanese government wants to develop its innovation capability, by focusing on creating harmony and taking advantage of such cultural assets as traditional designs, concepts, values, and social responsibility.

Japan - something old...
Japan - something old...
... something new
... something new
something deep among the nature...
something deep among the nature...
... something right at the heart of the modern world
... something right at the heart of the modern world

6. Finland

Finland is largely a knowledge-based economy with a concentration on high and medium-high technology. As for Finland, productivity has been a main driver of its economic growth, contributing directly to its people’s wellbeing. Finnish tales of its exceptional education’s philosophy and methods are applauded internationally and believed to foster innovation and creativity. The schools are publicly funded, and students do not have to pay for their education, giving equal opportunities for all children, regardless of their backgrounds, to attend and excel at their study. The school curriculum focuses on teaching students how to learn, not what to learn, developing students as a human being and as a citizen, enhancing critical thinking, multi-cultural competence, and intellectual curiosity. In 2017, Finland implemented the most ambitious and radical teaching reform of all times by replacing teaching by subjects with teaching by topics. Finnish students score the highest in the world in terms of both literacy and numeracy. With this seemingly endless supply of high-quality workforce, which has already been trained to take initiatives and generate original ideas, Finnish companies are poised to create high value-added products and services.

Government R&D funding according to social policy objective category
Government R&D funding according to social policy objective category

7. USA

Work at the Silicon Valley, USA
Work at the Silicon Valley, USA

The USA undoubtedly leads the world in terms of education for years with its universities and colleges occupying the top positions in most educational ranking. In addition, the country is home to Silicon Valley and big technology companies including Google, Facebook, Microsoft, Apple, SpaceX, etc. It is also in this country that the idea of a Hi-tech zone/ Science Park, an area specialized for creating, incubating and launching advanced technologies and products, arose and blossomed. In such vibrant and young cities as Austin, Boston, Los Angeles, New York, and San Francisco, etc., motivated and talented people gather, live, and work in many open offices and co-working, co-living space to develop cutting-edge technologies and build future-generation’s products, sending positive vibes across the nation. In 2016, the country’s number of international patent applications topped the world with more than 56,000 applications. The United States also has 368 Nobel Prize winners, the highest number among nations, and prides itself in the number of high-quality research and journals its scholars produce. With an enormous market of more than 325 million people, and a GDP of more than $20.2 trillion, the country offers ample opportunities for innovation and trial-and-errors adventures.

Best Global Universities Rankings by USNews
Best Global Universities Rankings by USNews

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Works Cited

Drucker, P. (2006). The Practice of Management. HarperBusiness.

Evans, J. (1991). Creative Thinking in the Decision and Management Sciences. South-Western Publishing Company.

Gouger, I. D., Higgins, L., & McIntyre, S. (1990). Differentiating Creativity, Innovation, Entrepreneurship, Intrapreneurship. Hawaii: I.S. Products Process.

Lozada, & Calantone. (1996). Scanning behavior and the process of organizational innovation. Journal of Managerial Issues , 8 (3).

Schumpeter, J. (1934). The theory of economic development: an inquiry into profits, capital, credit, interest and business cycle. Havard Economic Studies , 46.

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    • aesta1 profile image

      Mary Norton 2 weeks ago from Ontario, Canada

      It is amazing to see how much education has to do with innovation and yet so few countries give this the biggest allocation in the budget. Amazing how these countries have developed the quality of their work force.

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