Innovation in East and Southeast Europe

Modern, industrialised societies rely on innovation. Only innovations enable companies to stay competitive in an ever growing, global market. Hence, governments and businesses should invest in their innovative potential.

How is innovation defined?

It seems that almost everyone has an understanding of what innovation entails but no clear definition. A definition may be derived from its Latin origins which translate to renewal and change. In general, we associate positive improvement with innovations. But it seems hard to measure innovations and innovative potentials. Luckily for us, the Global Innovation Index has developed a method to quantify and compare the innovative environment of 126 countries worldwide. Before we dive into the findings for our region of East and Southeast Europe, we will have a quick look on the methodology.

How is innovation measured?

The Global Innovation Index (GII) splits the innovative potential into two parts: (1) input factors, and (2) output factors. This differentiation helps with understanding where countries can improve their innovative potential: While some countries rank very well in input factors, they are performing considerably worse in output factors. The efficiency rate measures how well countries can translate their input into output and constitutes the third factor for the overall score.

Have a look at the motiongraphics video below, explaining how Global Innovation Index defines innovation.

Input factors are clustered into five categories with three sub-factors each that again consist of varying factors. For output factors only two categories exist which also consist of sub-factors. Countries can achieve strengths or weaknesses compared to their own performance, as well as comparable strength and weaknesses when considering their income group. The graphic depicts the different factors and how their interaction leads to the overall score.(GII Report 2018, p. 16)

The data for the different factors are taken from various sources, among others the United Nations, World Trade Organization, World Economic Forum, International Monetary Fund, World Bank, World Intellectual Property Organization but also private companies such as PwC, and Thomson Reuters.

Based on the data, the countries are ranked. The Top 10 countries are: : 1. Switzerland; 2. Netherlands; 3. Sweden; 4. United Kingdom; 5. Singapore; 6. United States of America; 7. Finland; 8. Denmark; 9. Germany; 10. Ireland.

You may see the top 10 and say: “well, that makes sense.” And yes, it seems obvious that wealthy and industrialised countries are performing well in innovations. This is because innovation is mainly driven by investments into many different, often very costly areas. Hence, the Global Innovation Index has another important classification: income. Countries are clustered in high, upper-middle, lower-middle, and low income groups. All countries from the top 10 are classified as high income states. The top 3 states in the upper-middle income group are China (17), Malaysia (35), and Bulgaria (37). For the lower-income group, the top 3 states are Ukraine (43), Vietnam (45), Moldova (48). This distinction also helps in explaining why the region of East and Southeast Europe is only found mid-table. All countries in our region, except for Greece, are clustered either in the upper-middle or lower-middle income group.

So what about East and Southeast Europe?

Watch the motiongraphics video below, to discover the innovation rankings in East and Southeast Europe and find out what makes Bulgaria the most innovative country in the region.

The first country from East and Southeast Europe is Bulgaria on rank 37. According to the GII, Bulgaria is a very efficient country, hence, most of its strengths are to be found in output factors. In Knowledge Impact, Bulgaria ranks even number 6 of all 126 countries. However, Bulgaria is also comparably strong in institutions and infrastructure, which enable innovation. The country is especially successful in business sophistication and innovation linkages, where it can attract funding for research and development from abroad very well. Another indicator for innovation is ecological sustainability, where Bulgaria ranks Top 20. Ecological sustainability is an area, in which many countries of the region succeed: Romania (6), Croatia (14), Bulgaria (19), Albania (22), and Greece (24) make the Top 25. Our region does also rank well in investments with 8 countries in the Top 25: Azerbaijan (3), Albania (5), Moldova and Tajikistan (10), Kazakhstan (18), Georgia (21), North Macedonia (23), and Montenegro (25).

When we have a look at the region, we can see other trends. For example are 4 countries in the Top 20 efficient countries – Ukraine (5), Moldova (6), Armenia (15), and Bulgaria (19) - but at the same time 5 countries are in the last 25 spots – North Macedonia (103), Kyrgyzstan (106), Albania (110), and Belarus (119). Another interesting factor is intangible assets. Here, 4 countries are in the Top 25, while at the same time 7 countries rank among the worst 25: Moldova (5), Turkey (11), Ukraine (13), Bulgaria (25) - Kazakhstan (101), Albania (104), Bosnia and Herzegovina (107), Tajikistan (116), Kyrgyzstan (118), North Macedonia (120), Belarus (122). Overall, there is not one factor that could be seen as an advantage of East and Southeast Europe. For every factor, in which some countries rank very well, others rank very low. But there is a positive outlook. With Bulgaria as the Top 3 country of the upper-middle income group and Ukraine the best country from the lower-middle income group, other countries in the region can look to them and copy their successful methods. These countries prove that innovation can be found in the region and their example can help similar countries to improve their own innovative potential.

How can countries improve their innovative potential?

There is no simple answer to this question. What seems clear is that it needs two for success in innovation: government and businesses. Governments have to provide the environment, in which businesses can thrive. According to the GII, governments should improve the regulatory environment to make it easier for companies to conduct business and develop further. Governments should promote better education, which is a facilitator for innovation. They should invest in infrastructure, in particular ICT infrastructure, while at the same time supporting environment-friendly solutions. They should also strengthen market sophistication and ensure fair competition.

But also businesses are responsible for innovation: They need to invest in research & development and sufficient ICT coverage. They need to employ qualified workers and offer additional training while also introducing cooperation with universities and research entities. They should value external expertise and not shy away from importing high-tech and ICT services. Since businesses are the main facilitators of innovation output, they should aim at patent applications and scientific and technical publications. The promotion of growth and exporting of their products abroad can also improve the innovative potential. Additionally, businesses should aim at creating new ICTs and organisational as well as business models.

Overall, regulations may help to improve the innovative potential of the region. However, it is important that regulations do not become a bureaucratic nightmare for businesses because creativity needs freedom and creativity drives innovation.

Have a look at the table below how different countries from East and Southeast Europe rank, according to GII. 

Country

Income Group

Global Innovation Index

Innovation Input Sub-Index

Innovation Output Sub-Index

Innovation Efficiency Ratio

Corruption Perception Rank (# out of 180)

Bulgaria

Upper-middle

37

44

34

19

77

Croatia

Upper-middle

41

42

42

37

60

Greece

High

42

40

52

74

67

Ukraine

Lower-middle

43

75

35

5

120

Russia

Upper-middle

46

43

56

77

138

Moldova

Lower-middle

48

79

37

6

117

Romania

Upper-middle

49

49

48

47

61

Turkey

Upper-midde

50

62

43

25

78

Montenegro

Upper-middle

52

51

55

56

67

Serbia

Upper-middle

55

56

58

57

87

Georgia

Lower-middle

59

53

62

79

41

Armenia

Lower-middle

68

94

50

15

105

Kazakhstan

Upper-middle

74

55

91

111

124

Bosnia and Herzegovina

Upper-middle

77

68

82

97

89

Azerbaijan

Upper-middle

82

76

87

99

152

Albania

Upper-middle

83

69

95

110

99

North Macedonia

Upper-middle

84

71

93

103

93

Belarus

Upper-middle

86

60

110

119

70

Kyrgyzstan

Lower-middle

94

85

101

106

132

Tajikistan

Lower-middle

101

104

88

67

152

Source: Global Innovation Index

Watch 2 short videos with more insights on what innovation is and innovation rankings in the region.