Global Innovation Index reveals how Mexico can create a world-leading innovation economy

In the latest Global Innovation Index (GII), Mexico has preserved its 2019 ranking, making it 55th out of 131 countries. However, it climbed from third to second position among Latin American countries, just behind Chile. With this accomplishment, Mexico overtook Costa Rica by strengthening its Business Sophistication ranking, meaning the country researched, created and produced more complex goods than the previous year.

The GII was created by WIPO, and uses diverse data sets to rank countries environment for fostering innovation. The index shows which countries are:

  • advancing and supporting innovation research;
  • creating institutions that protect and facilitate innovation; and
  • producing real-impact innovations that contribute to the national economy.

As such, it is of great importance to analyse Mexico’s ranking and see what can be done to improve it.

One of Mexico’s core strengths is its high-tech imports (ranking ninth overall) – this refers to all tech products in R&D and capital-intensive industries, such as aerospace, electronics and pharmaceuticals. In Mexico, the main high-tech imports are integrated circuits, vehicle parts and cars. Identifying key industries and products is the first step in fostering innovation and patent/trademark creation. These high-tech import niches develop talent, which creates further product innovation, and will build a world-class IP environment in Mexico over the long term.

Another overlooked national asset is the entertainment industry, in which Mexico took first place overall, in recognitions of its, video and sound industries. The large Spanish-speaking market, spectacular locations and state of the art studios mean that the country’s films and shows are high-quality products, making it an attractive destination for film directors and film industry investors. It is extremely important for Mexico’s IP environment to protect these assets, as a strong entertainment industry can bring additional benefits, such as international exposure, keeping in mind it also comes with risks, such as copyright infringement.

Another important regional strength of Mexico highlighted by the index is its leadership in hosting and keeping world-class R&D firms that contribute to the Mexican innovation environment. For example, Northern Mexico hosts the R&D centres of global brands such as General Electric and KIA. Aside from the economic value these bring, they are also important for sharing industry knowledge that increase the attractiveness of the country’s R&D landscape. Therefore, identifying the most important global brands located in Mexico will help both the government and the country’s IP firms to coordinate efforts to retain them.

According to the GII, Mexico’s weaknesses are its political and operational institutions. Specifically, the country is performing poorly in political and regulatory stability and the current state of the rule of law. The GII indicates that institutional stability would lead to more foreign direct investment flowing into the country, which would then catalyse innovation. Many global companies may be attracted to Mexico as a base for establishing R&D centres, education infrastructure and specialised manufacturing plants, given its scalable domestic market and trade/market competition. However, they are put off by the business bureaucracy and political instability.

Other concerning weaknesses are knowledge and technology outputs, meaning that even though there are inputs for innovation, such as high-tech imports, global brands’ established R&D centres and a certain amount foreign direct investment, the innovation effect is not observed in indicators, such as growth in the property, plan and equipment of domestic companies, or increases in IP receipts. The IP-receipts indicator behaviour may be problematic for the country’s innovation growth because, even though there are the innovation inputs, unless entrepreneurs or firms file an IP procedure, either their innovations will not reach full economic potential due to lack of IP protection, or resources are being misused on failed innovation projects.

Improving the IP-receipts indicator requires a three-pronged attack, where the government, industry and domestic IP firms all take action. The Mexican government should create more incentives for entrepreneurs, startups and firms to file IP trademarks/patents (eg, giving net income tax exemptions to companies that show X amount of IP receipts). Companies should require or at least incentivise successful R&D projects to keep IP receipts (eg, capital allocation considerations to divisions with the most IP receipts). Finally, IP firms should focus on improving the client experience and cultivating long-term relationships, this way a firm can encourage clients to make IP investments a habit for all innovations.

One weakness that also requires joint actions is the lack of venture capital (VC) deals. Even though Mexico has attracted more mature companies since signing the NAFTA, a growing amount of documented VC transactions would mean that the country’s innovation evolution was generating a domestic start-up scene that would hugely benefit local entrepreneurs and innovators looking for access to capital. More importantly, internal VC dynamics would reduce the current entrepreneurial brain drain to neighbouring countries, such as the United States. If the government and IP firms would offer incentives for VC firms to keep building this internal market, innovation growth will have more tangible economic benefits, especially for early-stage companies.

In addition, the GII carried out a cross-country study to see whether a high GII ranking would correlate with higher GDP. Mexico’s GII performance exactly matched the expected level of GDP per capita for that innovation ranking, meaning that striving to generate more innovation will probably increase per capita income.

Even though Mexico has many weaknesses, this latest data clearly shows that its innovation landscape is healthy and growing. This growth offers hope that making institutions stronger in order to foster more innovation, will result in population-wide economic benefits.

Mexican IP firms should take care to consider how the GII, far from being a simple innovation ranking, provides insights into what actions can be taken to preserve, bring and foster further innovation.

This is an Insight article, written by a selected partner as part of WTR's co-published content. Read more on Insight

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