The issue of what innovation is came up in
today’s press conference in Australia to introduce
the 2014 Global Innovation Index (GII), when an audience
member asked what the term innovation encompassed.
The speakers gave answers that emphasised that innovation
goes beyond just inventions or technologies. For example, Bruno
Lanvin of INSEAD and one of the GII co-editors pointed out that
Apple’s popularisation of the digital singles
model for music sales is an innovation that has had a big
impact how people acquire music, even though that is not an
invention. Another panellist, Yuko Harayama of
Japan’s Council for Science and Technology Policy,
said that she also tends to see innovation as an open-ended
matter, even though this level of vagueness can make some
people "queasy". WIPO Director General Francis Gurry pointed
out that the term should be understood broadly beyond just
commercialisation of technologies.
The broadness of these answers is not an accident, since, as
Lanvin explained, the report is intended to be a holistic view
of innovation and how it is being supported and sustained. This
also explains the broad nature of the GII, which looks at 81
indicators categorised as either innovation inputs or
Thus, it is not surprising that many of the innovation
inputs reflect factors usually associated with development or
ease-of-doing-business evaluations. For example, some of the
indicators include political stability, ease of paying taxes
and resolving debts, electricity output, total capitalisation
of stock markets and cost of dismissal of redundant workers.
The inputs on the other hand tended to be indicators more
commonly associated with innovation, such as patent filing
Is Hong Kong really innovative?
This broad understanding of innovation makes sense and gives
a more nuanced idea as to how innovation is sustained. It also
leads to some interesting results.
For example, Hong Kong is ranked as the tenth most
innovative jurisdiction in the world, which may come as a bit
of a surprise to observers. When you delve into the
methodology, you begin to see why it ranks so highly. Hong
Kong is famously lauded as one of the world’s
premier financial centres and thus scores well in most of the
innovation input criteria, especially those that relate to
general economic development such as infrastructure and stock
On the output side, the numbers are less impressive, likely
because those indicators tend to be more closely related to
more traditional indicators of innovation, such as royalties
collected on licences and patent filings. The few output
indicators that Hong Kong excelled at, namely new business
formation and FDI outbound investment, arguably reflects
more the city’s financial sophistication than its
status as a wellspring of new ideas and technologies.
The GII authors note this discrepancy between Hong
Kong’s innovation input and output, and it leads
to another question; does having well-developed financial
services make a place one of the most innovative in the world,
even if doesn’t actually have much R&D or
knowledge creation of its own?
A Chinese paradox?
China’s ranking also demonstrates the
challenges in quantifying innovation. China has made tremendous
progress in updating its IP system and it has been
open about its ambitious plans to become an innovation-based
economy. At first glance its move up the GII rankings (up
six places from last year) seems to reflect this reality, but
the picture is a bit more complex once you delve into the
Several of the indicators where China are ranked highly
include domestic invention patent filings, utility model
filings and high-tech exports as a percentage of net exports.
However, those following China are well aware of the
controversy surrounding its filing numbers and concerns about
patent quality, which some have argued
may actually be stifling innovation there. The same
criticisms have been levelled against the utility model patents
Thus, though China has been
taking steps to increase patent quality, these
improvements, which can foster true innovation, may actually
hurt China’s performance in future GIIs if they
slow down the country’s patent filing numbers
Similarly, China’s strong showing in the
high-tech exports metric is a reflection of its status as the
world’s electronics factory rather than true
innovation on its part. Furthermore, China’s goal
to shift from manufacturing to an innovation-based economy will
almost certainly involve a reduction in high-tech manufacturing
as well. As former
SIPO commissioner Tian Lipu explained to Managing IP, for
each $299 iPod sold, Apple received $114 in creative, brand,
design and patent income, while the Chinese manufacturing firm
received just $4. Thus, even if high-tech manufacturing is an
indication of China’s innovative qualities, the
country’s goal is to move up and away from this
low-value part of the market.
Therefore, China’s move from high-tech
manufacturing may also hurt its rankings in future editions of
the GII, though ideally its performance in other metrics will
make up for the drop in this particular indicator.
What do you think? How do you define innovation and how can
it be quantified?