Analysis by Ari Huczkowski

What is it that separates innovative nations from the rest? When you compare western economies, all appear to have very similar characteristics — a large (and aging) middle-class, a well-educated workforce, large global companies that form the core of their economies and a high rate of academic degrees per capita. There is supporting evidence that points to the differentiator being the presence of nationwide applied research institutions.

The World Economic Forum (WEF) has published its Global Competitiveness Index for 2010-2011. (www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2010-11.pdf).

Take a sample of four countries from the top 15 ranked — Germany, Finland, Canada and France. They are quite similar in most dimensions, but when it comes to innovation, Germany and Finland have significantly higher rankings than that of Canada and France. Finland's innovation ranking is 3rd, Germany is 6th, Canada is 11th and France is 19th. So what's the connection between the ranking of these countries and large, national applied research institutions?

Finland is home to VTT Technical Research Center of Finland (www.vtt.fi), the largest applied research institute in Northern Europe with 3,000 staff. Most of them are researchers and 2,000 are located on the Otaniemi campus, Northern Europe's biggest high-tech hub. All components of innovation are located within walking distance achieving critical mass. VTT has 20 different offices, mostly in Finland, but also in South Korea, China, California, Brazil and Russia. Offices in Germany and Chile are slated to open within a year.

Germany is the home of Fraunhofer Institut (www.fraunhofer.de). Fraunhofer is Europe's largest applied research institute with 18,000 staff operating in 60 Fraunhofer Institutes located throughout Germany with operations also in the US, Central Europe, the Middle-East and Asia. What's more, the VTT and Fraunhofer are working together in the HTA — Heterogeneous Technology Alliance (www.hta-online.eu).

The fundamental difference is that neither Canada nor France has a large, nationwide applied research institute. The accompanying chart shows innovation-ranking components from WEF and two technology readiness criteria. France has no top two placements, Germany and Canada have six and Finland eight.

The report suggests that Canada would improve its capacity for innovation and undoubtedly break into the top 10 globally ranked innovative nations if it followed in the footsteps of proven leaders Finland and Germany.The addition of applied research professionals working with industry and academia would further enhance the innovation capacity of the nation.

Additional benefits would be found in the university world. Canada's universities could maintain focus and further concentrate on their main mission — education and scientific research. In addition, a bigger share of applied research for industry would be carried out by the large, nationwide research institute. Maintaining several different strategies within just one organization is counterproductive and tends to spread the efforts across the board, leaving results to be good overall, but not outstanding in any one area. Universities will always be involved in research for companies, but the structure in place in Germany and Finland helps all regional players to maintain focus.

What about the size and financing of the applied research organization? Finland has a population of 5.4 million, and VTT has 3,000 staff. Germany has a population of 81.8 million and Fraunhofer has 18,000 staff. For Canada, in order to have roughly the same size of organization, this would call for an organization with 10,000 staff.

In both VTT's and Fraunhofer's case, some 30-40% of financing comes from government, and 60-70% comes from contract research for companies and research programs. If the Canadian entity was on a similar level with Fraunhofer or VTT, this would call for annual research budget of some $1.3 billion. If the similar 30/70 ratio was achieved for its public/other financing, this would call for $400 million from the Canadian government and provinces.

This may sound like a lot of money, but there's no alternative for western economies. If we are to be in the race as knowledge economies, we must spend on innovation and what makes innovation.

Canada is not alone in thinking about alternatives and best practices. The British Parliament's 2010-2011 session reviewed the Fraunhofer-model and a document titled Technology Innovation Centres discusses this topic. (www.publications.parlia-ment.uk/pa/cm201011/cmselect/cmsctech/writev/innovation/m71.htm)

Organizations such as Fraunhofer, VTT, TNO in Netherlands and Sintef in Norway are mentioned. Key benefits include long-term financing of research and a strong tradition of industrial engagement.

With an already solid foundation of global leadership in innovation, Canada could punch far above its weight with a relatively slight shift in current practices. Certainly with a higher expenditure of R&D by companies within Canada, a real focus across the board could further develop the ecosystem, allowing researchers and universities a closer and more grassroots level relationship.

Certainly, many of the higher ranked nations have certain partnerships and collaborations with other high ranking nations — a somewhat prophetic and a rather telling fact. Knowledge breeds knowledge, behavior breeds behavior.

Ari Huczkowski is the CEO of Otaniemi Marketing in Espoo Finland.