Determinants of the Performance of Countries’ Innovation Ecosystems: History
View Latest Version
Please note this is an old version of this entry, which may differ significantly from the current revision.
Contributor:
Evelina Maria Oliveira Coutinho
,
Manuel Au-Yong-Oliveira

The pandemic marked the beginning of a succession of events on a global scale (not the least of which is a greater concern for the environment and for quality of life/distance work) with a major impact on the economy. Innovation plays a key role in meeting the challenges of the future, but despite investment in innovation, global economic growth has fallen short of the expected performance. it is important to note that innovations depend to a large extent on a suitable market environment (i.e., one conducive to innovation) and that improving a country’s capacity for innovation improves companies’ capacity for innovation. It is, therefore, essential to understand which factors most influence innovation performance, with the aim of directing policies and investment towards the areas with the greatest impact on results.

  • innovation
  • performance
  • institutions
  • human capital
  • infrastructure
  • market sophistication
  • business sophistication

1. Introduction

In recent years, the world has faced several challenges that have put the resilience of the economy and societies to the test. The pandemic (Serban 2022; Sharma et al. 2022), escalating inflation (Manpower Group 2022, 2023), the war in Europe, and the conflict in the Middle East have added to environmental and socio-economic challenges, as new geopolitics (WIPO 2022) emerge, in addition to the fear of superhuman artificial intelligence. As in the past, innovation is considered a key element in meeting the challenges of the future; innovation has helped to improve productivity, which has increased economic output, which, in turn, has improved the socio-economic level of populations (WIPO 2022). In recent decades, there has been an unprecedented global investment in innovation by both the public and private sectors (WIPO 2022), but supporting innovation remains the main challenge for governments and managers, while the very concept of innovation is evolving from the business perspective to the regional, national, or global perspective (micro, meso, macro), increasingly becoming an area of research (Bielińska-Dusza and Hamerska 2021; Andrijauskiene et al. 2021; Akhmadi and Tsakalerou 2023; Bate et al. 2023).
Global demand for new products is high and growing exponentially as knowledge-based economies (unlike traditional economies) generate more income and employment (Powell and Snellman 2004; Hadad 2017; Bielińska-Dusza and Hamerska 2021). The competitiveness of economies increasingly depends on their ability to produce and use knowledge, and the importance of this has increased post-pandemic (Q. Wang et al. 2021; Serban 2022; Mohamed et al. 2022; Marule 2022; Xie et al. 2023). On the other hand, it is important to note that innovations depend to a large extent on a suitable market environment (i.e., one conducive to innovation) and that improving a country’s capacity for innovation improves companies’ capacity for innovation. The creation of an innovative environment can be linked to legal provisions, financial support, support for processes and products, foreign investment, and support for specific sectors with greater capacity for innovation and can also involve strategic and operational decisions in the field of commercial activity, such as international cooperation initiatives. It is, therefore, extremely important to have information that allows decision-makers to make informed decisions supported by the evaluation and measurement of existing activities in the field of innovation (broadly understood). It is, therefore, essential to understand which factors most influence innovation performance, with the aim of directing policies and investment towards the areas with the greatest impact on results.
One of the ways of assessing innovation performance is to use statistical and mathematical methods based on indices, indicators, and performance measures, with their own methodology, reported in reports distributed by various institutions worldwide. The Global Innovation Index (GII) published by the World Intellectual Property Organization reports the results of assessing the performance of 132 innovation ecosystems worldwide and is one of the most widely used tools in innovation research from a global perspective (Bielińska-Dusza and Hamerska 2021; Bate et al. 2023). The methodology involves a set of indicators that make it possible to assess the position of each country in terms of innovation (WIPO 2022). The GII considers that the innovation ecosystem is based on five pillars: institutions (Do they work, e.g., the judicial system; can it be trusted institutions and their good functioning are the pillars of progress and advancement towards a more modern society? Also, what effect does culture have on the conducting of business—namely, are meritocracy and efficiency relevant factors?), human capital and research (how qualified for research is the human capital? To what search/research tools and databases does the human capital have access, and are they taught these in higher education, even if only at the doctoral level?), infrastructure (including roads, railways, and ports, for example, and their state of digitalization, also for sustainability purposes; what information and communication technology suites and platforms do firms use?), market sophistication (how interconnected, or independent, are rival firms? How informed and organized is the consumer? How well do banks and credit lines function, and are the terms (credit rates) offered realistic and accessible?), and business sophistication (How good is intellectual property protection? Are patents duly enforced? How is knowledge absorbed by firms? Do they have that capacity?), which are considered inputs. Those ecosystems have two outputs: knowledge and technology, as well as creativity.
The determinants of the performance of countries’ innovation ecosystems are innovation policies, knowledge and skills, research and development (R&D) investment policies, intellectual property, trade and openness to the outside world, knowledge sharing and market information, legal and regulatory issues, and access to infrastructure (Queirós et al. 2019; Andrijauskiene et al. 2021; Bielińska-Dusza and Hamerska 2021; Papa et al. 2022; Bate et al. 2023). According to the methodology used by the GII (WIPO 2022), the determinants of innovation are grouped under five pillars: institutions, human capital and research, infrastructure, market sophistication, and business sophistication, which are considered inputs to the innovation ecosystem. The methodology used by the GII considers two outputs of the ecosystem: the results of knowledge and technology and the results of creativity. The following paragraphs address the impact of each of these pillars on innovation performance based on the existing scientific literature.

2. Institutions

In the institutions pillar, the GII considers the indicators political environment, regulatory environment, and business environment, measured through sub-indicators based on information collected in the various countries. Political and government stability, the quality of laws, incentives for entrepreneurship, and culture are among the aspects considered (WIPO 2022). Institutions can be formal or informal (Minto-Coy and McNaughton 2016; Okrah and Hajduk-Stelmachowicz 2020; Akhmadi and Tsakalerou 2023; Bate et al. 2023); property rights, contracts, policies, regulations, laws, and constitutions are formal institutions, while culture and social norms are informal institutions (Minto-Coy and McNaughton 2016; Bate et al. 2023). Low belief in a country’s institutions deteriorates the trust of investors, customers, and companies (Jovovic et al. 2017; Szalacha-Jarmużek and Pietrowicz 2018; WIPO 2022; Bate et al. 2023; Klett and Cozzi 2023). Trust in political systems encourages innovation, and a solid legal and regulatory framework fosters growth and the ability of companies to innovate (Nyarku and Oduro 2018); the same is true of government support and the protection of intellectual property by legal institutions (C. Wang et al. 2020; L. Wang et al. 2020). Reinforcing the role of institutions in innovation and economic performance, Castaño-Martínez et al. (2015) revealed that the difficulty experienced by entrepreneurs in setting up new companies due to complex administrative procedures negatively affects the growth of the economy and, consequently, societies with complex legal systems and difficult access to credit have a lower level of economic performance. The culture of countries influences organizational culture, which, in turn, is closely related to knowledge management. In companies with a high level of mutual trust, collaboration and learning and knowledge exchange activities (creation, storage, and transfer) are more likely to occur frequently and effectively (Lam et al. 2021). Similarly, the establishment of a collaborative network with external partners, essential for benefiting from the experience and knowledge of others, is influenced by organizational culture. Since organizational sustainability is increasingly linked to the ability to manage new knowledge and ideas and transform them into new business value (Pereira et al. 2021; Scaliza et al. 2022), the role of culture is central to the growth of companies.

3. Human Capital and Research

In the human capital and research pillar, the GII considers indicators relating to education, tertiary education, and research and development. Investment in education, the length of schooling, science and engineering graduates, the mobility of people with higher education, investment in research and development, and university rankings are among the aspects considered (WIPO 2022). Investment in human capital by policymakers has positive effects on business innovation, and countries that invest more in human capital achieve greater business culture and economic performance (Castaño-Martínez et al. 2015; Nunes et al. 2019; CastroSilva and Lima 2023). Human capital is an essential determinant of innovation since education improves capacities for the creation, dissemination, and sharing of knowledge (You et al. 2021; Bate et al. 2023; Coutinho and Au-Yong-Oliveira 2023), and the lack of highly qualified resources limits the absorption of knowledge (CastroSilva and Lima 2023). The availability of skilled labor in a certain territory increases opportunities for knowledge exchange, which may have been created in the region or elsewhere (Nunes et al. 2019). The study by C. Wang et al. (2020) and L. Wang et al. (2020) reveal that human capital and R&D are essential factors that explain innovation, particularly technological innovation in advanced economies.

4. Infrastructure

In the infrastructure pillar, the GII considers indicators relating to information and communication technologies, general infrastructure, and ecological sustainability. The access to and use of ICT, participation in networks and certification, and environmental performance are among the aspects considered (WIPO 2022). Information and communication technology infrastructures and digital technologies facilitate the storage, dissemination, and exchange of information, making knowledge more accessible, and highly innovative SMEs are distinguished from those that are not very innovative in terms of knowledge and information technology infrastructures (Popa et al. 2022). Innovation-oriented companies are more likely to use new methodologies and technologies (Dobni and Klassen 2021; Wilson and Dobni 2022; Wilson et al. 2023). A high level of innovation and technological complexity is often associated with dynamic economic development, which allows companies to achieve better financial results and strengthen their competitive advantage (Nawrocki and Jonek-Kowalska 2022). The work by Wilson et al. (2023) explores the relationship between companies’ orientation towards innovation and performance in a global context; identifies crowdsourcing, design thinking, open innovation, stage-gate systems, big data analytics, innovation management software, innovation measurements, scientific research and prototyping as common practices of innovators with a high orientation; and shows that the dimensions of this orientation are consistent with company performance, although there are differences in this agreement between countries in different regions of the world. In fact, countries with greater environmental awareness, fewer restrictions on foreign investment, and greater business sophistication provide the perfect setting for the establishment of large companies with a strong innovative profile (Puertas et al. 2022).

5. Market Sophistication

In the market sophistication pillar, the GII considers the availability of credit lines to support innovation in companies; the formation of start-ups or scale-ups; investment in companies; and access to international markets, diversification, and market size, including competition and the protection of small companies (WIPO 2022). The study by Akhmadi and Tsakalerou (2023) revealed that most of the companies studied consider the main barriers to innovation to be the very high costs of innovation and the lack of investment on the part of companies. Difficulties in obtaining state support and high competition in the target market are considered relevant factors, as are the lack of skilled workers and the lack of partnerships. When examining the relative importance of barriers to innovation and, consequently, economic growth, company size is the most significant variable (Akhmadi and Tsakalerou 2023). Compared to large companies, SMEs can be more agile and flexible in response to changes in the markets. However, they face more difficulties in turning innovation into new businesses, as they usually have limited financial, human, and technological resources compared to large companies (Queirós et al. 2019; Nunes et al. 2019). The lack of specialized knowledge to navigate the processes of commercializing innovation can create additional obstacles for SMEs, namely, greater difficulty in obtaining market research, protecting intellectual property, and developing products and marketing strategies; greater difficulty in accessing markets and establishing brand presence; more limited distribution channels and competition from larger, established operators; greater risk aversion due to limited resources and the potential impact of failure; and limited access to strategic partnerships and regulatory and legal obstacles in target markets. The study by Wellalage and Fernandez (2019) on innovation and SME financing in developing countries revealed a positive relationship between financing (formal and informal) and a company’s capacity for innovation (product and process).

6. Business Sophistication

In the business sophistication pillar, the GII considers indicators relating to highly qualified work, strategic partnerships, and knowledge absorption. Highly qualified employment, strategic alliances and patents, intellectual property, and high-tech imports are among the aspects considered (WIPO 2022). According to Kirikkaleli and Ozun (2019), business sophistication is based on the quality of the country’s business networks and the strategies and operations practiced by individual players and, along with innovation, are essential components of competitiveness. Organizations with a high innovation orientation engage in value-creation strategies such as market segmentation, developing new products/services for new markets, and customizing products or services. Organizations with a low innovation orientation generally practice less aggressive strategies focused on internal competencies, underestimating strategies based on cooperation, partnerships, and alliances (Dobni 2010). The creation, dissemination, and sharing of knowledge as well as the free access to information, collaboration, and knowledge transfer between different players, such as universities, research institutions, companies, and individuals, are drivers of innovation and productivity and translate into economic results and competitive advantages for companies (Tubbs 2007; Costa et al. 2021; Boiko 2022; Scaliza et al. 2022). The protection of intellectual property rights is crucial to ensure that creators and inventors benefit from their ideas and creations; patents, copyrights, and trademarks safeguard the value of knowledge. Networking with multiple organizations is a performance enhancer, promoting access to a wider range of knowledge, which increases the likelihood of finding specific resources capable of responding to internal needs (Nunes et al. 2019; Wilson and Dobni 2022; Wilson et al. 2023). Networks are the organizational support that allows economic agents to exploit new business opportunities through joint efforts, resources, and skills (Nunes et al. 2019; Öber 2019; Costa et al. 2021; Ferreira et al. 2021; Scaliza et al. 2022; Costa and Moreira 2022; Coutinho and Au-Yong-Oliveira 2023). Entrepreneurs with larger and more diversified networks tend to be more successful than those with smaller networks (Nunes et al. 2019).

This entry is adapted from the peer-reviewed paper 10.3390/admsci14020032

References

  1. Serban, Octavian. 2022. The Multilevel Knowledge Economy Pyramid Model as a Flexible Solution to Address the Impact of Adverse Events in the Economy. Sustainability 14: 12332.
  2. Sharma, Gagan Deep, Sascha Kraus, Mrinalini Srivastava, Ritika Chopra, and Andreas Kallmuenzer. 2022. The changing role of innovation for crisis management in times of COVID-19: An integrative literature review. Journal of Innovation & Knowledge 7: 100281.
  3. Manpower Group Global QMR Q2. 2022. Quarterly Market Report. Global Market Report—Q2 2022 | ManpowerGroup Talent Solutions. Available online: https://workforce-resources.manpowergroup.com/workforce-analytics/global-market-report-q2-2022 (accessed on 27 April 2023).
  4. Manpower Group Global QMR Q1. 2023. Quarterly Market Report. Global Market Report—Q1 2023 | ManpowerGroup Talent Solutions. Available online: https://workforce-resources.manpowergroup.com/white-papers/q1-2023-manpowergroup-employment-outlook-survey (accessed on 27 April 2023).
  5. WIPO. 2022. Global Innovation Index 2022: What Is the Future of Innovation-Driven Growth? Geneva: World Intellectual Property Organization.
  6. Bielińska-Dusza, Edyta, and Monika Hamerska. 2021. Methodology for Calculating the European Innovation Scoreboard-Proposition for Modification. Sustainability 13: 2199.
  7. Andrijauskiene, Meda, Daiva Dumciuviene, and Jovita Vasauskaite. 2021. Redeveloping the National Innovative Capacity Framework: European Union Perspective. Economies 9: 201.
  8. Akhmadi, Saltanat, and Mariza Tsakalerou. 2023. Shades of innovation: Is there an East-West cultural divide in the European Union? International Journal of Innovation Science 15: 260–78.
  9. Bate, Adisu Fanta, Esther Wanjiru Wachira, and Sándor Danka. 2023. The determinants of innovation performance: An income-based cross-country comparative analysis using the Global Innovation Index (GII). Journal of Innovation and Entrepreneurship 12: 1–17.
  10. Powell, Walter W., and Kaisa Snellman. 2004. The Knowledge Economy. Annual Review of Sociology 30: 199–220.
  11. Hadad, Shahrazad. 2017. Knowledge Economy: Characteristics and Dimensions. Management Dynamics in the Knowledge Economy 5: 203–25.
  12. Wang, Qing’E., Luwei Zhao, Alice Chang-Richards, Yuanyuan Zhang, and Hujun Li. 2021. Understanding the Impact of Social Capital on the Innovation Performance of Construction Enterprises: Based on the Mediating Effect of Knowledge Transfer. Sustainability 13: 5099.
  13. Mohamed, Maha Mohamed Alsebai, Pingfeng Liu, and Guihua Nie. 2022. Do Knowledge Economy Indicators Affect Economic Growth? Evidence from Developing Countries. Sustainability 14: 4774.
  14. Marule, Nontombi Pearl. 2022. The Role of Technology Commercialization in the Operationalization of Innovation and Industrial Policies in South Africa. Triple Helix 9: 119–37.
  15. Xie, Zuomiao, Shiqi Yuan, Jinjing Zhu, and Alistair Palferman. 2023. Dynamic value sharing based on employee contribution as a competitiveness-enhancing device. Humanities and Social Sciences Communication 10: 1–13.
  16. Queirós, Maria, Vítor Braga, and Aldina Correia. 2019. Cross-country analysis to high-growth business: Unveiling its determinants. Journal of Innovation & Knowledge 4: 146–53.
  17. Papa, Armando, Alice Mazzucchelli, Luca Vincenzo Ballestra, and Antonio Usai. 2022. The open innovation journey along heterogeneous modes of knowledge-intensive marketing collaborations: A cross-sectional study of innovative firms in Europe. International Marketing Review 39: 602–25.
  18. Minto-Coy, Indianna, and Maurice McNaughton. 2016. Barriers to entrepreneurship and innovation: An institutional analysis of mobile banking in Jamaica and Kenya. Social and Economic Studies 65: 99–131.
  19. Okrah, James, and Marzena Hajduk-Stelmachowicz. 2020. Political stability and innovation in Africa. Journal of International Studies 13: 234–46.
  20. Jovovic, Radislav, Mimo Draskovic, Milica Delibasic, and Miroslav Jovovic. 2017. The concept of sustainable regional development-institutional aspects, policies and prospects. Journal of International Studies 10: 255–66.
  21. Szalacha-Jarmużek, Joanna, and Krzysztof Pietrowicz. 2018. Missing causality and absent institutionalization. A case of Poland and methodological challenges for future studies of interlocking directorates. Economics and Sociology 11: 157–72.
  22. Klett, Tomas Casas, and Guido Cozzi. 2023. Elite Quality Report 2023. Country Scores and Global Rankings. The Sustainable Value Creation of Nations. Measuring Long-Term Economic and Human Development Prospects. St. Gallen: Foundation for Value Creation. Available online: https://ssrn.com/abstract=4418550 (accessed on 10 May 2023).
  23. Nyarku, Kwamena Minta, and Stephen Oduro. 2018. Effect of legal and regulatory framework on SMEs growth in the Accra Metropolis of Ghana. International Journal of Entrepreneurship and Innovation 19: 207–17.
  24. Wang, Chengqi, Mario Kafouros, Jingtao Yi, Junjie Hong, and Panagiotis Ganotakis. 2020. The role of government affiliation in explaining firm innovativeness and profitability in emerging countries: Evidence from China. Journal of World Business 55: 101047.
  25. Wang, Lu, Gong-li Luo, Arif Sari, and Xue-Feng Shao. 2020. Technological forecasting & social change what nurtures the fourth industrial revolution? An investigation of economic and social determinants of technological innovation in advanced economies. Technological Forecasting & Social Change 161: 120305.
  26. Castaño-Martínez, María-Soledad, María-Teresa Méndez-Picazo, and Miguel-Ángel Galindo-Martín. 2015. Policies to promote entrepreneurial activity and economic performance. Management Decision 53: 2073–87.
  27. Lam, Long, Phuong Nguyen, Nga Le, and Khoa Tran. 2021. The Relation among Organizational Culture, Knowledge Management, and Innovation Capability: Its Implication for Open Innovation. Journal of Open Innovation: Technology, Market, and Complexity 7: 66.
  28. Pereira, Leandro, António Fernandes, Mariana Sempiterno, Álvaro Dias, Renato Lopes da Costa, and Nélson António. 2021. Knowledge Management Maturity Contributes to Project-Based Companies in an Open Innovation Era. Journal of Open Innovation: Technology, Market, and Complexity 7: 126.
  29. Scaliza, Janaina Aparecida Alves, Daniel Jugend, Charbel Jose Chiappetta Jabbour, Hengky Latan, Fabiano Armellini, David Twigg, and Darly Fernando Andrade. 2022. Relationships among organizational culture, open innovation, innovative ecosystems, and performance of firms: Evidence from an emerging economy context. Journal of Business Research 140: 264–79.
  30. Nunes, Sérgio, Raul Lopes, and Nerys Fuller-Love. 2019. Networking, Innovation, and Firms’ Performance: Portugal as Illustration. Journal of the Knowledge Economy 10: 899–920.
  31. Castro-Silva, Hugo, and Francisco Lima. 2023. The struggle of small firms to retain high skill workers: Job duration and the importance of knowledge intensity. Small Business Economics 60: 537–72.
  32. You, Shuyang, Kevin Zheng Zhou, and Liangding Jia. 2021. How does human capital foster product innovation? The contingent roles of industry cluster features. Journal of Business Research 130: 335–47.
  33. Coutinho, Evelina Maria Oliveira, and Manuel Au-Yong-Oliveira. 2023. Factors Influencing Innovation Performance in Portugal: A Cross-Country Comparative Analysis Based on the Global Innovation Index and on the European Innovation Scoreboard. Sustainability 15: 10446.
  34. Popa, Simona, Pedro Soto-Acosta, and Daniel Palacios-Marqués. 2022. A discriminant analysis of high and low-innovative firms: The role of IT, human resources, innovation strategy, intellectual capital and environmental dynamism. Journal of Knowledge Management 26: 1615–32.
  35. Dobni, C. Brooke, and Mark Klassen. 2021. The decade of innovation: From benchmarking to execution. Journal of Business Strategy 42: 23–31.
  36. Wilson, Grant Alexander, and C. Brooke Dobni. 2022. Which Innovative Methodologies and Technologies Help Improve Firm Performance? A Global Study of SMEs. Research-Technology Management 65: 50–60.
  37. Wilson, Grant Alexander, Tyler Case, and C. Brooke Dobni. 2023. A global study of innovation-oriented firms: Dimensions, practices, and performance. Technological Forecasting & Social Change 187: 122257.
  38. Nawrocki, Tomasz L., and Izabela Jonek-Kowalska. 2022. Is Innovation a Risky Business? A Comparative Analysis in High-Tech and Traditional Industries in Poland. Journal of Open Innovation: Technology, Market, and Complexity 8: 155.
  39. Puertas, Rosa, Patricia Carracedo, Marta Garcia, and Virginia Vega. 2022. Analysis of the determinants of market capitalization: Innovation, climate, change policies and business context. Technological Forecasting & Social Change 179: 121644.
  40. Wellalage, Nirosha Hewa, and Viviana Fernandez. 2019. Innovation and SME finance: Evidence from developing countries. International Review of Financial Analysis 66: 101370.
  41. Kirikkaleli, Dervis, and Alper Ozun. 2019. Innovation capacity, business sophistication, and macroeconomic stability: Empirical evidence from OECD countries. Journal of Business Economics and Management 20: 351–67.
  42. Dobni, C. Brooke. 2010. The Relationship Between an Innovation Orientation and Competitive Strategy. International Journal of Innovation Management 14: 331–57.
  43. Tubbs, Michael. 2007. The Relationship Between R&D and Company Performance. Research-Technology Management 50: 23–30.
  44. Costa, Joana, Ana Rita Neves, and João Reis. 2021. Two Sides of the Same Coin. University-Industry Collaboration and Open Innovation as Enhancers of Firm Performance. Sustainability 13: 3866.
  45. Boiko, Kseniia. 2022. R&D activity and firm performance: Mapping the field. Management Review Quarterly 72: 1051–87.
  46. Öber, Christina. 2019. The role of business networks for innovation. Journal of Innovation & Knowledge 4: 124–28.
  47. Ferreira, Jorge, Arnaldo Coelho, and Luiz Moutinho. 2021. Strategic alliances, exploration and exploitation and their impact on innovation and new product development: The effect of knowledge sharing. Management Decision 59: 524–67.
  48. Costa, Joana, and António Carrizo Moreira. 2022. Public Policies, Open Innovation Ecosystems and Innovation Performance. Analysis of the Impact of Funding and Regulations. Journal of Open Innovation: Technology, Market, and Complexity 8: 210.
More
© Text is available under the terms and conditions of the Creative Commons Attribution (CC BY) license; additional terms may apply. By using this site, you agree to the Terms and Conditions and Privacy Policy.
This entry is offline, you can click here to edit this entry!
ScholarVision Creations
Feedback