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US, Germany, Japan lead in innovation: GE Global Innovation Barometer

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Global economic growth needs to come from the bottom up. Global economic growth needs to come from the top down. Should governments come to the rescue?

Global economic growth needs to come from the bottom up. Global economic growth needs to come from the top down. Should governments come to the rescue? Maybe, but most of that innovation is going to come from entrepreneurs and individuals, not larger enterprises. The US, Germany and Japan currently provide the best environments for innovation.

Those are some of the conclusions of GE's second annual “Global Innovation Barometer” based on a survey of 3,000 executives from across the globe, and measuring a range of factors from country to country.

The barometer, prepared in part by the Milken Institute, finds the United States is near the top in almost all metrics, "and is widely considered to be one of the principal global leaders in innovation, whether from a government, corporate or individual perspective." Of the 50 most innovative global companies, nearly half (22) are American, including four of the top five and six of the top 10. (GE itself came in ninth.)

As with last year's report, Germany ranked second in innovation environments, followed by Japan and China.

Chief areas of concern remain the continued deterioration of science, technology and math (STEM) education, federal cutbacks in R&D funding and the ongoing loss of high-tech manufacturing jobs to nations with lower cost structures.

"The U.S. still sets the pace of global innovation, but its position is not as secure as it once was," the study cautions.

The rough-and-tumble global economy continues to take a toll on companies' appetite for innovation, the study also finds. Nine out of 10 executives reporting increased difficulty accessing external funding or a conservative shift in appetite for risk. Specifically, 88% of respondents saw increased challenges accessing venture capital, private investment and government funding, while 77% reported a reduction or reevaluation of the company’s willingness to take risks.

As Beth Comstock, senior vice president and chief marketing officer of GE put it: “Cutbacks today will have reverberations on economic and social progress for years to come, and may seriously hinder a company’s ability to compete. Governments and businesses both need to do their part to shore up the fragile innovation ecosystem.”

The survey also showed that companies’ internal investments in innovation, from research and development budgets to the pursuit of new products or business models, are particularly at risk when the business community perceives a negative shift or deterioration of government policies that support innovation.

About 71% of executives that reported an unfavorable change in external policy or government budget priorities as a result of the global financial crisis also reported cuts in their own company’s R&D spending. Globally, business reported the least level of satisfaction (42%) with the efficiency and coordination of government support for innovation.

Executives surveyed indicate that innovation and competitiveness are more connected than ever before. By comparing survey results to external economic data, the report also indicates that countries where innovation policies are perceived as more competitive actually delivered more growth than those countries whose policy frameworks are perceived by executives as less competitive.

Executives in Israel, United Arab Emirates, Sweden and Singapore reported the highest levels of satisfaction with their country’s innovation environment, while Japan, Russia, Poland and France reported the lowest satisfaction levels.

The 2012 study validates the findings of last year's barometer report – that companies are moving beyond the traditional, closed model of innovation and embracing a new paradigm, one that engenders collaboration between partners, values the creative power of smaller organizations and individuals, and tailors solutions to meet local needs.

A majority, 77%, of executives acknowledged that individuals and small- to mid-sized enterprises have the ability to be as innovative as large companies. In addition, 73% agreed that innovation will be driven by people’s creativity over scientific research.

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Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure