Vision & Execution’s Weblog

Two reports on innovation and competitiveness were released by the European Commission in recent weeks. These two reports come on the heels of the 2009 Global Competitive Index (GCI) being released last fall. They provide a fascinating look at the changing dynamics of our global economy as well as the impacts of our lingering economic crisis.

Why is this important? Just look at some of the recent shifts in the GCI Index as a result of the recent economic downturn. The U.S., which has historically held the #1 position, slipped to 2nd place allowing Switzerland to take 1st place. Singapore jumped from 5th place to 3rd place. Japan moved up from #9 to #8 in 2009 while Denmark dropped from 3rd to 5th place. Are these the countries you think of when conducting your competitive analysis?

Expanding your analysis of potential competitors creates advantages for you in a couple of ways. According to the EIS report, firms that are more innovative are less likely to cut back on innovation expenditures. The report found companies that maintained their innovation strategies and spending, including the use of open innovation and user innovation, were more resilient to economic downturns. Shifts in rankings as reported by the EIS suggest that other countries are being far more effective in remaining innovative and potentially producing a competitive threat to your business.

One of the most interesting findings in the 2009 EIS report is the causality between internationalization and innovation. “The extent to which a country’s businesses, institutions and industries are linked with resources and capabilities located outside the country is likely to positively impact the innovation performance of that country. Conversely, innovation intensive firms and countries are more likely to be able to compete successfully in international locations.” Movement across borders of capital, employees and students are key drivers to a company’s success. It’s not enough for your company to monitor competitive threats in other countries; it’s critical to be in the right countries to leverage your innovation efforts.

The U.S., despite falling to 2nd place this past year behind Switzerland, has a long standing tradition of highly efficient markets, sophisticated business culture and an impressive capacity for technological innovation supported by high levels of collaboration with research universities. Yet these very factors that drive US productivity and competitiveness are the areas where other countries are making impressive gains.

The EU27 outpace the US in all areas except those related to R&D expenditures and patents. While the US leads in 11 of the 19 indicators measured, the rate of growth is slowing (1.63%) while the EU27 is growing (3.17%). Similarly, compared to Japan, the EU27 have shown greater improvements in education, research and other collaborations and exports while Japan improved its lead in R&D expenditures and PCT patents.

The BRIC countries have been lumped together for some years, however the disparities reported in the EIS study suggest a new grouping will emerge. China is surging ahead with high tech exports, while Russia has fallen behind. Russia’s key strength is its higher education but it has not been effective in converting that to innovation growth. China surprisingly is outpacing the EU27 with their improvements in patents, trademarks and knowledge intensive services.

These findings are a not so gentle reminder that we must look past our borders when evaluating the competition but also when searching for partners and R&D opportunities. Depending on your business – manufacturing based or services based – you will find different countries offer different strengths as competitive threats or prospective resources.

Vision & Execution specializes in taking a global perspective to developing strategic growth plans for your business. If you’re struggling with how to ramp your growth internationally, contact us for a 60 minute complimentary review of your current strategy.