BDO International Business Compass/

BDO INTERNATIONAL
BUSINESS COMPASS 2016
Update and in-depth look at innovation
Marie-Christin Rische, Lars Wenzel, André Wolf

BDO International Business Compass 20162
Abbreviations
FDI Foreign direct investment
AfDB African Development Bank
CIA Central Intelligence Agency
GCI Global Competitiveness Index
SME Small and medium-sized enterprise
OECD Organisation for Economic Cooperation and Development
UNDP United Nations Development Programme
UNECA United Nations Economic Commission for Africa
Authors
Marie-Christin Rische, Lars Wenzel, André Wolf (responsible Author)
Publisher
Prof Henning Vöpel and Dr André Wolf
Hamburgisches WeltWirtschaftsInstitut (HWWI)
Heimhuder Straße 71 | 20148 Hamburg
Tel +49 (0)40 34 05 76 – 200 | Tel +49 (0)40 34 05 76 – 665
Fax +49 (0)40 34 05 76 - 150 | Fax +49 (0)40 34 05 76 - 776
voepel@hwwi.org | wolf@hwwi.org

www.bdo-ibc.com 3www.bdo-ibc.com
TABLE OF CONTENTS
1. Introduction 8
2. Results of the IBC 2016 9
2.1 Overview 9
2.2 Updating of data 10
2.3 Results 10
2.3.1 Results of the overall index in 2016 10
2.3.2 Results for the market and production sub-indices in 2016 12
3. In-depth look at innovation 14
3.1 Innovation 14
3.2 Regional conditions for innovation 15
3.3 Investments in resarch and development 23
3.4 Innovation 28
3.5 Innovation and economic growth 34
3.6 Summary of the in-deph look 37
4. Conclusions 39
5. Bibliography 40
Annex A: Country overview 43
Annex B: Overview of variables 44
Annex C: Total ranking index 46
Annex D: Ranking for market and production sub-indices 50
Annex E: Glossary of country abbreviations 53

In the history of economics, spectacular innovations have always been
groundbreaking events. They have often paved the way for numerous
derivative innovations in a wide range of fields. Not only did these
innovations improve productivity, but they made tangible changes to
the way we live and do business. There are many indications that we
are currently on the brink of a new, unparalleled innovation boom. In
particular, the process of digitisation has the potential to shape the
future of our society through a number of fields of application such as
digital intelligence, robotics and 3D printing. As drivers of growth,
innovations may compound this in the long term. As the digitisation
process advances, increasingly complex solutions will be in demand.
Additionally, due to the individualisation of products and marketing
many more ideas can be implemented as innovations than in the past.
From a business perspective, the ability of a location to produce
successful innovations will therefore also become a much more
significant factor in the choice of a location.
Therefore, the focus of this year’s issue of the BDO International
Business Compass is the capacity of countries for innovation. We
analyse the general conditions for innovation as well as research
investment and successful research indicators from country to country.
In addition to our in-depth look at innovation, we present the updated
„There are many indications that we are currently on
the brink of a new, unparalleled innovation boom.“
ranking of the IBC overall index as a yardstick of local attractiveness.
For the fifth time, we have evaluated the general economic, political
and sociocultural conditions of individual countries and converted them
into illustrative statistics. Furthermore, the production and business
sub-indices have been updated from the previous year. This makes it
possible to compare countries in terms of their attractiveness as
production and marketing locations. With this analysis we hope to
provide corporate decision-makers with a useful tool for selecting
locations for their companies.
DR HENNING VÖPEL
MANAGING DIRECTOR OF HWWI
DR ANDRE WOLF
HEAD OF ECONOMICS, GLOBAL ECONOMICS AND
INTERNATIONAL TRADE AT HWWI
FROM A BUSINESS PERSPECTIVE,THE ABILITY OF
A LOCATIONTO PRODUCE SUCCESSFUL INNO-
VATIONS WILLTHEREFORE ALSO BECOME A
MUCH MORE SIGNIFICANT FACTOR INTHE
CHOICE OF A LOCATION.
PROF DR HENNING VÖPEL
MANAGING DIRECTOR HWWI
DR ANDRE WOLF
HEAD OF ECONOMICS HWWI

Los empresarios tenemos grandes expectativas sobre lo que nos ofrece
la industria 4.0 y la economía digital. Como parte de la transformación
digital, la innovación es una herramienta clave para el crecimiento de
los negocios. Estas altas expectativas se reflejan normalmente en unos
índices de capitalización muy altos, incluso cuando la compañía tiene
pérdidas significativas o todavía se trata de una start-up. En ocasiones,
las predicciones sobre los mecanismos para generar ingresos en el
futuro pueden ofrecer conclusiones o recomendaciones no acertadas,
sin embargo, en otros casos, el éxito corporativo viene de las altas
expectativas y vienen a confirmar esas predicciones.
Las empresas que tradicionalmente ofrecen bienes de consumo,
inversión o servicios, que normalmente se observan desde una
perspectiva mucho menos eufórica, son juzgadas bajo criterios
completamente diferentes. En una etapa más temprana de digitalización
en la cual AOL se hizo con Time Warner, nos demostró lo grande que es
esta diferencia: los pioneros en internet se valoraban bajo los mismos
criterios que una empresa de la industrial tradicional. Se produjo
entonces una bajada muy significativa en el valor de la empresa.
Esta realidad se aplica en los casos en los que el negocio de la empresa
se apoya fundamentalmente en la digitalización, frente a aquellas que
solo hacen un uso de ésta: su habilidad para innovar resulta crucial para
sus resultados financieros, y por tanto ser competitivos y sobrevivir en
un entorno en el que los éxitos empresariales son imitados por otros con
una velocidad en aumento. Algunos modelos de negocio en los que para
ser competitivos, se optaba por retribuir menos a sus trabajadores, han
demostrado estar obsoletos en el momento en que hay localizaciones
en otros países para la empresa con capital humano más formado, y
modelos de producción más eficientes.
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ALFONSO OSORIO
ITURMENDI
Si una compañía pretende mantenerse en cabeza en cuanto a
competitividad, necesita ser capaz de innovar. El factor clave no
está tanto en el nivel de cualificación de sus profesionales, que ya
fue analizado en la anterior edición del índice International Business
Compass de BDO, sino que la capacidad para innovar está directamente
relacionada con la cultura corporativa. La capacidad innovadora de
la empresa depende de cómo se promueva la innovación y de las
condiciones de mercado adecuadas, que varían en función de cada país.
Esta edición del IBC, elaborada por BDO y HWWI por cuarto año
consecutivo, está centrada en analizar esa capacidad en 174 países, a
fin de ofrecer a información clara y representativa a todas las empresas
que centran su futuro en la expansión y diversificación de sus negocios.
Basándose en un análisis muy extenso de los datos, el índice IBC
ofrece una visión general de las oportunidades de negocio y los riesgos
asociados, para la práctica totalidad de los países en el mundo.
En BDO estamos presentes en la realidad cotidiana de las empresas,
mirando por su desarrollo, crecimiento, y ofreciéndoles las soluciones
de asesoramiento más adecuadas en cada caso, en todos los países en
los que estamos presentes.
Confío en que este informe, así como la herramienta interactiva sea de
tu interés y de utilidad para la toma de decisiones en el corto o medio
plazo.
Un cordial saludo
Alfonso Osorio
Presidente de BDO en España
“SI UNA COMPAÑÍA PRETENDE MANTENERSE EN
CABEZA EN CUANTO A COMPETITIVIDAD, NECESITA
SER CAPAZ DE INNOVAR.”

Hong Kong es la primera región en capacidad de innovación del
mundo. Así lo afirma en el International Business Compass (IBC), índice
anual interactivo que analiza la capacidad, características y condiciones
para la innovación de 174 países de todo el mundo.
Hong Kong, que mostró el mejor desempeño en los tres planos
analizados en el estudio -económico, político y sociocultural-, asciende
dos puestos con respecto al informe del año anterior y precede a
Singapur en la clasificación. De esta forma, Asia ocupa los dos primeros
puestos del índice.
Con la excepción de Hong Kong y Singapur, el top ten está integrado
exclusivamente por países de Europa. Holanda mejora tres posiciones
desde el año anterior y se sitúa en tercer lugar, seguido de Suiza que,
en 2015, encabezaba el ranking en primera posición. Noruega cierra los
primeros cinco puestos, seguida de Dinamarca en sexto lugar. Ambos
países han perdido una posición respecto al año anterior.
Según el IBC, Irlanda ocupa el séptimo puesto, lo que representa
ganar 10 posiciones respecto a 2015, reflejo de que las condiciones
económicas generales han mejorado. Gran Bretaña, por su parte,
conserva la octava posición del anterior informe. Canadá y Australia
cierran las diez primeras posiciones de la clasificación en noveno y
décimo lugar, respectivamente.
Por detrás de Lituania, Letonia, Eslovaquia y Hungría se encuentra
España, que ocupa la posición número 42, dos puestos por encima que
en 2015 y precediendo a Portugal, que ha ascendido seis posiciones.
El índice concluye, por orden, con la República Centroafricana, Sudán y
Corea del Norte en las tres últimas posiciones. El desempeño mostrado
por estos países fue extremadamente pobre teniendo en cuenta sus
condiciones políticas generales.
El IBC analiza la capacidad, características y condiciones para la
innovación de 174 países de todo el mundo, así como sus niveles y
tendencias de gasto en investigación y los indicadores del éxito en
producción de innovaciones en el pasado. Su principal ventaja reside en
la posibilidad de clasificar países en función de sus niveles de innovación
y arrojar luz sobre las inversiones de empresas multinacionales y otras
organizaciones a través de estadísticas ilustrativas útiles para los
tomadores de decisiones corporativas en la selección de localizaciones
para sus compañías.
RESUMEN EJECUTIVO
BDO, que a través del IBC analiza anualmente los niveles de crecimiento
de regiones de todo el mundo teniendo en cuenta sus situaciones
económica, política y sociocultural, enfoca el análisis en 2016 desde
la perspectiva de la innovación dada la previsión de que la carrera
tecnológica mundial se intensifique aún más en los próximos años,
tanto en países industrializados como en aquellos en desarrollo y en
economías emergentes -que podrían aumentar sus propios niveles
de innovación mediante la absorción de nuevas tecnologías-. Como
consecuencia, en la economía global del futuro, la innovación tendrá
un impacto aún mayor que el de hoy en día sobre la competitividad
internacional de los países y empresas.
El índice IBC de BDO es una herramienta web única que tiene la
finalidad de proporcionar a industrias y PYMEs información fiable sobre
posibilidades y riesgos que prevalecen en mercados de todo el mundo
de cara a su posicionamiento geográfico. Los datos que ofrece son
de particular importancia para empresas que actúan a nivel global o
que tienen entre sus objetivos crecer más allá de sus fronteras. Desde
su lanzamiento, el índice ha analizado el crecimiento global desde la
perspectiva de la capacidad de empleabilidad (2015), la infraestructura
(2014) y la inversión directa (2013).

EXECUTIVE SUMMARY
MOTIVATION
To a great extent, the history of economic growth is the history of
major technological breakthroughs. They often occur suddenly, brin-
ging with them a string of derivative innovations which permanently
change the nature of human economic activity and ultimately the
lives of people. The large number of product and process innovations
in recent times is a sign that we are most likely on the brink of another
technological upheaval in the production structure of our economy.
Digitisation is only part of this, as is the trend towards greater sus-
tainability. Everyone expects the global technological race to intensify
further in the coming years. This applies to industrialised countries
as well as developing countries and emerging economies that could
increase their own levels of innovation by absorbing new technologies.
In the global economy of the future, innovations will have an even
greater impact on the international competitiveness of countries and
companies than today. As a result, the ability of company locations to
stimulate the level of innovation will become an important factor in
the attractiveness of regions.
Therefore, the objective of this year’s International Business Compass’
in-depth look should be to determine the characteristics and condi-
tions for innovation in an international comparison on the basis of
available data. Our detailed analysis is divided into three parts. Firstly,
we will discuss the various general conditions for successful innova-
tion from country to country. We will then analyse levels and trends in
national spending on research and development. Finally, we will eva-
luate the success of countries at producing innovations in the recent
past using suitable indicators. In addition, as in previous years the IBC
overall ranking and both sub-indices have been updated in order for us
to be able to evaluate production and business locations.
RESULTS
This year Hong Kong was at the top of the BDO International Business
Compass 2016, having moved up from third place last year. The coun-
try performed well in all three sub-pillars, especially the economic
sub-pillar. Singapore and the Netherlands were close behind in second
and third place respectively. Norway rounds off the top five, followed
by Denmark. Both countries have fallen by one place compared to
the previous year. Ireland is in seventh place, having gained 10 places.
Following losses in the previous year, the general economic conditions
can be seen to have improved. Great Britain remains in eighth place.
The top 10 are rounded off by Canada and Australia. The 2016 ran-
kings are largely based on data from 2014. The changes compared to
the index in the previous year greatly reflect the global developments
that took place in 2014. In particular, this period saw the events in
Ukraine and the emergence of the so-called Islamic State. As a result,
Ukraine is the big loser in the ranking. Ongoing crises continue to flare
up, for example in Greece, Nigeria and Libya. This period also saw the
outbreak of the Ebola epidemic in West Africa. Overall, the results
are relatively familiar in spite of the events. The industrialised nations
from North America and Northern and Western Europe continue to
dominate the rankings. Central African countries in particular are per-
forming poorly this year.
The major industrialised countries Germany, Japan and the USA are in
12th, 15th and 20th place. The top 40 places are dominated by Euro-
pean and OECD countries, as well as some of the rich oil-producing
nations of Asia. The bottom ten places are occupied by the most
economically impoverished countries. The Central African Republic,
Sudan and North Korea are in the bottom three places. These coun-
tries performed extremely poorly with regard to their general political
conditions. In the IBC 2016, Malawi and Kosovo made the greatest
leaps forward. Both advanced by 20 places. For Kosovo, this is due to
improved general conditions in all three areas, whereas Malawi impro-
ved its economic and sociocultural indicators in particular. Cape Verde
and Namibia are two more African countries to have moved up this
year. They advanced by 18 and 14 places respectively. Likewise, Mon-
golia improved its position by gaining 14 places.
Amongst the OECD countries, the Netherlands is at the top of the
IBC production sub-index. This is predominantly due to its central
location in Europe and the international focus of its financial policies.
The Netherlands is followed by Great Britain, Belgium, Denmark,
Switzerland, Germany, Canada and Ireland. In Africa, the production
sub-index continues to be dominated by Mauritius. Botswana, Nami-
bia and South Africa are close behind. The production sub-index for
Asia is characterised by the outstanding performances of Singapore
and Hong Kong. These are in first and third place respectively in the
global comparison due to the great market potential of both countries
as well as their investor-friendly legislation. Taiwan, Qatar, Bahrain
and Brunei occupy the other top positions in Asia. In 24th place on
the production sub-index, Latvia is the leading European non-OECD
country. It is followed by Lithuania, Malta and Romania. The results of
the production index for the Latin American countries are relatively
homogeneous as most of the countries are close to the global median,
between 50th and 120th place. The best performer was Barbados, fol-
lowed by Uruguay, St. Lucia and Jamaica. The five countries in Oceania
did not change compared to the previous year. Samoa performed the
best whilst the Solomon Islands were in last place.
As expected, the OECD countries were also dominant in the business
sub-index. The 15 highest index values were attributable to OECD
countries. The business market category is led by wealthy Switzerland,
followed by the major consumer nation, the USA. Norway, Germany
and Great Britain round off the top five. In Africa, nations from the
south of the continent are in the upper echelons of the business sub-
index. South Africa is at the top of the list and is even one of the 60
most attractive markets on a global scale. Mauritius is in second place,
followed by its neighbours Namibia and Botswana. The business sub-
index for Asia is led by Hong Kong and Singapore, both of which are
in the global top 20. China is in third place in Asia. Behind China are
smaller states such as Taiwan and the United Arab Emirates that profi-
ted from their high income per capita. In the business market rankings,
the European non-OECD countries are led by Malta, Latvia and Lithu-
ania, followed by Croatia, Romania and Albania. The most attractive
markets in Latin America are the relatively affluent Caribbean islands
of the Bahamas and Barbados. These are followed by Panama and St.
Lucia. Oceania’s non-OECD countries are in the upper middle field in
the international comparison. Samoa performed the best.

www.bdo-ibc.com 7
The results of our in-depth look at innovation paint a diverse picture
of the global innovation landscape. On the one hand, despite the
growing attractiveness of countries such as China, the local policies
of major research intensive companies is currently mainly focused on
the established industrialised countries, especially the USA and Japan.
With regard to the USA in particular, this can be explained objectively
by a combination of favourable institutional conditions for innovating
companies and a consistently high pool of (native and foreign) highly
qualified people, regardless of market access. On the other hand, the
more detailed analysis demonstrates that the global spread of multi-
national R&D giants is of limited significance to the total amount of
innovation work in each country. Judged by the investment volume or
by the level of research success, the tectonics of R&D have visibly shif-
ted within the last decade, especially since the financial crisis.
The South Korean example in particular shows how a targeted natio-
nal innovation strategy can not only accelerate innovation, but also
stimulate general economic growth. Amongst the emerging econo-
mies, China is on a similar path and will soon make the jump from
imitator to innovator in the global race for knowledge. However, it
remains to be seen how sustainable these developments will be and
how competitive Chinese innovations will prove to be on the inter-
national level in the long term. Amongst the established industria-
lised nations, countries such as the USA and Germany were able to
retain or even consolidate their technological lead in many segments.
Other countries have lost ground over the past few years. Japan and
Great Britain are striking examples of this in our analysis. Based on
the number of patent applications in recent years, Japan’s innovation
has declined steadily, which is why the country lost its global lead to
South Korea for the first time. Nevertheless, the decline was still at a
high level; the level of innovation in the Japanese R&D sector is still
high compared to other countries. Effects on the competitiveness of
national knowledgeintensive industries. As ever, Great Britain posses-
ses a highly educated labour force and universities with an excellent
international reputation, although the conversion of these resources
into successful research has been considerably lower than in other
countries. Investments in R&D per capita as well as the number of
patent applications in Great Britain were clearly below average when
compared to other industrialised countries. When we consider the
BRIC countries, with the aforementioned exception of China they have
barely caught up in the race for innovation on a macroeconomic level.
Despite slightly positive trends, Brazil and India are investing much
less in R&D per capita and as a proportion of their economic strength
than the global technological leaders. These countries are also almost
completely insignificant in quantitative terms when we consider the
spread of patent applications relating to future technologies. Given
the recent developments in Russia, we are even forced to speak of a
decline. Despite a high level of governmental subsidies for research,
the total number of people working in R&D in Russia bucked the trend
and decreased over the past decade, and the level of investments is
low.
CONCLUSIONS
The overall ranking of the International Business Compass remained
largely stable in 2016. There were slight shifts at the top of the ran-
kings; having spent years in second and third place, Hong Kong now
holds first place. Switzerland fell from first place in the previous year
to fourth place, although its decline was only slight in absolute index
values. The Netherlands was able to break into the top three for the
first time following significant gains. Likewise, Ireland and Australia
both made it into the top 10, Ireland having experienced exceptionally
positive developments. Overall, with the exceptions of Hong Kong and
Singapore the top 10 once again exclusively comprise OECD countries.
The changes in the middle and bottom of the ranking were more signi-
ficant. Ukraine was the biggest loser by far, although the countries in
North Africa also lost a lot of ground.
TECHNICAL DETAILS
The study comprised 174 countries across all continents. As in the
previous year, the study did not include countries with fewer than
150,000 inhabitants or the countries/territories of Cuba, the West
Bank, Somalia or Western Sahara. Likewise, Luxembourg was exclu-
ded from the overall ranking due to its unusual economic structure,
especially because of its extraordinarily high capital inflows per capita.
These would have greatly distorted the weighting of direct invest-
ments in the index calculation. Additionally, as in previous years Syria
was excluded from the index as the civil war makes it impossible to
reliably assess its future prospects.
We updated the data by referring to the selection of reliable internati-
onal sources used in the previous year. This normally involves updating
the 2013 values from last year’s index to the values measured in
2014. With regard to averages of variables measured over time, such
as population growth, the time frame was moved into the future by
a period. Compared to last year’s report, the selection of indicators
used to calculate the index did not change. As before, the indicators
reflect the key theoretical sub-aspects of the quality of a country as
a business or production location. Like last year, each indicator was
first standardised in the form of a scale from 0 to 100 and assigned to
one of three pillars. The arithmetic mean of the indicators within each
pillar was then calculated. In the final step, the geometric mean of
the pillar values was calculated in order to determine the total index
value. The values for the business and production sub-indices were
calculated by determining the mean of the relevant local factors. For
non-OECD countries, the index values were expressed in relation to
the continental average for the purposes of intraregional compari-
sons.

To a great extent, the history of economic growth is the history of
major technological breakthroughs. They often occur suddenly, bring-
ing with them a string of derivative innovations which permanently
change the nature of human economic activity and ultimately the
lives of people. The large number of product and process innovations
in recent times is a sign that we are most likely on the brink of another
technological upheaval in the production structure of our economy.
Digitisation is only part of this, as is the trend towards greater sus-
tainability. Everyone expects the global technological race to intensify
further in the coming years. This applies to industrialised countries
as well as developing countries and emerging economies that could
increase their own levels of innovation by absorbing new technologies.
In the global economy of the future, innovations will have an even
greater impact on the international competitiveness of countries and
companies than today. As a result, the ability of company locations
to stimulate the level of innovation will become an important factor
in the attractiveness of regions. Therefore, the objective of this year’s
International Business Compass’ in-depth look should be to determine
the characteristics and conditions for innovation in an international
comparison on the basis of available data.
In real terms, the local research infrastructure affects the attractive-
ness of regions in several different ways. Favourable and reliable gen-
eral conditions for local research and development work are essential
for innovation and in turn success on the market. Additionally, the
general level of local research work, i.e. in the public sector and other
private companies, is important in terms of the transfer of knowledge
and the potential for regional research collaboration.
Naturally, the level of innovation of a location is of direct interest to
knowledge-intensive sectors. This also indirectly benefits suppliers
and consumers. Innovations affect both production and marketing.
Additionally, the link between innovation and local economic growth
also affects the profitability of business markets.
This series of subjects therefore has an impact on the choice of loca-
tion as well in terms of production and sales. Our detailed analysis
is divided into three parts. Firstly, we will discuss the various general
conditions for successful innovation from country to country. We will
then analyse levels and trends in national spending on research and
development. Finally, we will evaluate the success of countries at pro-
ducing innovations in the recent past using suitable indicators.
1. INTRODUCTION

www.bdo-ibc.com 9
2. RESULTS OF THE IBC 2016
2.1 OVERVIEW
The International Business Compass (IBC) aims to present the total level
of development of countries and regions in the form of a single index
value. This allows us to rank the countries based on their level of devel-
opment. It will then be possible to use the index to shed light on the
investments of multinational companies and other organisations. The
IBC shares this ranking concept with other established country indices
such as the Human Development Index (HDI) and the Global Competi-
tiveness Index (GCI). However, one key difference lies in the scope of the
chosen aspects. Whereas the aforementioned indices ultimately focus
on specific sub-aspects of the development of countries (be they eco-
nomical, political or social), the IBC is expressly attempting to integrate
these various dimensions into one index value.
In this sense we can describe its structure as a combination of the three
sub-pillars, i.e. the economic, political and sociocultural situations,
which in turn form a group of related indicators. First, the individual
indicators are standardised and the arithmetic mean of the standard-
ised values within the sub-pillars is determined in order to calculate
the index. Image 1 shows the chosen indicators and their allocation to
the sub-pillars. To produce the total value, the geometric means of the
results for the sub-pillars are then calculated. As the selection of varia-
bles in this update has not changed, we refer to the 2013 edition.1
When interpreting the index, please note that it is based on the assump-
tion that a country should be internationally competitive with regard
to all three pillars for its overall level of development to be high. This is
due to the geometric means of the pillar values: a poor value in one pil-
lar cannot automatically be balanced out by excellent values in another
pillar. This causes some countries to occupy a lower place in the overall
ranking than one would expect in light of
their otherwise high level of development
due to a poor performance in one pillar.
Besides the overall index, the data also
make it possible to evaluate countries
on the basis of specific aspects of local
attractiveness. In this regard we differ-
entiate between the attractiveness of a
country as a market and its attractiveness
as a production location, and allocate
groups of indicators to these sub-aspects
on the basis of sound economic theories
(see Image 1). The arithmetic mean of the
standardised indicator values is then calcu-
lated in order to produce the sub-indices.
Likewise, these sub-indices are updated
each year. This way, we can evaluate the
development of a location with regard to
investorspecific characteristics as well as
its overall development.
Figure 1: Composition of the International Business Compass (IBC)
Source: HWWI
– GDP per capita
– Public debt
– Per-capita FDI inflows
– Inflation
– Business freedom
– Infrastructure
– Total tax rate
– Market potential
Economic
conditions
– Political stability
– Quality of regulation
– Rule of law
– Corruption control
– Trade freedom
– Investment freedom
Political-legal
conditions
– Population growth
– Unemployment rate
– Per-capita
consumption
– Health
– Education
– Work freedom
Socio-cultural
conditions
BDO INTERNATIONAL BUSINESS COMPASS
Production location
attractiveness
– Total tax rate
– Infrastructure
– Market potential
– Wage costs
– Rule of law
– Work freedom
– Investment freedom
Market
attractiveness
– Population
– Inflation
– Per-capita consumption
expenditure
– Political stability
– Infrastructure
– Trade freedom

Image 2: Global distribution of the index values of the IBC 2016
Source: HWWI (2016)
2.2 UPDATING OF DATA
The same sources as in previous years were used when selecting data
in order to facilitate a reasonable comparison. The data were updated
for all variables that were factored into the calculation of the rankings.
This normally involves updating the 2013 values from last year’s index
to the values measured in 2014. With regard to averages of variables
measured over time, such as population growth, the relevant time
frame was moved into the future by a period. Likewise, the market
potential indicator we calculated was recalculated using updated sta-
tistics on value added. Finally, we replaced the often incomplete IMF
variable for unemployment with a new World Bank statistic that cov-
ers considerably more countries.
As in previous years, Luxembourg has been excluded from the index:
the leading position of the country as a global financial centre would
otherwise greatly distort the real economic rankings of the countries
based on the method used. In particular, the enormous direct invest-
ment per capita in Luxembourg is problematic for our methods as
it would render the indicator for country comparisons meaningless.
However, wherever relevant information is available, Luxembourg
is included in this year’s comparative country comparison. Likewise,
Syria remains excluded as no reasonable predictions can be made for
the region in light of the ongoing civil war. Otherwise, inclusion in the
IBC generally requires a minimum population of 150,000 people.
INDEX
missing values
< 30.00
30.01 – 40.00
40.01 – 50.00
50.01 – 60.00
60.01 – 70.00
70.01 – 80.00
> 80.00
2.3 RESULTS
2.3.1 Results of the overall index in 2016
The 2016 rankings are largely based on data from 2014. The changes
compared to the index in the previous year greatly reflect the global
developments that took place in 2014. In particular, this period saw
the events in Ukraine and the emergence of the so called Islamic
State. As a result, Ukraine is the big loser in the ranking. Ongoing cri-
ses continue to flare up, for example in Greece, Nigeria and Libya. This
period also saw the outbreak of the Ebola epidemic in West Africa.
Overall, the results are relatively familiar in spite of the events.
Image 2 represents the global distribution of the IBC overall index for
2016. The industrialised nations from North America and Northern
and Western Europe continue to dominate the rankings. Central Afri-
can countries in particular are performing poorly this year. The full
rankings are available in the annex.
The top 10 in the IBC 2016 show familiar patterns as eight countries
from the previous top 10 are represented (see Table 1). Whereas Swe-
den and New Zealand were pushed out of the top 10, Ireland and
Australia made it back in. For the first time, Hong Kong reached the
top of the IBC ranking with a very narrow lead over Singapore, which
reached second place. Both of these countries have always been in
the top three, which attests to the extraordinary attractiveness of the

www.bdo-ibc.com 11
nomic conditions improved and the Irish financial crisis seems to be
coming to an end. Great Britain remains in eighth place. The top 10 are
rounded off by Canada and Australia
Winners and Losers
In the IBC 2016, Malawi and Kosovo made the greatest leaps for-
ward. Both advanced by 20 places (see Table 2). For Kosovo, this is
due to improved general conditions in all three areas, whereas Malawi
improved its economic and sociocultural indicators in particular. Cape
Verde and Namibia are two more African countries to have moved up
this year. They advanced by 18 and 14 places respectively. Likewise,
Mongolia improved its position by gaining 14 places.
regions. Compared to the previous year, both countries improved their
scores for their general economic conditions. The Netherlands was in
third place, gaining an impressive ten places since the IBC 2014. Like-
wise, this was primarily due to improvements in its general economic
conditions.
Having lost the top spot, Switzerland is now in fourth place. It expe-
rienced minor losses in terms of its general sociocultural conditions.
Switzerland only declined slightly overall, whereas the top three
nations registered considerable gains. Norway rounds off the top five,
followed by Denmark. Both countries have fallen by one place com-
pared to the previous year. Ireland is in seventh place, having gained
10 places. After suffering losses in the previous year, its general eco-
Winners Increase Losers Fall
Malawi +20 Ukraine -41
Kosovo +20 Lesotho -18
Cape Verde +18 Mauritania -17
Mongolia +14 South Africa -15
Namibia +14 Azerbaijan -14
Table 2: IBC 2015 vs. IBC 2016: The greatest increases
and decreases in rank
Source: HWWI (2016)Source: HWWI (2016)
No. Country Value +/-
1 Hong Kong 84.39 +2
2 Singapore 84.10 0
3 Netherlands 81.18 +3
4 Switzerland 80.69 -3
5 Norway 78.80 -1
No. Country Value +/-
6 Denmark 77.92 +10
7 Ireland 76.84 +10
8 Great Britain 76.13 0
9 Canada 75.81 -2
10 Australia 75.68 +2
Table 1: Top 10 in the IBC overall index for 2016

Region Ø Region Ø
Northern Europe 75,2 Central America 53,1
North America 74,0 West Asia 52,9
Western Europe 73,0 East Asia 52,0
Oceania 68,7 Eastern Europe 51,8
Southern Europe 60,0 Southeast Asia 49,2
Less surprisingly, Ukraine suffered the biggest setbacks in this year’s
rankings. It fell by 41 places compared to the previous year due to poor
results in all categories. This is of course due mainly to the political cri-
sis and the ongoing civil war in the east of the country. The decline of
its economic indicators was particularly dramatic. Likewise, the African
nations of Lesotho, Mauritania and South Africa were amongst the big-
gest losers. Lesotho suffered the largest decline in its general political
conditions, Mauritania in its general sociocultural conditions and South
Africa in its general economic conditions. Azerbaijan fell by 14 places
due to poorer sociocultural indicators.
Breakdown by region
Performances can also be compared by global region (as demarcated
by the UN) if the mean index value of the countries in a region is
calculated. Population size will serve to weight the results for each
country in a region below.2
As can be expected given the global dis-
tribution, the strongest economic regions – Northern Europe, North
America and Western Europe – are at the top of the global rankings
(see Table 3). Northern Europe has managed to defend its top spot
from the previous year. The Northern European countries range from
fifth place (Norway) to 39th place (Latvia), whilst the Western Euro-
pean countries range from fourth place for Switzerland to 25th place
for France. Oceania is in fourth place in the regional comparison, ben-
efiting from the good performances of Australia and New Zealand.
Squarely in the middle of the field are Southern Europe, Eastern
Europe, Central America and West Asia, which is highly dependent
on the good performance of the Gulf States. Within Africa, only the
south of the continent is approaching an average value. Due to the
political unrest, North Africa has continued to fall in the rankings. As
a result, the four lowest regional averages can be found in Africa. Cen-
tral Africa has declined particularly starkly in this regard. None of the
countries in the region made it into the top 100; in 121st place, Gabon
is the most successful country.
2.3.2 Results for the market and production sub-indices
The sub-indices of the IBC rate countries based on their potential
as a production location or market. Various relevant indicators are
standardised and added to the related sub-index (see image 1). As in
the previous year, the sub-indices are calculated additively and not
multiplicatively. Consequently, there are fewer dramatic differences
between the years and extreme results from individual countries are
minimised. As in the previous year, the results below are presented by
continent in order to simplify regional comparisons. In order to facili-
tate the comparison of countries with a similar level of development,
we have limited ourselves to non-OECD countries in the continental
comparison (as in the previous year). The sub-index values of the
OECD countries are compared against one another in separate rank-
ings. This way, we can also compare the attractiveness of the devel-
oped countries as markets and production locations. A table of the
results of the sub-indices can be found in annex D.
Production location
Amongst the OECD countries, the Netherlands is at the top of the IBC
production sub-index. This is predominantly due to its central loca-
tion in Europe and the international focus of its financial policies. The
Netherlands is followed by Great Britain, Belgium, Denmark, Switzer-
land, Germany, Canada and Ireland. These are all in the global top 10
production locations. Portugal, Turkey, Greece and Mexico are in the
bottom places amongst OECD countries. This is mainly due to their
weak infrastructure and limited market potential
In Africa, the production sub-index continues to be dominated by
Mauritius. Botswana, Namibia and South Africa are close behind.
Compared globally, these countries are amongst the 70 most attrac-
tive production locations based on the IBC production sub-index.
Zimbabwe, Comoros, Eritrea, the Central African Republic and the
Democratic Republic of the Congo are at the bottom of the list. Sta-
tistically, these are the five poorest production locations in the world.
Some changes compared to the previous year are noteworthy. Algeria
fell by nine places whilst Djibouti, Ethiopia and Togo each gained six
places.
The production sub-index for Asia is characterised by the outstanding
performances of Singapore and Hong Kong. These are in first and third
place respectively in the global comparison due to the great market
potential of both countries as well as their investor-friendly legisla-
tion. Taiwan, Qatar, Bahrain and Brunei occupy the other top positions
in Asia. The lower end of the Asian production location index features
Tajikistan, Uzbekistan and Turkmenistan. The biggest loser is Timor-
Leste which fell by 12 places in the comparison of Asian countries,
whereas Cambodia and the Maldives experienced the most positive
developments, increasing by seven places. In 24th place on the pro-
duction sub-index, Latvia is the leading European non-OECD country.
It is followed by Lithuania, Malta and Romania. The young nations of
Montenegro and Kosovo are in the middle field in Europe. Belarus,
Russia and Ukraine are at the bottom of the list.
Region Ø Region Ø
South America 48,9 East Africa 42,8
Southern Africa 47,7 North Africa 42,2
Caribbean 47,7 West Africa 41,3
Central Asia 45,0 Central Africa 4,1
South Asia 44,3
Table 3: IBC overall index 2016: regional averages
Source: HWWI (2016)

www.bdo-ibc.com 13
The results of the production index for the Latin American countries
are relatively homogeneous as most of the countries are close to the
global median, between 50th and 120th place. The best performer
was Barbados, followed by Uruguay, St. Lucia and Jamaica. The Ameri-
can production locations with the lowest index values are Haiti, Vene-
zuela and Bolivia. Bolivia and Venezuela can be explained due to their
lack of freedom of investment and strictly regulated labour markets.
Chile would be the continental leader if it did not belong to the OECD.
The five countries in Oceania did not change compared to the pre-
vious year. Samoa performed the best whilst the Solomon Islands
were in last place. Due to their limited market potential, all countries
with the exception of Samoa were in the lower half of the production
sub-index.
Markets
As expected, the OECD countries were dominant in the market
sub-index. The 15 highest index values were attributable to OECD
countries. The business market category is led by wealthy Switzerland,
followed by the major consumer nation, the USA. Norway, Germany
and Great Britain round off the top five. Chile, Israel, Mexico and
Turkey occupy the lower ranks. Although it was in last place, Turkey
remains in the middle of the field from a global perspective. Japan has
fallen by four places compared to the previous year and is now in 10th
place, whereas Iceland gained three ranks and is now in seventh place.
In Africa, nations from the south of the continent are in the upper
echelons of the market sub-index. South Africa is at the top of the list
and is even one of the 60 most attractive markets on a global scale.
Mauritius is in second place, followed by its neighbours Namibia and
Botswana. The Democratic Republic of the Congo, the Central African
Republic and Sudan are at the bottom of the list. Alongside Eritrea,
Djibouti and Chad, they are the top 10 statistically least attractive
markets in the world. There have been some obvious changes com-
pared to the previous year. Malawi improved its position by 24 places
whilst Burundi increased by 16 ranks. Kenya and Tanzania fell by 16
places, making them the losers in this category.
The market sub-index for Asia is led by Hong Kong and Singapore,
both of which are in the global top 20. China is in third place in Asia.
Behind China are smaller states such as Taiwan and the United Arab
Emirates that profited from their high income per capita. India is in
ninth place one more. Yemen, Iran and Afghanistan are at the bottom
of the list. Afghanistan and Iran are amongst the bottom six in the
global comparison. The biggest winners are Timor Leste and the Mal-
dives, which improved by eight and six ranks respectively. In contrast,
Azerbaijan and North Korea both fell by nine places.
The European non-OECD countries are led by Malta, Latvia and Lith-
uania in the market sub-index ranking. Globally, both of these coun-
tries would be in the top 50. These countries are followed by Croatia,
Romania and Albania. Moldova, Russia, Belarus and Ukraine are at
the bottom of the list. Kosovo gained three ranks whilst Ukraine fell
by five places and performed much more poorly than in the previous
year. Ukraine is now in 131st place in the global rankings.
The most attractive markets in Latin America are the relatively
affluent Caribbean islands of the Bahamas and Barbados. These are
followed by Panama and St. Lucia. Interestingly, Brazil ended up close
to the Latin American median again. Even considered globally, in 74th
place Brazil is rather average due to its weak infrastructure and politi-
cal instability. Colombia, Honduras, Bolivia and Venezuela were at the
bottom of the index. In a global comparison, Venezuela is in the third
place from the bottom. There have been no major changes in this con-
text; they are limited to jumps of no more than three ranks.
Oceania’s non-OECD countries are in the upper middle field in the
international comparison. The ranks of the countries range from 35
to 72. Samoa performed the best. Papa New Guinea is in last place in
the continental comparison. Only Fiji and the Solomon Islands have
changed places since the previous year.
1 HWWI (2013): BDO International Business Compass – international location index for
medium-sized companies (published by Michael Bräuninger).
2 The allocation of countries to the global regions is set out in annex A.

3.1 INNOVATION
The wheel, the steam engine, the microchip: groundbreaking inno-
vations have always been crucial milestones in the history of human
economic activity. One key hallmark of such technologies is that they
intellectually and technologically pave the way for a range of follow
up innovations for various applications. The result is a rapid increase in
productivity and efficiency combined with perceptible changes in eco-
nomic activity and even mediumterm societal upheavals. This makes
stimulators of innovation key drivers of longterm economic develop-
ment and welfare improvements. Many experts believe that the global
economy is on the brink of a new revolution that will be driven by
innovation. In this case it is the networking of machines known as ‘dig-
itisation’ that has been attributed revolutionary potential. Digitisation
affects a number of different applications such as digital intelligence,
robotics, cloud computing and 3D printing. The most significant direct
consequences are the increasing decentralisation and flexibility of pro-
duction processes (HWWI, 2015). Simultaneously, 3D printing in par-
ticular could even transform the architecture of international trade,
potentially causing the traditional advantages of commerce and loca-
tions such as amount of capital and resources to lose their significance
(Berenberg & HWWI, 2015).
As drivers of growth, innovations may compound all of this in the
long term. As the digitisation process advances, increasingly complex
solutions will be in demand; additionally, due to the individualisation
of products and marketing many more ideas can be implemented as
innovations than in the past. This affects the products themselves as
well as the accompanying services. Established business models are
facing increasing pressure and the global race to innovate is heating
up. The competition for the best minds in the business will intensify
and new ideas will circulate even more quickly, which will make it even
more important to market them as quickly as possible. From a busi-
ness perspective, the ability of a location to produce successful inno-
vations will therefore become a much more significant factor in the
choice of a location in several different ways. Favourable and reliable
general conditions for local research and development work are essen-
tial for innovation and in turn success on the market. Additionally, the
general level of local research work, i.e. in the public sector and other
private companies, is important in terms of the transfer of knowledge
and the potential for regional research collaboration. Besides invest-
ments in research and development, this activity can be gauged by
means of innovation indicators such as patent registrations.
3. IN-DEPTH LOOK AT
INNOVATION
Therefore, the primary focus of this year’s issue of the BDO Interna-
tional Business Compass is the capacity of countries for innovation.
We interpret the term ‘innovation’ below in line with its standard
definition, i.e. inventions that are sufficiently developed to be real
products or processes and that are introduced onto the market as
such. Based on the stages of innovation processes, our examination
is divided into three sections. The first section addresses the coun-
tryspecific general conditions for research as a central prerequisite
(or input) for successful innovation. We will examine factors such as
the conditions for establishing new companies, government funding
for research, the national level of education and the influx of inter-
national experts. The second section focuses on the development
of national research and development (R&D) activities in the recent
past. Key inputs are investments in R&D and the number of employ-
ees. In light of the transfer of knowledge, it is necessary to consider
both private application research and (semi-)public basic research.
By differentiating by fields of application and sources of finance, we
can reveal structural differences between various countries’ focus on
R&D investments and their volatility. The third section attempts to
use a variety of methods to gauge the level of successful innovation
as a result (or output) of the research process from country to coun-
try. Besides the quantitative development of patent applications and
similar intellectual property rights, we will also highlight innovation-
related activity in terms of specific future technologies as well as the
structure of international trade with hightech goods and licences to
intellectual property. Finally, we will summarise our key findings with
regard to future challenges and provide opinions on the development
of characteristic countries.

www.bdo-ibc.com 15
3.2 REGIONAL CONDITIONS
FOR INNOVATION
The potential of a location for innovation is traditionally measured
by the R&D investments first of all. Although, as we will see, there
is actually a high degree of correlation between R&D investments
and the level of innovation, this indicator alone is insufficient for us
to draw conclusions as to the attractiveness of a country as a place
of innovation. Efficiency, quality, favourable general conditions and
future prospects play a major role in innovation-related activities,
especially as the majority of innovations are brought about by compa-
nies. It is therefore wise to first consider some indicators that serve as
prerequisites for successful innovation. These factors serve indirectly
as innovation inputs that can affect the ‘efficiency’ of R&D invest-
ments to a certain extent. If these input indicators perform poorly,
it might be a sign of barriers to innovation that generally make it
more difficult to innovate. We can expect every country or group of
countries to be facing different barriers of varying insurmountability.
However, as different types of innovation are often prioritised – some
of which come with specific requirements – it is generally difficult to
make conclusive evaluations on the basis of individual pieces of infor-
mation. In spite of this, however, the following indicators can shed
light on the strengths and weaknesses of individual countries.
Institutional general conditions
and founder behaviour
First of all, the institutional general conditions are crucial for a com-
pany to be innovative. Companies can only consider attempting to
innovate if the legal and political conditions in the region are favour-
able for innovation. This is the only way to prevent new ideas from
being implemented abroad instead. Good general conditions are
difficult to gauge and compare because many different factors can
be at work. For companies to be willing to invest in the future, they
first require a stable political situation and legal certainty. This also
includes potential innovations receiving sufficient protection for the
financial expenditure of the company to pay off. It is also important
that companies are as free as possible in their innovation processes
and are able to carry them out with no great effort. Essentially, the
decisive factors in this regard are also key factors for general corporate
activities.
The World Bank ease of doing business index describes the intensity
with which states influence the activity of companies through regula-
tions (World Bank, 2015). It focuses on potential obstacles to ten cor-
porate activities such as the establishment of a company, the taking
out of loans and the conclusion of contracts. General local conditions
such as corruption and macroeconomic factors are not taken into
account. Fundamentally, neither a lack of regulation nor strict restric-
tions are generally considered optimal. Rather, optimal regulations
should allow companies to carry out their activities with no undue
restrictions. As factors such as the conditions of company establish-
ment and loans are also essential for start-ups and innovation, the
ease of doing business index is also a good indicator of conditions
favourable for innovation.
Table 4 shows the current ranking for 2016. Singapore has been at the
forefront with the best corporate conditions for several years. Its excel-
lent local conditions for investments and regulations have been driving
innovation for years (IEG WB, 2013). However, the other top positions
are also conspicuously occupied by nations considered economically
liberal such as New Zealand, South Korea, Hong Kong, Great Britain,
the USA and Scandinavian countries. In 2016 the best placed emerg-
ing economy was Mexico, in 38th place (73.72), whilst the best BRIC3
country was Russia in 51st place (70.99). In 84th, 116th and 130th place,
China, Brazil and in particular India performed relatively poorly and
ended up far behind a few other less industrialised countries.
One index with a similar interpretation is the barriers to entrepre-
neurship index of the OECD. It consists of the three sub-indicators
‘bureaucratic hurdles for start-ups’, ‘regulatory and administrative
transparency’ and ‘limitations on competition’ and therefore also meas-
ures general regulatory conditions for companies. 0 represents minimal
restrictions and 6 represents maximum restrictions.
The barriers to entrepreneurship index presented in Table 5 is only
available for 2013 and for fewer countries than the ease of doing busi-
ness index. The top performer in the latter index, Singapore, is not
covered by the OECD. The availability of data and varying reference
years aside, there are other differences too. In the OECD ranking, Slo-
vakia attained the position with the fewest restrictions yet performed
averagely on the ease of doing business index, finishing in 29th place
(75.62). In contrast, South Korea reached fourth place on the ease of
doing business index yet was ranked as a country with relatively major
restrictions with a score of 1.87 on the barriers to entrepreneurship
index. The same applies to some Scandinavian countries. In addition
to the slightly different components, the varying evaluations might
also move the World Bank to not automatically rate minimal restric-
tions and liberal general conditions as optimal. It must be stated that
some countries such as New Zealand, Denmark, the USA and Great
Britain performed exceptionally well on both indices and should be
considered locations with good general conditions for innovation.
Table 4: Countries with the highest
ease of doing business ranking
Top 10 DTF Score 2016*
Singapore 87.34
New Zealand 86.79
Denmark 84.40
South Korea 83.88
Hong Kong 83.67
Top 10 2013
Slovakia 1.15
New Zealand 1.18
Netherlands 1.19
Italy 1.22
USA 1.23
Top 10 2013
Denmark 1.26
Austria 1.31
Canada 1.34
Portugal 1.35
Great Britain 1.49
Top 10 DTF Score 2016*
Great Britain 82.46
USA 82.15
Sweden 81.72
Norway 81.61
Finland 81.05
Source: World Bank (2016)
*Distance to frontier score: 0 = worst performance, 100 = optimal
Table 5: Countries with the best
barriers to entrepreneurship index
Source: OECD (2015)
* 0 = no restrictions, 6 = maximum restrictions

Favourable economic conditions and conditions for start-ups lead to
the actual establishment of companies. Table 6 shows the density of
start-ups, i.e. how many companies are established per 1,000 inhab-
itants old enough to work. It also depicts the indicators ‘number of
procedures required to establish a company‘ and ‘time required to
establish a company’, which more accurately gauge the conditions for
start-ups than the general regulation indicators. Favourable condi-
tions for establishing companies are crucial with regard to ideas that
emerge away from systematic internal research. Start-ups can trans-
form these ideas into real innovations. As shown in Table 6, in 2014
the most start-ups by far relative to the population were founded
in Hong Kong. Both start-up condition indicators provide a possible
explanation as both score Hong Kong extremely highly. Nowhere
were fewer process stages and days required to establish a company
in 2014 than in Hong Kong. However, Singapore achieved identical
values for these conditions, yet the density of start-ups was consid-
erably lower. This shows that these administrative conditions are not
exclusively crucial for the formation of companies. With start-up
densities ranging from 13.11 to 17.26, Malta, New Zealand, Estonia,
Australia, Cyprus and Botswana proved to have highly frequent start-
ups and would therefore rank between Singapore and Hong Kong in
the table. Despite the longer time required to establish a company,
Russia ranked close to the median. Very few start-ups were estab-
lished in South Korea, France, Germany and Japan in particular. France
and Germany were therefore far below the EU average. It was also
extremely expensive to establish a new company in Germany and
Japan in particular, whereas South Korea and France performed rela-
tively well in that regard. No data are available for the USA, which is
normally a country with many new start-ups. Only data from 2012 are
available for Great Britain. The density of 12.9 achieved in that year is
relatively high for the EU, although it is lower than Estonia.
Goverment subsidising of R&D
Besides the general conditions, there are also innovation-specific
regulations that affect the attractiveness of a region as a place
of innovation. In particular, this includes the question of whether
innovation and research activities are actively subsidised by
the government and if yes, to what extent and in which form.
Government subsidies are most often the result of a market failure
having prevented the optimal level of research and development
for society from being reached. Companies often do not judge the
success of innovations by how much they benefit society, as not
all generated ‘gains’ can be claimed by the companies. As a result,
some potentially advantageous research projects for society fail to
materialise as companies do not invest enough funds. In general,
the government might directly subsidise innovation activities with
money or provide favourable loan conditions or indirect incentives
such as tax relief. In both cases, the schemes can be directed at special
company groups (SMEs, start-ups), institutions or sectors. Image 34
shows the governmental subsidisation of corporate R&D for selected
countries. It is clear that in 2013, South Korea provided the largest
subsidies for corporate R&D relative to its GDP overall. Direct and
indirect measures with similarly high percentages were used. With
over 0.4% of its GDP, Russia was slightly behind South Korea but its
subsidies were almost exclusively direct. France was the leader in
Europe. Slovenia and Belgium, relatively small countries which ranked
behind France but ahead of the USA, are not depicted. Major emerging
economies such as China and Brazil provided moderate subsidies,
whereas Mexico barely supported companies. However, past data
show that the volumes of R&D subsidies – not only relative to GDP –
are largely volatile and highly specific schemes are constantly being
introduced, abolished and redesigned (OECD, 2015). Overall, in spite
of the financial crisis in recent years the level of investment in
* Number of new companies per 1,000 inhabitants between 15 and 64 years of age ** Data from 2013.
Country Density of start-ups*
Number of procedures required
to establish a company
Time required to establish
a company (in days)
Hong Kong 31.3 3.00 2.50
Singapore 9.51 3.00 2.50
Norway 7.72 4.00 5.00
Sweden 6.87 3.00 16.00
Denmark 4.36 4.00 5.50
Russia 4.2 4.00 11.20
Israel 3.11 5.00 13.00
South Korea 2.30 3.00 4.00
France 2.26 5.00 4.50
Germany ** 1.29 9.00 14.50
Japan 0.15 8.00 10.20
EU 6.03 5.00 11.48
OECD 5.19 5.00 8.90
World 4.00 7.00 22.49
Table 6: Start-ups and conditions for business formation in 2014

www.bdo-ibc.com 17
R&D increased in almost every country with available data (OECD,
2014). Countries such as South Korea, France and the USA have been
heavily financing R&D for years.
Higher education
A good level of education is necessary for existing knowledge to be
applied and new knowledge to be obtained. Highly educated research-
ers and developers who are able to develop and drive forward inno-
vations are an essential basic requirement for work on innovations
and their success. By virtue of their research, PhD candidates in par-
ticular are potentially highly educated R&D experts, and a majority
of them work in the field of research both during and after obtaining
their doctorate (OECD, 2013). However, experts at the location also
generally play a major role in implementing innovations. Therefore,
a country in which the majority of the population have a university
degree provides the best conditions for innovation5
. Image 4 shows
the percentage of the population in possession of a university quali-
fication within the group of 15 to 64-year olds, i.e. the total volume
of people eligible for employment in 2014, for selected countries. The
qualifications are subdivided into short-term programmes (specific
to some countries), bachelor’s and master’s degrees and doctorates
or equivalent qualifications. Overall, the percentage of people with a
university qualification is highest in the USA. In the USA, almost 45%
of people in the relevant age category had such a qualification in 2014.
Additionally, at 1.64% the percentage of successful PhD candidates
was the highest there. The variations are relatively low overall. Most
of the countries in the index were relatively close to the OECD aver-
age of around 35%. It is noteworthy that the G7 countries France and
Image 3: Governmental subsidising of corporate R&D in 2013
Image 4: Percentage of 15 to 64-year olds with a university qualification in 2014
Source: OECD (2015), HWWI (2016)
In per cent of the total number of 15 to 64-year olds
Short-term tertiary education Bachelor or equivalentMaster or equivalent PhD or equivalent
0.5
0.0
0.1
0.2
0.3
0.4
KOR RUS (2011) FRA USA (2012) GBR JPN CHN SWE DNK BRA (2012) GER NZL MEX (2011)
Direct subsidies Indirect subsidiesSource: OECD (2015), HWWI (2016)
In per cent of GDP
50
0
10
5
15
20
25
30
35
40
45
USA GBR FIN NOR SWE OECD DNK ESP FRA GER
10.75
21.62
10.21
1.64
11.24
21.84
7.98
1.15
12.46
14.68
13.42
1.22
11.95
19.07
9.85
0.89
9.77
15.47
11.97
1.48
8.03
15.51
11.37
1.02
4.47
19.49
10.91
0.93
10.73
9.42
13.87
0.66
14.02
8.94
8.37
0.77
0.65
14.34
10.75
1.32

Germany were below the average, with Germany failing to reach even
30%. The emerging economy of China improved its level of university
education through major investments; in contrast, India, for which no
data are available, was far behind and suffered from poor education
amongst its workforce despite having some good experts (IEG WB,
2013). Overall, however, the significance of such statistics is limited
as the quality of education can vary between countries in spite of the
similarity of the qualifications, and as such the education systems are
difficult to compare. It is clear that short-term programmes are highly
distinct even in countries with a low percentage of bachelor’s degrees.
The percentage of master’s degree and PhD qualifications vary much
less from country to country, however. The percentage of PhD qual-
ifications is the lowest, as is to be expected, although it increased in
almost all OECD countries in the past (OECD, 2013; OECD, 2015b).
It is interesting how many countries are currently investing in their
education systems, especially with regard to future developments.
Additionally, in many countries universities carry out a large propor-
tion of research and development work, especially basic research that
companies consider risky and expensive, that is therefore directly
financed by such investments. Image 5 shows the top 10 countries
that spent the most on universities per student in 2012. The coun-
try which spent the most was Luxembourg with almost USD 33,000
per student. Luxembourg was followed at great distance by the USA,
Switzerland and Great Britain, all of which are traditionally considered
to have a good higher education system. Whereas Luxembourg, Swit-
zerland and the USA are amongst the countries with the highest GDP
per capita, Great Britain, which has a slightly lower GDP per capita,
is investing particularly heavily in its tertiary education system. The
average for the OECD countries was around USD 15,000, whereas
the emerging economies of Brazil, Russia and Mexico invested USD
Image 5: Countries with the highest expenditure on higher education per student
Image 6: Percentage of master’s degrees in science and engineering in 2013*
Source: OECD (2015), HWWI (2016) *or equivalent diploma
In USD per student
As a percentage of the total number of master´s degrees
Sciences Engineering
35,000
0
5,000
10,000
15,000
25,000
20,000
30,000
LUX USA CHE GBR SWE CAN NOR NDL FIN GER
32,876
26,562
24,338
22,534 22,006
20,016 19,276 17,863 17,157
25,264
30
0
5
10
15
20
20
25
DNK GER FRA FIN NOR OECD USA ESP SWE GBR RUS ISR JPN KOR

www.bdo-ibc.com 19
The percentage of the disciplines in question unequivocally increases
along with the number of qualifications. In 2013, almost half of all
doctorates in France were conferred in the field of science. Spain,
Germany, Norway and Great Britain achieved similarly high percent-
ages. In most cases, the percentage of engineering PhD titles was
lower than that of PhDs in the field of science. Only South Korea,
Japan, Denmark and Sweden had higher percentages in this regard.
France achieved the largest percentage of PhDs in both disciplines
overall.
10,455, USD 8,363 and USD 8,115 respectively per student. The low-
est available values were attributable to Colombia, Turkey and Chile
with USD 5,183, USD 7,779 and USD 7,960 respectively. There are
therefore considerable variations between individual countries. How-
ever, when comparing and interpreting these data, please note that
the research and development work in some countries tends to take
place in private institutions, which is why the expenses for tertiary
educational institutions might be lower (OECD, 2015b). Additionally,
smaller countries such as Luxembourg, at the top of the rankings, do
not benefit from the advantages of a larger country and therefore
have to spend more per student.
A number of skills are essential in order to generate successful inno-
vations. Scientists and engineers normally play a particularly signif-
icant role, although skills from fields such as design and marketing
are also required (OECD, 2013; IEG WB, 2013). Different economic
fields normally generate innovations at different rates, however, and
are dependent on successful innovations. Industry in particular is
heavily characterised by a high rate of innovation. Naturally, specific
disciplines are particularly relevant to most research and develop-
ment work. Generally speaking, these are essentially engineers and
scientists.6
However, the percentage of engineers and scientists in the
total number of qualifications in most OECD countries has decreased
over time (OECD, 2015), which is why these fields are often at the
heart of R&D politics in countries (OECD, 2014). Image 6 and Image
7 illustrate the percentage of master’s degrees and PhDs in science
and engineering in 2013. It is notable that Japan in particular regis-
tered an extremely high percentage of master’s degrees in the field of
engineering. Sweden, Russia, South Korea, Germany, France and Fin-
land were also in strong positions in this field in 2013. Germany was
ahead in the field of science. This means that it was able to occupy an
above-average position in both disciplines. When we consider both
disciplines combined, Japan and Sweden had the highest percentages
although they were dominated by engineering. The percentages in the
USA were remarkably low and far below the OECD average, with both
disciplines each representing just 5% of the total number of quali-
fications. To counter this imbalance, however, the USA has already
launched programmes designed to increase the attractiveness of engi-
neering in the future (OECD, 2015b). The PhD table is rather different.
Image 7: Percentage of doctorates conferred for science and engineering in 2013*
Source: OECD (2015), HWWI (2016) *Or equivalent diploma
As a percentage of the total number of doctorates
Sciences Engineering
60
0
10
20
30
40
50
DNK GER FRA FIN NOR OECD USA ESP SWE GBR RUS ISR JPN KOR

Migration and regional attractiveness
The ‘internationality’ of the education system in a country is a good
indicator of its level of innovation. For example, a high percentage of
international students indicates a higher education system with a good
international reputation. Additionally, international exchanges and
the establishment of international networks between students, and
therefore potential researchers, normally stimulates future innovation.
Countries that encourage these exchanges, e.g. by allowing interna-
tional students into their higher education systems, therefore usually
create good general conditions for innovation.
Image 8 shows the development of the percentage of international
students in selected countries relative to their population and the last
three available years. Great Britain achieved exceptionally high ratios,
supported by the high international reputation of the British higher
education system and the easier language barriers. Sweden, Denmark
and Canada also welcomed relatively high numbers of international
students, given the sizes of their populations. The USA only performed
averagely. In general, most of the countries with mostly low fluctu-
ations experienced a slight upwards trend. This is presumably due
to increased international demand for experience abroad and does
not indicate any relative change in the popularity of individual target
countries.
In recent years, international cooperation has dramatically increased
in terms of research as well due to more accessible communication
and information channels and international subsidy programmes
(OECD, 2014). Image 9 provides insights into international research
Image 9: Percentage of publications and patents with international involvement from 2003 to 2012
As a percentage of all national publications and patents from 2003 to 2012
International co-authorship International inventions with patent
Image 8: Development of the number of international students relative to the total population
International students as a percentage of the total national population
2011 2010 2012
60
0
10
20
30
40
50
BRA CAN CHN GER DNK ESP FIN FRA GBR IND JPN KOR MEX NOR RUS SWE USA
80
0
10
20
30
40
50
60
70
CAN DNK FIN GER JPN NOR ESP SWE GBR USA

www.bdo-ibc.com 21
collaboration. It shows the percentage of academic publications and
patents with international involvement for selected countries from
2003 to 2012.
It is evident that in terms of academic publications, there is actually
a high degree of internationality in many countries. This has been
particularly high in Denmark, Sweden and Norway, with around 50%
of all publications being international. The percentage in Mexico was
surprisingly high. China and India experienced much less international
collaboration on publications. The emerging economies of Russia,
India and Mexico held leading positions for patents with international
involvement. International collaboration in this field is significantly
lower than for academic publications in almost all countries, espe-
cially European countries. It is generally likely that it is assumed that
a high degree of international collaboration could frequently also be
due to a lack of domestic capacity. As small European countries in par-
ticular are ahead with publications and some emerging economies are
ahead with patents, it can be assumed that large, developed countries
such as the USA have less need for international collaboration as they
have sufficient options on a domestic level. However, South Korea and
Japan also have remarkably low rates of international collaboration. In
South Korea this is due to policies that focus instead on national col-
laboration in an attempt to keep knowledge within the country (IEG
WB, 2013; OECD, 2014).
The collaboration between companies in the pursuit of innovations
paints a similar picture. Image 10 shows the international collab-
oration between major companies in the pursuit of innovations
from 2010 to 2012. Ten countries with the highest percentages are
depicted, as are a few selected countries. No G8 country is in the top
10; rather, companies from smaller nations are collaborating closely
on an international level. Additionally, the percentages for these coun-
tries are relatively similar. South Korea is far behind once more, where
less than 10% of major companies cooperated on innovations on an
international level.
Besides a temporary exchange of knowledge, migration can also lead
to a long-term increase in the highly qualified population. A country
that attracts an unusually high number of highly qualified work-
ers from abroad might also have a good international reputation in
related sectors as a region of growth. Therefore, not only does large-
scale immigration of highly qualified workers result in a larger pool of
experts in the future, it also reflects international views on the attrac-
tiveness of the region. There are also indications that highly qualified
immigrants are having a positive effect on the number of start-ups,
publications and patents (OECD, 2014).7
Image 11 shows the devel-
opment of highly qualified immigrants per inhabitant for selected
countries. As expected, countries with traditionally high levels of
immigration are at the top. By around 2010, the USA had attracted
the highest number of highly qualified people from other countries
relative to its population. However, in Sweden and Great Britain the
number increased so sharply in recent years that the countries might
Image 10: Percentage of major companies with international cooperation on innovations in 2010-2012
As a percentage of all innovating major companies from 2010 to 2012
Image 11: Development of the percentage of highly qualified
immigrants per inhabitant from 1980 to 2010
Source: IAB (2015), OECD (2016)
80
0
10
20
30
40
50
60
70
AUTEST SVN FIN BEL GRC DNK CZE SWE PRT GBR FRA JPN
(2009-12)
GER BRA
(2009-11)
KOR
(2011-13)
5%
0%
1%
2%
3%
4%
6%
1980 1985 1990 1995 2000 2005 2010
Denmark Germany Finnland France
Norway Sweden Switzerland USA
GBR

have overtaken the USA in the meantime. Norway also experienced a
sharp increase in highly qualified immigrants per inhabitant. Overall,
the trend has been positive for all of the countries illustrated here,
especially in recent years. Only in Switzerland has the percentage
remained more or less stable since 2000, albeit at a high level. Swe-
den peaked in the mid 1980s and its performance has been extremely
positive since its extreme decline in the 1990s.8
Relative to the total number of immigrants, Great Britain has a par-
ticularly large number of highly qualified immigrants. Almost half of
all immigrants to Great Britain in 2010 were highly qualified. Other
countries with a similarly high percentage of highly qualified immi-
grants included the USA, Denmark, Norway and Sweden. At just 5%,
the percentage in France was originally extremely low. Interestingly,
however, the percentage increased dramatically in all countries in the
period under review. In 2010 France achieved a proportion of highly
qualified immigrants of around 23%. The decline of Sweden in the mid
1980s can also be explained by the total number of immigrants as the
percentage of highly qualified people did not fall.
A similar factor that focuses even more heavily on researchers and
scientists is the development of the number of academic authors and
their affiliation with the research institutions of a country. Due to the
fact that many authors also migrate from highly developed coun-
tries, we will consider net influxes. Image 12 shows these for selected
countries from 2006 to 2009 and from 2010 to 2013. It is clear that
there have long been unmistakeable trends for most countries. Coun-
tries such as Great Britain, Japan, France, Germany and the USA that
used to have a strong scientific lead have lost scientists over the past
few years when we consider the net statistics. In France and espe-
cially Germany, this loss slowed down in the most recent four year
period, whereas it greatly accelerated in Great Britain and the USA.
In contrast, China experienced a major influx of academic authors,
which has increased once more in recent years. Brazil and Mexico
hovered around zero, although Brazil has been registering a positive
trend in recent years. India, on the other hand, was unable to attract
more authors than those who emigrated, although its numbers have
improved in recent years. Besides China, Switzerland is the only coun-
try to attract significantly more academic authors than it lost, and it
has even managed to dramatically increase this net influx in recent
years. South Korea and Canada also have clearly positive influxes,
although these have slowed in recent years.
However, a net outflux does not automatically mean that a country is
unattractive to academic authors from other countries. It might also
be due to the fact that there are many domestic authors who wish
to build up international experience. This could be the case for Great
Britain in particular. Countries such as China, on the other hand, might
be determined to keep as many researchers at home as possible whilst
attracting as many international researchers as they can. Additionally,
relatively balanced values do not necessarily mean that there have
not been any exchanges, but rather that the exchanges are highly
balanced. In spite of everything, China, Switzerland, Korea and Can-
ada could grow in significance as centres of science due to the strong
influxes whilst the number of academic authors in previous centres of
science such as Great Britain and the USA decreases.
Image 12: Development of the net influx of academic authors
Average of absolute numbers
2010-2013 2006-2009
GBR
JPN
FRA
GER
IND
USA
RUS
HKG
ISR
SWE
MEX
BRA
DNK
CAN
KOR
CHE
CHN
1,500-1,500 -1,000 -500 0 500 1,000

www.bdo-ibc.com 23
3.3 INVESTMENTS IN RESEARCH AND
DEVELOPMENT
Like the scientific work, efforts in research and development are gen-
erally far from being evenly distributed across the globe. Clear global
hotspots can be seen in the location choices of research-intensive
industries, as an OECD list of the headquarters of the world’s most
R&D intensive companies demonstrates (see Image 13). According to
the list, more than one third of the companies in the top 100 were
based in the USA; the fraction is not much smaller when the list is
broadened to include the top 250. The second most popular main
location is Japan. Both countries are home to more than half of the
global R&D elite. Within Europe, Germany, France and Switzerland are
the most popular countries amongst the top 100 companies; Great
Britain is also relatively highly represented within the expanded top
250. On a global scale, 80% of headquarters are spread over just
seven countries. China is the only emerging economy with a remarka-
ble percentage.
It goes without saying that such a representation says nothing about
the relative sizes of the companies. It also does not say that only
the country from which the R&D work originated is benefiting, as
the majority of the companies are global groups which can spread
their research centres over various locations around the globe. More
detailed information on the scope of local R&D work can be gleaned
from information on R&D related employment and investments on a
country level. According to the internationally accepted classification,
R&D comprises three specific fields: basic research, applied research
and experimental development. Gross domestic expenditure is a key
indicator for the purposes of comparing R&D expenses on a country
level. This comprises the total ongoing and investive R&D expenses
of all companies, research institutions, university-owned laboratories
and government laboratories based in that country (OECD, 2013b).
A comparison of countries more appropriately places these values in
relation to the size of the country (based on its population) or to its
production (as a reference to its total economic activities). Table 7
presents the global top 10 countries in the most recent period under
observation in this regard.
As expected, a selection of the most
wealthy industrialised countries is at
the top of the global rankings with
regard to the volume of annual R&D
investments. As countries with the
highest investments per capita in the
world, Switzerland, Singapore, Swe-
den, the USA and Finland are also
all in the global top 25 for economic
performance per capita. However, the
rankings are not entirely determined
by income per capita. For example, the
top 10 nations with the highest invest-
ments per capita also include Israel
and South Korea, countries whose GDP
per capita was average when com-
pared to the industrialised countries.
On the other hand, it is noticeable that
an extremely wealthy country such as
Percentage of GDP
Top 10 % Value in 2001 – 2013
Israel 4.19 4.11
South Korea 3.97 2.32
Finland 3.46 3.25
Japan 3.40 3.11
Sweden 3.27 3.76
Denmark 3.02 2.43
Switzerland 2.96 2.68
Germany 2.84 2.42
USA 2.79 2.58
Austria 2.77 2.08
Per capita
Top 10 US dollars Value in 2001 – 2013
Switzerland 1,617 1,142
Singapore 1,561 1,058
Sweden 1,421 1,429
USA 1,398 1,201
Finland 1,367 1,167
Israel 1,295 1,036
Denmark 1,293 1,017
South Korea 1,271 527
Austria 1,220 819
Germany 1,215 906
Table 7: Countries with the highest R&D investments per person and value added (2011-2013)
Image 13: Headquarters of the most R&D-intensive companies
Source: OECD (2016); HWWI (2016)
Top 250
20%
4.4%
3.2%
2.8%
7.6%
6.8%
20.4%
34.8%
Top 100
17.0%
2.0%
3.0%
5.0%
4.0%
11.0%
4.0%
36.0%
USA
JPN
GER
FRA
CHE
GBR
CHN
Others

Qatar with expenditure per capita of around USD 625 (2012) occu-
pies a place in the centre field for R&D. The global rankings appear
changed as a result when the economic performance of countries is
used as a reference. In this context, Israel and South Korea are clearly
at the top.
In the case of Israel, this is presumably linked to its deeprooted sci-
ence and engineering tradition focusing on medicine, aviation and
IT in particular. One important platform is its pool of highly quali-
fied experts. Relative to its population, Israel has a particularly large
number of engineers and scientists (Shteinbuk, 2011). The number
of research universities as well as state owned and private research
institutes is also high given the size of the country. Its favourable con-
ditions for start-ups and its geographical concentration of R&D work
in local centres (supported by government initiative such as the Israeli
Centers of Research Excellence) have produced a suitable institutional
framework. This is compounded by the deliberate transparency of its
research for the international community. This is evident through its
willingness to participate in international research partnerships and
by the fact that historically, Israel has been the first port of call for a
number of American IT companies to establish their international sub-
sidiaries (IVI, 2013).
Unlike Israel, the high intensity of R&D in South Korea is essentially
the result of a catch-up process over the last decade. The number
of R&D workers in South Korea relative to its population more than
doubled between 2003 and 2013, which is inconsistent with the
developments in other major industrialised countries (see Image 14).
This process might be due to a long-term strategic plan or perhaps
even the regional competition. In the 1960s, after the end of the
Korean War, the country was initially one of the poorest in the world.
It focused on labour intensive industries such as the textile industry,
which was not expected to boost the productivity of the country
by any great margin. The Korea Institute of Science and Technology
was founded in order to accelerate South Korea’s industrialisation
and notably to allow the country to adapt foreign technology. These
research efforts were initially strictly controlled by the government
before being increasingly supplemented in the 1980s by decentralised,
internal development work by companies. The internalisation of previ-
ously imported preliminary work was an important step. This allowed
the value creation chain of South Korea’s industry to be systematically
expanded and increased expertise in this field provided more leeway
for product improvements, which in turn increased South Korea’s
competitiveness on the export markets (Kim, 2000). Additionally, in
the 1990s the global rise of information and communication tech-
nology accelerated the process. South Korea took the opportunity to
focus its research subsidies on the industries emerging in that context:
unlike the traditional industries, it did not first have to play catch up
here. The subsidies initially still focused on public research institutions;
only in recent years were the ties between academia (universities) and
state owned and private application research strengthened by means
of strategic partnerships (Lee, 2011). Additionally, the regional compe-
tition on the export market can explain why the increased intensity of
R&D has accelerated once more, especially in recent years. Naturally,
the rapid growth of China with regard to industrial products is worthy
of mention: South Korean manufacturers cannot compete on price,
which increases the pressure to gain competitive advantages through
higher quality. The economic policies of Japan are exerting further
external competitive pressure. Its more relaxed economic policies
have ultimately led to the devaluation of the yen, causing Japanese
exports to decrease in price, which is placing particular pressure on
the South Korean economy (especially in the hotly contested high
tech segment).
The upper section of Image 15 compares the chronological develop-
ment of R&D intensity in six wealthy industrialised countries. The
continuous increase in the case of South Korea (since 2002) seems
particularly exceptional in this context. In the same period, the inten-
sity remained stable in the other countries almost without exception;
only Japan occasionally experienced an upwards trend. The period of
the financial crisis in 2009 and 2010 deserves special attention. The
intensity of R&D levelled out or decreased in all of the industrialised
countries with the exception of South Korea. The economic collapse
obviously reduced investments in R&D both in absolute terms and
relative to economic performance. However, this effect was slightly
delayed and hit most countries in 2010. Developments in the major
emerging economies in the same period was much more heterogene-
ous. Research work in India has increased in absolute terms over the
past 20 years following its dynamic, general economic growth; how-
ever, the increase in the intensity of R&D has been negligible.
Image 14: Research assistants working in R&D per inhabitant in 2003 and 2013
Source: Worldbank (2016); HWWI (2016)
Number per thousand inhabitants
2003 2013
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
GER
3.3
4.5
3.2
4.2
3.9 4.0
3.6
4.1
0.7
1.1
3.4
3.1
5.2 5.2
3.2
6.5
FRA USA GBR CHN RUS JPN KOR

www.bdo-ibc.com 25
The opposite is true in China: a continuous upwards trend that could
not even be halted by the financial crisis has caused the R&D inten-
sity of the Chinese economy to overtake that of Great Britain. This
is closely linked to China’s rapid progress in knowledge-intensive
future industries such as the computer and electronics industries,
where China was able to increase its global market share from 5% to
more than 25% within the last 15 years. Developments were similar
in Russia until the millennium; since then, the intensity of R&D has
evened out at a lower level that is far below average compared to the
industrialised countries of the West. The number of employees in
the R&D segment even declined over the last decade (see Image 14).
Brazil is in a similar situation, where the dynamism it hoped for failed
to become manifest. Finally, the developing countries are right at the
bottom. Their development prospects are certainly not to be found in
their own innovation in the medium term, but rather in the adapta-
tion of foreign knowledge; however, such capacity is indispensable for
this process. The data for these countries are extremely fragmented,
although a measurement of just 0.03 employees in R&D per 1,000
inhabitants for Gambia in 2011 (World Bank, 2016) should attest to
the enormous discrepancy (see values for industrialised countries in
Image 14).
Additionally, during the financial crisis the investment structure
shifted slightly. The percentage of investments made by the private
sector in R&D decreased overall in the OECD countries whilst the per-
centage of investments made by universities and public institutions
in R&D increased (OECD, 2016). After the global economic recovery
in the following years, the distribution returned almost to its precri-
sis state. This highlights the varying extents to which the types of
investment are dependent on the economy. The investments made by
universities and other public institutions primarily in basic research are
mostly secured in the short and medium terms, and are therefore not
greatly dependent on the state of the economy. Perceptible adjust-
ments are only to be expected in the longer term, i.e. if a decrease in
tax revenue resulting from a recession leads to cuts in the research
budget. Due to their reliance on the market, the R&D related expenses
of the private sector are, on the other hand, more sensitive to eco-
nomic fluctuations (European Commission, 2011). Several different
factors are relevant to this: for one, the economic situation influences
future market expectations and therefore the perceived profitability of
R&D; additionally, financing terms are also poorer in a recession, espe-
cially for inherently uncertain R&D investments.
Image 15: Proportion of R&D expenditure in GDP over time
Source: Worldbank (2016), HWWI (2016)
In %
4.0
1.5
2.0
2.5
3.0
3.5
4.5
USA FRA GER GBR JPN KOR
1996 1998 2000 2002 2004 2006 2008 2010 2012 1996 1998 2000 2002 2004 2006 2008 2010 2012
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
RUS BRA IND CHN

Limited conclusions can be drawn from information on the appli-
cation of resources as to their origins. The capital structures of the
researching institutions can vary dramatically even within the various
segments. For example, in many countries the financing of industrial
research is publicly supported using instruments such as tax allow-
ances and public private partnerships, whereas research in universities
and research institutions is partially financed by private third parties.
An alternative breakdown of R&D expenses by source of finance (see
Image 17) shows that in all of the countries considered, corporate
capital makes up the largest portion of finance. In 2013 this was also
true for all OECD countries with the exceptions of the Latin Ameri-
can members Chile and Mexico, not to mention Greece. Proportions
of around 75% were even measured for both Asian OECD countries
Japan and South Korea, and the relative significance of corporate
capital in China is of a similar magnitude. The long-term trends are
also of interest here. The aforementioned shifts during the last crisis
notwithstanding, the significance of corporate R&D financing has
continued to increase whilst the importance of public budget finance
has decreased. This has caused the dependency of R&D work on the
health of the economy to grow overall. Finally, the role of foreign
capital in R&D finance differs starkly from country to country. With
foreign capital making up more than 25% of its total R&D expenses,
the Czech Republic was in an unusual position in this context. How-
ever, Great Britain and Ireland were also found to have around 20% of
foreign capital; in any case, this is an indication of the special role of
multinational companies within domestic research landscapes.
In this context it is informative to break down the structure of invest-
ments in R&D by type in a comparison of different countries. The
Main Science and Technology Indicators of the OECD provide refer-
ence data on the subdivision into four key fields. Image 16 provides
a breakdown by type in the business enterprise sector, in universities
(private and public) and private non profit organisations for selected
countries9
. R&D activity on a company level generally made up the
largest percentage in all OECD countries. However, there are also cer-
tain differences here. Amongst the countries considered, with 78.5%
South Korea had the highest proportion of company related R&D
in 2013. Throughout the OECD, this percentage was only beaten by
Israel (82.7%). These two countries, previously identified as extremely
dynamic in terms of R&D, are also somewhat characterised by pri-
vate sector involvement in research. In absolute per-head statistics,
only in the USA were corporate R&D expenses higher than in South
Korea. The rankings are different for university research. In this field,
the expenses per capita in Germany were even higher than in the
USA. Relative to the total R&D, the role of universities in Great Brit-
ain (26.3%) is even more significant amongst the major industrialised
countries. This highlights the low contributions by universities to R&D
expenses in the BRIC countries China and Russia. When last measured,
the proportions in both countries were under 10% and therefore lower
than in almost every other OECD country. According to the official
figures, this is due to the prioritisation of various sectors. In China, a
particularly high percentage of R&D is attributable to the business
enterprise sector, perhaps due to the activities of multinational com-
panies in the manufacturing industry. In Russia, the government sec-
tor is most conspicuous with a share of at least 30%. Such differences
could be significant for long term development prospects in that they
ultimately imply that the research work has varying objectives. Cor-
porate research focuses on marketing objectives and therefore directly
on creating suitable products for the market or process optimisations,
which will improve the welfare of consumers as well as the interna-
tional competitiveness of a national economy. Public research tends
to focus on basic findings or, in the case of weapons research, strategic
national objectives that often cannot be converted directly into mar-
ket innovations.
Image 16: R&D expenses per capita in 2013 by field of application
USD
Business Higher education Other public institutions Private non-profit
1,600
0
200
400
600
800
1,000
1,200
1,400
GER FRA USA GBR CHN RUS JPN KOR
1,019
204
161
59
823
221
186
0
543
174
110
11
401
164
45
12
189
18
40
0
173
26
86
0
958
169
115
16
1,078
127
150
18

www.bdo-ibc.com 27
These statistics are the result of highly varied strategic objectives.
According to OECD data, of the investments made by US industry in
R&D in 2013 just USD 152 per capita flowed into the pharmaceutical
industry and around USD 206 per capita flowed into the electronics
and optical industries. In contrast, in South Korea just USD 25 per cap-
ita flowed into the pharmaceutical industry but around USD 557 per
capita flowed into the electronics and optical industries in the same
year (OECD, 2016).
Finally, we will look separately at the industrial sector as the central
economic factor in the innovation of a country. Table 8 presents the
R&D expenses and industrial value added in selected countries. This
comparison once again highlights the increased intensity of R&D in
China and South Korea. It is also interesting that Great Britain’s rela-
tively low R&D intensity is apparently not exclusively due to the rather
low domestic content of the manufacturing industry, as few resources
are invested in R&D within the industrial sector too.
Image 17: R&D expenses per capita in 2013 by source of finance
Source: OECD (2016), HWWI (2016); France data from 2012
USD
2008 2013
In billion USD PPP in % In billion USD PPP in %
Country Industrial R&D
expenses
Industrial
value added
R&D
intensity
Industrial R&D
expenses
Industrial
value added
R&D
intensity
China 91.82 7941.20 1.16 225.82 12691.93 1.78
Germany 50.24 2019.40 2.49 58.98 2220.06 2.66
France 16.88 1325.87 1.27 17.69 1415.86 1.25
Great Britain 9.52 1489.81 0.64 9.84 1468.47 0.67
Japan 101.70 2843.18 3.58 108.19 2980.32 3.63
South Korea 29.27 950.83 3.08 47.96 1146.11 4.18
USA 203.76 9895.66 2.06 208.42 11209.68 1.86
Table 8: R&D intensity of the industrial sector
Source: OECD (2016)
Public households Business Other domestic sources Abroad
1,600
0
200
400
600
800
1,000
1,200
1,400
GER FRA USA GBR CHN RUS JPN KOR
193
80
9
0
218
950
84
7
313
1,039
16
4
400
879
100
65
367
802
4
58
291
461
17
63
168
289
36
129
52
184
8
0

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