Which Are the Top Three Most Innovative Nations and Why?

Despite the common perception of North America being the most advanced and innovative financial technology market (thanks to Silicon Valley, New York, Vancouver and Toronto), the latest report on the innovative nations ranking challenges that idea.

The GII 2016 results suggest that world’s top three innovative nations are all European – Switzerland, Sweden and UK (in fact, in this year’s edition of the GII, 15 of the top 25 economies come from Europe). These countries proved to be global leaders in each index and the best performers in light of their income level, making them the most attractive markets for international businesses and entrepreneurs.

Source: GII 2016

Moreover, according to the findings, only one country out of the top 10 economies in the Innovation Output Sub-Index this year is not from the European region. Top 10 countries in the sub-index are determined to be Switzerland, Sweden, Luxembourg, the UK, Ireland, Iceland, the USA, Germany, the Netherlands and Finland.

But what solidifies the leading position in the ranking for the top three most innovative nations?

Switzerland – The World's Most Innovative Nation and the Fifth-Most Cosmopolitan Country

Switzerland has earned the number 1 position in the GII for the sixth consecutive year. It has maintained this top spot in the GII since 2011, as well as its number 1 position in the Innovation Output Sub-Index and in the Knowledge and technology outputs pillar since 2012.

The report suggests that Switzerland, a knowledge-based economy of 8.3 million people with one of the highest GDP per capita in the world (PPP$58,551), ranks in the top 10 for all pillars with the exception of Infrastructure (15th). Its high Innovation Efficiency Ratio (5th among all economies included in the GII 2016, and 1st among the GII 2016 top 10) allows Switzerland to benefit from its solid innovation capabilities and help transform its resources into high-level innovation outputs.

Not only is Switzerland among the top three countries by standard of living, it also provides great opportunities for entrepreneurs as a business-friendly environment. In fact, the country holds the first place in GCI 2016–2017 for the eighth consecutive year.

The GCI 2016–2017 report emphasizes that Switzerland possesses one of the world’s most fertile innovation ecosystems, combining a very conducive policy environment and infrastructure, academic excellence, an unmatched capacity to attract the best talent, and large multinationals that are often leaders in their sector as well as a dense network of small- and medium-sized enterprises across sectors that has a reputation for quality and a strive for innovation. Moreover, the intense collaboration between the academic and business worlds yields innovative products with commercial applications.

Among the country’s relative weaknesses, as the report explains, are the persistent and deepening deflation (1.1% in 2015), the relative lack of market competition, hindrances to business creation, relatively high barriers to entry, and the low level of women’s participation in the labor force in comparison with other advanced economies.

2nd place – Sweden

Sweden remains the top Nordic economy, showing improvements in both the Input (5th) and Output (2nd) Sub-Indices of the GII. This higher ranking is led by gains in Investment (7th) and Creative Goods and Services (14th). Sweden continues to rank among the top 25 economies in all sub-pillars. Overall, Sweden shows top 10 rankings in all pillars with the exception of Institutions (11th).

Sweden has been noted to be rapidly jumping up the rankings – the country moved up three places to 6th in GCI 2016–17 with improvements in the basic factors of competitiveness, especially the macroeconomic environment.

Sweden’s labor market functions reasonably well and the country is reported to have a high employment rate, with a high level of women’s participation in the workforce. Moreover, the Doing Business 2017 ranking by WEF puts Sweden in the top 10 countries for the ease of doing business.

However, professionals from WEF suggest that there is still room for improvement in labor market flexibility: Sweden has dropped its performance in terms of the effect of taxation on incentives to work, and restrictive labor regulations are perceived as the second-most problematic factor for doing business. In addition, the availability of scientists and engineers is falling, which is a reminder that renewed efforts to invest in human capital and skills are necessary to ensure long-term competitiveness and innovation capacity.

In addition, the country is reported to be facing a difficult housing market: a continued increase in house prices could impede mobility and negatively impact labor market efficiency.

Nonetheless, Sweden is believed to be well-equipped to embrace the Fourth Industrial Revolution, with a strong score on technological readiness and ranked within the top 10 in innovation.

3rd place – The United Kingdom (The UK)

For the second consecutive year, the UK was ranked as the third most innovative nation. The UK ranks 7th overall in the Innovation Input Sub-Index and 4th overall in the Innovation Output Sub-Index.

Despite the political and economic uncertainty caused by Brexit, UK remains one of the most competitive and attractive economies in the world. The GCI report suggests that competitiveness of the UK economy traditionally rested on highly efficient goods and labor markets; business processes are highly sophisticated and supported by a high level of digital readiness by both businesses and consumers. The Doing Business 2017 ranking by WEF puts the UK in the top 10 countries for the ease of doing business.

UK’s FCA is considered to be one of the most supportive to the business community and FinTech, in particular. The financial watchdog is among the leading authorities doing fairly well in FinTech with its Regulatory Sandbox. Not only has the capital of the UK long been considered one the world’s leading FinTech hubs, but the mobile-only bank ecosystem in the country is one of the most competitive and advanced.

A wide stream of investments in the country’s FinTech ensured organic growth and evolution. In fact, in 2014, $66 million were invested in London FinTech, making it the third leading financial technology location worldwide after Silicon Valley ($1.5 billion) and New York ($600 million). Some of the most successful and well-known VC firms are keeping a close eye on the UK’s FinTech and are fueling the ‘fertile ground’ of the country to harvest groundbreaking result.