Is Switzerland as innovative as it ranks?

Switzerland is a hub for research, high-skilled workers, and advanced manufacturing, especially in areas like biotech, robotics, and engineering. Keystone / Laurent Gillieron

Switzerland consistently tops rankings of the most innovative countries, surpassing tech powerhouses like the United States and China. What’s behind its success?

Put the words “most innovative country” into Google or Bing, and Switzerland inevitably comes up. For the 14th year running, Switzerland has held the title of the most innovative country in the Global Innovation IndexExternal link, published at the end of September by the Geneva-based World Intellectual Property Organization (WIPO). The index, which started in 2007 by Paris-based business school INSEAD, has become a calling card for top-scoring countries like Switzerland.

How do you define innovation?

The Global Innovation Index uses the definition of innovation put forward by the Oslo Manual developed by the Organisation for Economic Co-operation and Development (OECD). This was updated in 2018 to define innovation as a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous products or processes and that has been made available to potential users (product) or brought into use by the unit (process).

“Switzerland scores high on many of the indicators, actually almost all of them,” said Sacha Wunsch-Vincent, who heads the GII work at the department for economics and data analytics at WIPO. “Based on the data, our experience with the Swiss innovation system and recent developments, it’s unlikely the Swiss innovation performance will drop any time soon.”

It doesn’t just do well on the Global Innovation Index. Switzerland is also the top performer in the 2024 European Innovation ScorecardExternal link.

Switzerland is undoubtedly a hub for research, high-skilled workers, and advanced manufacturing, especially in areas like biotech, robotics, and engineering. The large share of peopleExternal link with PhDs (3%) is a testament to this.

But is the small Alpine nation really more innovative than tech giants like the United States or China, as the global index suggests? And how does it compare with smaller countries like Israel, often referred to as the “Start-up nation”, or Estonia, which has been called the most digital country in the world?

We took a deeper dive into the index to understand why Switzerland continues to outpace its peers.

Good all-rounder

The Global Innovation Index evaluates 133 countries across 80 indicators split into two parts. The first part is inputs. These are like the drivers of innovation, such as the regulatory environment, spending on research and development (R&D), the number of graduates in science and engineering, and venture-capital deals.

The second part are outputs like the number of patents, the value of unicorn firms (companies valued at over US$1 billion), and creative outputs, such as the number of feature films and mobile apps created.

Switzerland, like the other top three economies in the GII (Sweden and the US), is a good all-rounder. It has a good balance of high scores on both innovation inputs and outputs. It performs well, even if not the best, on many indicators.

This contrasts with countries like Israel and Estonia, which notably top the ranking for unicorn valuation, venture capital received and some ICT indicators, but score significantly lower than Switzerland in most of other dimensions.

Big countries like China and the US score much higher points in industry diversification or size of the domestic market but Switzerland outperforms them when it comes to many regulatory indicators, for example.

Safe haven for foreign companies

A closer look at the indicators shows that Switzerland stands out on research. It has top research universities in Europe and spends more than the OECD average on R&D as a share of GDP. In 2023, Switzerland spent CHF24.6 billion ($27.2 billion) on research and development, which is equivalent to around 3.3% of GDP. For comparison, China dramatically increased the amount it spends on R&D to $458 billion (CHF400 billion) last year, moving from 1% of GDP in 2000 to 2.5%.

Switzerland is particularly good at making linkages between academia and industry, outperforming every other country when it comes to university-industry research collaboration.

The government-backed innovation promotion agency, InnoSuisse, offers grants for industry-led projects with universities. “This works because there are universities with cutting-edge knowledge about technologies that align with company needs in Switzerland,” said Martin Wörter, a professor of innovation economics at the federal technology institute ETH Zurich. 

Some two-thirds of Switzerland’s R&D spending is from industry, which isn’t too unusual in Europe. What’s unique in Switzerland, says Wunsch-Vincent, is a lot of R&D spending is by foreign companies. In addition to big Swiss companies that conduct R&D like Nestlé, Roche and Novartis, many big global companies like Google and Philip Morris International have research hubs in Switzerland.

“It’s very rare that you have massive R&D conducted by foreign entities in another country,” said Wunsch-Vincent. “Switzerland is like a safe haven. It’s a welcoming place and there’s a high level of trust in the innovation system.” The combination of low tax rates and a liberal attitude towards regulating industry have long made the country an attractive place for multinationals.

Patents and production

Switzerland’s top spot is also explained by its strong intellectual property system. There are at least five indicators concerning patents or trademarks in the index.

Switzerland filed more international patent applications per capita and as a share of GDP than any other country last year. This is in large part thanks to the Swiss biopharmaceutical industry, which relies heavily on drug patents. Around 80% of Swiss exportsExternal link are based on intellectual property rights in one form or another.

Switzerland’s manufacturing and export sector is also dominated by high-tech fields like precision machinery, medical devices, and biotechnology, which helps bring it up in the ranking.

Countries like the US and China far surpass Switzerland when it comes to the number and size of unicorn firms. At least 500 new startup companies are founded in Switzerland each year. A few make it to unicorn status, but none are valued at the level of US-based SpaceX or Bytedance, the Chinese company behind TikTok, valued at $225 billion. Sonarsource, a Geneva-based software developer, is the largest Swiss unicorn, valued at $5 billion.

Many Swiss start-ups are also in sectors that are often bought or acquired by foreign companies to expand beyond the small Swiss market.

Development bonus

Switzerland is also rewarded for its size and regulatory sophistication. Singapore is the only country that ranks consistently higher on policy stability, regulatory quality and government effectiveness. The index also favours countries that are ready to introduce innovation, giving higher marks on broadband connectivity, access to education and electricity output.

Amid growing protectionist policies in China, Brazil and the US, Switzerland stands out on trade. Exports accounted for 70% of Swiss GDP in 2021, much higher than the 50% average in the European Union.

“We are a very small country, and we produce a lot of technology, a lot of patents, and a lot of innovative output,” said Wörter. “To be commercially successful, we need access to international markets.”

Switzerland also benefits from being small. Switzerland has 9 million people, which is about the size of Seoul, South Korea’s largest city. The index often puts countries in relation to their population. This explains why Switzerland is the top-ranked nation for feature films, on a per capita basis.

What the index doesn’t measure

Measuring and comparing the innovation maturity of countries is a challenging task. The index rewards the level of innovation at a certain point in time, not necessarily how much progress a country has made or the speed of innovation. Saudi Arabia, Qatar, Brazil, Indonesia, Mauritius, and Pakistan made the greatest leaps in the ranking in the last five years, but they still score lower than Switzerland.

Some indicators, such as patents, also have their limits as a measure of innovation. Patents capture inventions, which is the creation of something new, but not the value they create, Yann Rousselot-Pailley, who heads innovation and emerging technology at the consulting firm KPMG in Saudi Arabia, told SWI swissinfo.ch.

“Innovation is taking that invention and making money with it or improving the quality of life of your citizens,” said Rousselot-Pailley. He suggests indicators that capture the commercialisation of inventions. But even financial measures like sales or company valuation don’t capture the impact on society. 

How innovation is done is rapidly changing, making it even more difficult to use some indicators to compare countries. Many new tech entrepreneurs believe in open innovation and rely on trade secrets and speed to market instead of patents to protect inventions.

Countries like China and Saudi Arabia are also challenging Western-centric paths to innovation that have been more bottom-up and driven by venture capitalists. In these countries, the government plays a greater role in not just enabling but driving innovation.

China’s largest corporate R&D investors – Huawei, Tencent and Alibaba – were all established in the last 40 years. Switzerland’s largest R&D spenders – Roche, Novartis and Nestlé – have been around for over a century. Switzerland’s R&D investment is also more concentrated in a small number of companies whereas it is spread across thousands of firms in bigger countries.

“It is impossible to compare Switzerland and China,” said Mark Greeven, a professor of innovation at IMD business school based in Hong Kong. Not only their size, but “they have such different innovation systems – different objectives, governance, and types of companies.”

Edited by Virginie Mangin/gw