Five nations boosting their culture of innovation

How places like China, Brazil, and Israel are taking aggressive steps to encourage more start-ups – and what that means for the US.

From Europe to Asia and beyond, the hunger to innovate has created lots of entrepreneurial competition for America.

Start-up firms are helping to manage traffic in the teeming cities of Brazil and have allowed less-populous nations such as Israel to become fertile soil for new business ideas.

These nations view innovation as a vital source of economic competitiveness. Not that long ago, the United States was the clear world leader in most industries and technology.

Now, while it's hard to put any other nation as "No. 1," America no longer enjoys such a privileged position.

The global spread of inventiveness is a disruptive force but also a beneficial one, economists say. If more of the world's people are innovators, more will be creating new industries or solving problems like how to control carbon emissions.

"Innovation is growth, and growth creates jobs," says Vijay Govindarajan, who heads the Tuck Business School's Center for Global Leadership at Dartmouth College in Hanover, N.H.

And increasingly, he says, innovation is occurring in a global matrix with ideas flowing among developed and developing nations.

"The United States can be competitive in the next 25 years only if we embrace globalization 150 percent," he says. "Globalization is like gravity. You can deny it only at your peril."

Here's a look at five nations that are using varied strategies to ride the elevator of innovation-led growth.

BRAZIL

The competition isn't just between East and West. Brazil symbolizes the way continents of the South are ramping up efforts to nurture new businesses. A major government-backed effort to support start-ups includes a growing array of university-based incubator programs.

The effort is giving wings to people like Andre Averbug, a business school graduate whose start-up provides software for mass-transit services. "A few years ago, Brazil was seen as a commodity country," he says. "I think Brazil now is being looked at as a good country to do business."

SINGAPORE

This island nation has prospered not just because of investments in education and port infrastructure, but also because of its promotion of start-ups. Its experiments have run the gamut from subsidies for ventures involving targeted technologies to putting up public money alongside venture investors who come to the city-state, Harvard University business expert Josh Lerner writes in a recent report for the American Enterprise Institute.

The result: Even though its economy looked similar to that of Jamaica in 1965, per capita gross domestic product has reached $31,400 in Singapore, whereas Jamaica's had edged up to just $4,800.

INDIA

Yes, India is known as a hub of outsourced customer service. But if anyone doubts India's ability to innovate, consider the build-it-yourself automobile. At a price below $3,000, the Tata Nano is providing affordable wheels and generating lots of jobs for people who specialize in assembling the boxed parts into vehicles.

"It's as close a thing as we've seen in a long time in the automobile industry to a fresh start," says Eamonn Kelly, a California-based strategic thinker at the consulting firm Monitor Group. He says firms like Tata in cars and Infosys in software have been "quietly reinventing the nature of work," breaking down complex processes into new formulas.

India is still in the early stages of discovering its potential. If it can succeed in raising education levels for the vast majority who lack a high-school degree, the flow of ideas from India will expand even more.

ISRAEL

In Israel, a rich crop of enterprises draws strength partly from what may seem like a surprising source: the military. It's not that the start-ups are all defense-related. But the Israeli military is a lean, adaptive organization – and one where citizens serve during early, formative years, says Saul Singer, coauthor of "Start-up Nation," a new book on Israel's entrepreneurial prowess.

"The Israeli military is smaller at the top than most, and it forces more authority down," he says. "The sense of improvisation comes from being stressed and short on resources." Another factor: The government of this once-socialist economy has learned to promote free enterprise by getting out of the way.

CHINA

Even as China has leveraged its huge market potential to lure technology partners from overseas, it has also been expanding its ability to generate ideas from the ground up using a self-created array of research universities. China's blend of sheer demographic scale, bottom-up commercial drive, and top-down planning may be rewriting the development rule book.

As China plays the traditional game of catch-up, it's also trying to push ahead into leadership positions in key areas such as nanotechnology. The advances come with risks and caveats. Critics see major violations of trade rules. And forecasters have a lively debate going about whether this race-ahead economy is poised for a bust.

Alongside these five nations, Europe and Japan remain innovative powerhouses. And Mr. Govindarajan cites other up-and-comers to watch, including Mexico, Vietnam, Turkey, and South Africa. The upshot may be an increasingly two-track process for innovation. He says the new climbers will create more products that filter upward to high-income nations, even as the developed nations still pioneer products that filter downward in a traditional way.

• Sara Miller Llana in Rio de Janeiro and Ilene R. Prusher in Jerusalem contributed to this report.

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