Europe Tops the World's Techiest Countries

At a time of global economic distress, it seems odd to be identifying some countries as champions for their embrace of information technology. Yet history has repeatedly shown that countries—and companies—with the fortitude to maintain or increase investment during downturns emerge stronger than less visionary rivals when growth resumes.

That lesson is amply reinforced in the annual Global Information Technology Report released on Mar. 26 by the Geneva-based World Economic Forum (WEF) and INSEAD, the business school near Paris. The countries at the top of the ranking—based on 68 criteria ranging from mobile phone usage and broadband penetration to educational achievement and freedom of the press—have spent richly over many years to develop information infrastructures that are the envy of the world. For the most part, they're not backing off just because of the financial crisis.

Equally important, the top-ranked countries have put in place strong policies to spur 21st century economic development. That includes not just support for higher education and a commitment to research and development but also legal frameworks that make it easier to launch new businesses, protect intellectual property, and uphold free expression.

Northern Lights

Who are the winners this year? Most are the stars of previous surveys, especially Denmark, Sweden, Norway, Finland, and Iceland. Singapore, Switzerland, the Netherlands, Canada, and the U.S. round out the top 10. The U.S. gained one rung this year, to No. 3 worldwide, thanks a jump from 17th place to 10th place globally on the important metric of "usage," which encompasses factors such as mobile phone and broadband penetration and PCs per household.

The WEF and INSEAD added seven countries to the study this year, bringing the total surveyed to 134. Among them, these countries account for 98% of global gross domestic product. Countries are positioned in the study's "Network-Readiness Index" based on factors in three broad categories: public sector, private sector, and individual.

"We want to make Information & Communication Technology (ICT) a basis of competitiveness strategy," said Irene Mia, a senior economist at the WEF. Indeed, the Global Information Technology Report initially began as an offshoot of the WEF's annual Most Competitive Countries report.

The increase in the number of countries studied means some nations appearing on previous lists saw their rankings fall, even though they continued to advance in ICT. Egypt, for instance, "has been making a lot of progress in the last three years," says Bruno Lanvin, executive director of INSEAD's eLab and co-author of the study. But its ranking fell 13 rungs this year on a relative basis.

China, by contrast, showed the biggest jump of any country, up 11 rungs, to No. 46 overall—leapfrogging India for the first time since the study's launch in 2001. But China's ranking was held back by one unsurprising factor: freedom of the press and accessibility of digital content. There, the Mainland ranked a dismal 114th, putting it alongside Russia and Burundi in that category.

The domination by Nordic countries isn't new. Denmark and Sweden hold the No. 1 and 2 slots for the third year in a row, with Finland, Norway, and Iceland not far behind. Among the elements contributing to their strong showing are favorable regulation, an emphasis on math and science education, and a long history of promoting eco-friendly initiatives. Government investment in the 1990s helped build strong educational systems and drive penetration of mobile and Internet usage, spurring the rise of telecom giants such as Nokia (NOK) and Ericsson (ERIC).

Yet even Nordic countries are facing difficulties these days, including a shortage of engineers and a growing gender gap in math and science degrees. Fewer students, and especially women, are pursuing science and technology careers. "The one possible crack we've identified is precisely the inability to generate the skills needed to keep at the top of the net readiness index," says INSEAD's Lanvin.

According to a December 2007 report about the Nordic countries co-written by Lanvin, Singapore, Switzerland, and the U.S. enjoy advantages in several areas: the ease of starting businesses, use of overseas technology, openness of investment, and quality of science education. High levels of taxation and more burdensome commercial and contractual procedures also threaten to hold back Nordic countries in the future.

Beyond Oil and Oranges

Tech investors looking for growth areas are advised to keep an eye on the Middle East, says report co-author Mia of the WEF. It's the region where Internet connectivity increased the most in this year's study. Technology "gives nations a chance to diversify their economies away from oil," she says. The 2009 report places seven Middle Eastern countries in the top 50, led by Israel at No. 25.

The tech success of Israel—a country whose main export 25 years ago was oranges—is a case study in public-sector initiative. To spur startups, Israel set up a government-backed venture capital fund, which it then turned over to the private sector after four years. According to a separate study by Mia, the value of Israel's software exports has jumped 22-fold in the last dozen years.

"There was a very clear and conscious vision on the part of the government to use human resources to attract investment in high tech," Mia says. "It's a textbook example of how to intervene in a market friendly way."

For a look at the top 15 countries in this year's ranking, see our slide show.

To compare the results, you can also view slide shows from 2007 and 2008 here.

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