Factors Influencing Innovation Performance in Portugal: A Cross-Country Comparative Analysis Based on the Global Innovation Index and on the European Innovation Scoreboard

Abstract

Innovation plays a key role in meeting the challenges of the future, but despite the unprecedented investment in innovation, Portugal has seen a decline in the various indicators that assess the country’s performance. This study aims to answer questions about the state of innovation in Portugal, based on the relevant global and European innovation indicators, comparing the country’s performance with that of Ireland, Belgium, and the Czech Republic. Using secondary data collected from the reports of the last four years, explanatory research was conducted based on statistical and graphical methods in order to establish causal relationships. The areas where the main changes have taken place are presented, highlighting the aspects in which Portugal stands out for superior or poor performance, providing a benchmark for the definition of policies to foster innovation in Portugal. The results demonstrate that institutions, business sophistication, and knowledge and technology score negatively, while creativity stands out as a strength. Environmental sustainability, firms’ investment in innovation, and the impact of innovation on sales are aspects that Portugal needs to improve; human capital and the attractiveness of the R&D system deserve positive remarks. It is fundamental to understand how Portugal is preparing for the future and what the country can learn from others. This study is limited by the specific period in analysis, which could affect causal relationships, and the historical perspective could provide guidelines to the understanding of the relative position of the country. This study contributes new perspectives and knowledge about the state of innovation in Portugal, providing clues to entrepreneurs, policy makers, and the scientific community.

1. Introduction

In the last three years, the world has experienced a pandemic, followed by difficulties in the supply chain, an energy crisis, escalating inflation [1,2,3,4], and the outbreak of a war in Europe, with a global outline of a cold war. The world also faces environmental challenges arising from climate change, socioeconomic challenges, namely the aging of the population in some areas of the globe, and new geopolitics [5].

Innovation is considered a key factor for meeting the challenges of the future, and in the past, it has been the main driver of economic growth. Innovation has helped to improve productivity, which has increased economic output, which in turn has improved the socio-economic status of populations. In recent decades, there has been unprecedented investment in innovation by both the public and private sectors globally [5], and support for innovation remains the main challenge for policymakers and managers, while the concept of innovation itself is evolving from a business perspective to a regional, national, or global perspective, increasingly constituting itself as a research area [6,7,8,9].

Despite the investment in innovation, Portugal has been registering a decrease in the various indicators that assess the country’s performance in this area, both in the Global Innovation Index (GII), which evaluates the performance of the innovation ecosystems worldwide [5], and in the European Innovation Scoreboard (EIS), which evaluates the innovation performance of the European Union countries (EU27) [10]. Portugal has been falling behind in comparison to countries with which it was compared a decade ago [11], which shows that despite the investment and encouragement of innovation, the country is lagging. The stagnation of productivity [5] and an aging population (according to the Eurostat, the forecast for 2022 for the Portuguese population is 23% under 25 years of age and 45% over 50 years of age [12]) put not only the economy and the growth of the country at risk but also the standard of living of the population and the future of the new generations.

This article aims to determine the factors influencing innovation performance in Portugal, by comparing its performance with that of counterpart EU countries such as Ireland, Belgium, and the Czech Republic. The article addresses the evolution of the innovation indicators in the last four years based on two of the most widely used indexes: the GII [6,8] and the EIS [6,7], setting out the areas where the main changes occurred in the countries under comparison and highlighting the aspects in which Portugal stands out for its superior or poor performance. The identification of the factors at the basis of the development of the countries that, a decade ago, were in line with Portugal and which are currently ahead in several indicators, may be a short-term benchmark and can provide clues for the definition of policies to improve innovation in Portugal. It is crucial to understand whether the combined effects of the pandemic, recent geopolitical tensions, and tighter monetary policies have slowed or accelerated innovation, as well as to understand where Portugal stands, how it is preparing for the future, and what the country can learn from others. The article contributes to the literature with a view on the state of innovation in Portugal, tries to understand the reasons behind the relative positioning, and provides clues to entrepreneurs and governments on what to do better to contribute to creating a strong commitment to the scientific community and civil society, in the exercise of a responsible and active citizenship with rights but also with duties.

2. Background and Research Question

Over the years, Portugal has been compared with different countries based on history, geography, and size, among others. The comparison with larger, albeit neighboring countries, such as Spain, with much larger populations and larger internal markets, is not the most appropriate. A comparison with countries with similar populations and per capita GDP may reveal which aspects are performing better and which aspects should be the focus of collective efforts. About a decade ago, Portugal was compared to countries such as Belgium, Ireland, Finland, the Czech Republic, Austria, Croatia, and Greece [11]. However, it would not be fair to compare today’s Portugal to countries that have reached levels of development far beyond the learning possibilities or to countries that for various historical or political reasons have lagged. Within the scope of this study, Portugal’s innovation indicators are compared to those of Ireland, Belgium, and the Czech Republic.

Ireland was proclaimed a republic in 1948 after tough struggles with England, having benefited from having English as its mother language as well as a large presence of emigrants in the USA. A decade ago, its GDP per capita was more than double that of Portugal, and its economic growth rate was three times as high; however, it was considered that this success had been achieved at the cost of high debt and that the country was condemned to decades of budgetary austerity, with poor prospects for growth, motivated by the debt repayment obligations corresponding to the bailout plan implemented by the International Monetary Fund (IMF) and the European Commission [11].

Belgium (whose independence was achieved in 1830) has a population similar in size to that of Portugal and a GDP per capita of around twice that of Portugal. It has the great advantage of being in the center of Europe and the problem of its linguistic and cultural division (Flemish in the North, Walloons in the South). In addition to having benefited greatly from intense industrialization in the 19th century, it became, from the middle of that century, one of the most socially advanced countries on the European continent due to the strong indoctrination of social Catholicism and the collaboration of socialist Christian parties and trade unions, which allowed for strong social and evident progress in the health and education sectors. Belgian tax policy has contributed since the 1980s to the installation of the European centers of excellence of multinational companies [11].

The Czech Republic has a population size like that of Portugal. The fact that it was an important industrial economy for centuries (Bohemia and Moravian-Silesian) allowed it to catch up and in some indicators supplant Portugal, which is due also to the separation from Slovakia, a rural and poorer society, in 1993. A decade ago, the Czech Republic was more industrialized than Portugal and because of the social policies of the communist era, the main indicators of education, health, and culture were far superior, but the Portuguese GDP per capita was 22% higher than the Czech one (an advantage resulting, certainly, from the market economy during the 20th century) [11].

In 2011, Portugal was facing economic difficulties following the financial crisis; the country was in recession and had a high unemployment rate. The government implemented several austerity measures, which included tax increases, spending cuts, and structural reforms, and received a 78 billion EUR bailout package from the International Monetary Fund, European Central Bank (ECB), and the European Commission, which came with conditions that required the government to implement further austerity measures, including reducing public sector wages and pensions, raising the retirement age, and privatizing state-owned companies. The implementation of the measures fell short of OECD proposals, and the country experienced a period of social contestation [13]. Internationalization, competitiveness, attracting foreign investment, and R&D were the watchwords for the recovery of the Portuguese economy [11]. In 10 years, the Czech Republic overtook Portugal in GDP per capita and in other socioeconomic indicators. Apparently, economic miracles occurred in countries like Ireland, which recovered from the 2010 crisis. Portugal came out of the crisis, but in 10 years, it has not only failed to improve its comparative position but has been declining in some socio-economic indicators. As in most OECD countries, the pandemic has triggered a deep recession in Portugal [14]. The OECD’s report, Economic Surveys: Portugal 2021, states that it is necessary to strengthen health and labor market policies and take measures to address new financial and fiscal risks. It also advocates the adoption of digital technologies, the development of skills, and the promotion of investment and innovation, which are considered crucial to the country’s development.

Portugal belongs to the third of humanity with the highest GDP per capita but, on the other hand, has a lower performance in terms of innovation, which grows at a slower rate when compared to European counterparts with similar populations and GDP [5,10]. According to the GII 2022, the Portuguese innovation system occupies the 32nd position in the universe of 132 countries under analysis, but the data shows that it has been losing competitiveness. Similar results are presented by the EIS 2022, which shows that Portugal’s performance in 2022 is below the average of its group (Moderate Innovators) (85.8% vs. 89.7%) and that growth between 2015 and 2022 is below the EU average (6.4% vs. 9.9%). Among the countries in the comparison, Portugal has the lowest growth in GDP per capita (purchasing power parity) in the last four years (

Table 1. Population and GDP per capita in 2022 [5]. Own elaboration.

Country	2022		∆2019→2022
	Population, mn	GDP per capita, ppp $	GDP per capita, ppp $
Ireland	5.0	111,360	+41%
Belgium	11.6	55,919	+16%
Czech Republic	10.7	43,714	+17%
Portugal	10.2	36,543	+14%

), and it has the most aged population [15]. It is urgent to not only understand why Portugal is lagging but to also understand why Portugal has not been able to catch up with its peers.

A ranking on the attractiveness of Portuguese economic sectors based on their performance [16] revealed that the non-metallic industry sector, which includes ceramics, cement, crystal, and glass, as well as building materials, is the most attractive in Portugal from the point of view of investors. The wholesale and retail sectors come second, as do the wood, cork, and furniture sectors. The electrical and electronics industry occupies the third position, followed by the agro-industrial sector and finally agriculture and fisheries. The poor performance of the traditional agricultural and fisheries sector vis-à-vis its European counterparts is known and represents a strong competitive disadvantage of the country, which can in part be attributed to the lack of investment in innovation, technology, and infrastructure. The low competitiveness of the agricultural sector drags down the agro-industrial sector. In contrast, the textiles and leather, construction, chemicals, pulp, and paper industries perform solidly but face threats to their sustainability, particularly those related to raw materials, supply chains, and facing competition from emerging countries. Although other economic sectors may have emerged in Portugal, basically, the economic crises that the country went through did not allow significant changes in the national panorama.

The organizational model of Portuguese companies is influenced by the sector of activity and the size of the companies [17]. There is a general preference of Portuguese companies for the bureaucratic organizational model, which dominates the productive sector. This model is characterized by a hierarchical structure with clear patterns and lines of authority, and by a reliance on rational-legal authority. This characterization is according with that described by Hofstede Insights [18] regarding the distance to power in Portugal. Hierarchical distance is accepted, and privileges are admitted to those who occupy the most powerful positions. Organizations that adopt the bureaucratic model seem to be able to implement systematic processes by making rules and procedures compatible with the ability to adapt [17], but they lose agility and competitiveness in a dynamic and complex environment. The study by Queirós et al. [19] suggests that there is a cultural environment that is conducive to the high growth of businesses, which is positively related to power distance and negatively related to uncertainty avoidance and masculinity, which leads to infer that one of the factors that characterize the national culture, extremely high uncertainty avoidance, can influence the companies’ growth [18].

Along with what is happening in other larger economies, most Portuguese companies consider the fact that the costs of innovation are very high and the lack of investment by companies to be the main barriers to innovation. The difficulties in obtaining state support and the high competition in the target market are, unlike other smaller-scale economies, considered relevant in the Portuguese economy. It should be noted that the aspects less mentioned by Portuguese companies as barriers to innovation are the lack of qualified workers and the lack of partnerships. However, as we will see, not only are these aspects fundamental to the growth of the economy, but Portugal still has a long way to go. The size of companies is the most significant variable when examining the relative importance of barriers to innovation and, consequently, to economic growth [9], which alerts to the specificity of the Portuguese reality, consisting mostly of SMEs.

This study analyzes the factors that influence the performance of innovation in Portugal, in comparison to other countries, considering two important indexes: the GII at a global level and the EIS at a European level. The indicators and their sub-indicators are evaluated with the objective of identifying strengths and weaknesses. Through the comparative analysis of the performance of the four countries over the last four years, this study aims to answer the research question about which factors influence the performance of innovation in Portugal, including both those that stand out in terms of good results and those that justify the loss of competitiveness of the country in terms of innovation, drawing up a portrait of the current situation.

3. Methodology

The longitudinal study focuses on the analysis of the data from the GII published by the World Intellectual Property Organization (WIPO) for the years 2019, 2020, 2021, and 2022 [5,20,21,22] and the EIS, published by the European Commission for the years 2018, 2019, 2021, and 2022 (data for 2020 were not published) [10,23,24,25]. The analysis covers data on the innovation indicators of the countries under analysis: Ireland, Belgium, Czech Republic, and Portugal before the pandemic (2018 and 2019) and after the pandemic (2022) in order to consider the possible discontinuity in the trend of the countries introduced by this event.

In the scope of this paper, the terms defined in the Oslo Manual [26] are adopted. The concept of innovation is defined as a new or improved product or process (or their combination), which differs significantly from the unit’s previous products or processes, and which has been made available to potential users (product) or put into use by the unit (process). Factors influencing innovation performance (innovation barriers and drivers) are defined in this manual as internal or external factors that hinder or encourage innovation efforts. Both GII and EIS indexes are composed of indicators, which in turn are composed of innovation evaluation sub-indicators. Innovation indicators are defined as a statistical measure of an innovation phenomenon (activity, product, expenditure, etc.) observed in a population or a sample thereof during a given time or place. Indicators are usually corrected (or normalized) to allow comparisons between units that differ in size or other characteristics.

The study only considers data from EU countries and compares the scores obtained by Portugal in the various items to the scores obtained by Ireland, Belgium, and the Czech Republic (countries with which Portugal was compared in the past [11] with similar populations or GDP per capita) in the same items, following the same methodology and evaluation criteria.

The scores obtained by the different countries, in the various indexes, indicators, and sub-indicators are statistically evaluated and graphically represented, as well as the evolution of each country over the years under analysis, to establish causal relationships in an explanatory research design. The data from the two sources were analyzed separately, and the results were compared. A descriptive analysis was also conducted, based on the observations, to find out the characteristics or particular behavior of the innovation ecosystems.

First, the position of Portugal in the world context was analyzed based on the global score of the GII, identifying the main innovators and the main rises and falls in the ranking at the global level of the top 15 in the last 5 years. Portugal’s 2022 score is compared with the average for EU27 countries. For the four countries under analysis, the deviation from the mean is compared; in this way, the deviation from the EU mean can be compared based on the two indicators GII and EIS. Countries whose innovation ecosystem is growing above their level of development according to the GII were considered since this fact can forecast the evolution in the near future and the likely alignment of these countries with the average. Countries with greater deviation and growth of the innovation ecosystem aligned with their level of development will find it more difficult to recover the gap in the future. For the four countries under analysis, Portugal, Ireland, Belgium, and the Czech Republic, the evolution of the index GII in the last 4 years is evaluated, and the areas where the greatest deviations occur are identified. Based on this analysis, it is possible to understand the effect of the pandemic crisis on innovation ecosystems. A similar analysis is carried out based on the EIS, the deviations from the European average of the scores obtained by each of the EU27 countries and the growth between 2015 and 2022 are analyzed, and the data are compared with those previously obtained. Based on the growth, the capacity of individual countries to bridge existing gaps can be estimated. Similarly, the evolution in the last 5 years (2020 does not present results) of the four countries of the comparison is evaluated, and the areas where the greatest variations were verified are identified. The factors in which each one of them stands out are highlighted, as well as those where they obtained the greatest growth, taking as reference for the Portuguese case the developments in the other countries namely those that had the greatest leaps in performance. The strengths and weaknesses of the Portuguese innovation ecosystem are highlighted, and reasons that may explain the positioning are indicated. Within the scope of the study, weaknesses are considered those where the score obtained is below at least two of the countries in the comparison; and strengths are those where the score obtained is above any score obtained by another country.

As mentioned above, factors influencing innovation performance are defined as internal or external factors that hinder or encourage innovation efforts. Factors influencing innovation performance of countries are innovation policies, knowledge and skills, investment policies in research and development (R&D), intellectual property, trade and openness, knowledge sharing and market information, legal and regulatory issues, and access to infrastructure [6,7,8,19,27]. According to the methodology used by GII, these factors are grouped under five pillars: institutions, human capital and research, infrastructure, market sophistication, and business sophistication, which are considered inputs to the innovation ecosystem. It considers two outputs from the ecosystem: the results of knowledge and technology and the results of creativity. Each pillar and each type of output is supported by three sub-indicators, each of which results from the evaluation of different socio-economic parameters [5,20,21,22]. The EIS considers twelve indicators that influence innovation performance: human resources, attractive research systems, digitalization, finance and support, firm investments, use of information technologies, innovators, linkages, intellectual assets, impact of innovation on employment and sales, and environmental sustainability. Each indicator has the contribution of three or four socio-economic sub-indicators [10,23,24,25].

4. Results and Discussion

This section presents the analysis of the indexes, indicators and sub-indicators obtained by the four comparison countries: Ireland (IE), Belgium (BE), Czech Republic (CZ), and Portugal (PT), based on the GII and the EIS. In the first part, the evolution of Portugal is analyzed in the world context by comparison with the other countries, and in the second part, the same analysis is carried out in the European context.

4.1. How Innovation Has Evolved in Portugal in the Global Context

The pandemic introduced a discontinuity in the course of the economy and in the habits and way of life of people around the world. The way each country responded to the challenge dictated its emergence from the crisis and could have represented a competitive advantage with reflexes in the following years. With the high vaccination rate achieved in Portugal, the country could have come out ahead of the recovery and have reduced, at least partially, some innovation performance delays. However, as will be seen, this was not the case.

In global terms, the innovation leaders are Switzerland, the USA, and Sweden (1st, 2nd, and 3rd, globally) [5], which have remained on the podium since 2019. The first Asian economy in the ranking is the Republic of Korea, which moved from the 11th position in 2019 to the 6th position in the global ranking. China entered the top 15 for the first time in 2019 and is currently 11th globally in the GII 2022 ranking. The majority of the EU countries over the past 5 years have dropped in the GII ranking, except for Germany, which improved one position and is now in the 8th position. China is now ahead of the EU27 in terms of innovation (with scores of 55.3 and 45.6, respectively).

Of the four countries under comparison, Ireland ranks highest (23rd), followed by Belgium (26th), the Czech Republic (30th), and Portugal (32nd). According to GII [5], Ireland continues to perform above its level of development, while Belgium, the Czech Republic, and Portugal perform in line with their level of development. Figure 1 shows the difference between the score obtained by each of these countries (GII score 2022) and the EU average for the EU27 countries. Although the Czech Republic is below the EU27 average, Portugal is the country with the largest gap. Below Portugal are Bulgaria, Croatia, Greece, Hungary, Latvia and Lithuania, Poland, Romania, Slovakia, and Slovenia, all countries that joined the EU after Portugal. Innovation performance grows above its level of development in Bulgaria, while Croatia, Hungary, Latvia, Poland, and Slovenia are in line with their level of development.

By 2022, all comparison countries show a downward trend in the GII score, with the decline being greatest for the Czech Republic and Portugal (Figure 2). Portugal remains distant from the three comparator countries, with the worst innovation performance and, as will be seen, the lowest growth, overshadowing the growth prospects of the economy in the near future.

Figure 3 presents the results obtained for each GII innovation indicator in the last four years, and Figure 4 presents the comparison of the results obtained by the four economies in 2022.

According to the GII 2022, institutions, business sophistication and knowledge and technology outputs are the indicators in which Portugal obtained the lowest scores.

The indicator of institutions measures the political, regulatory, and business environment. There has been a sharp decline in this indicator in the last year in the four economies, which seems to indicate that it was not the pandemic that was the key event in the loss of confidence but the events that followed it, such as the rise in inflation and the war in Europe. Portugal’s sharp decline may reveal less confidence in the ability of institutions to meet future challenges in an economy in need of structural reforms [19]. Portugal ranks 47th for the indicator institutions (vs. 43rd CZ, 29th BE, 16th IE of the 132 countries analyzed). The political environment and stability are similar in the four countries, which is understandable in light of EU integration. As regards regulatory quality, Ireland stood out on the positive side and Portugal on the negative side (38th PT, 23rd CZ, 20th BE, 16th IE of the 132 countries analyzed), but it is in the business environment that Portugal scored lowest (102nd PT vs. 17th IE of the 132 countries analyzed); business policy and entrepreneurship policy and culture were considered weak points by the GII in the Portuguese innovation ecosystem.

Regarding the human capital and research indicator, which assesses parameters related to education and investment in R&D, Belgium stood out widely and, although it showed a slight decrease in 2022, it was above the other economies (22nd PT, 33rd CZ, 16th BE, 23rd IE out of the 132 countries analyzed). In this indicator, Portugal registered a high score, and the evolution was in line with Ireland. It should be noted that Portugal spends more on education as a percentage of GDP than Ireland (4.7% vs. 3.4%) but that the schooling period is two years shorter in Portugal. As for R&D investment as a percentage of GDP, Portugal had one of the lowest figures (Czech Republic has incomplete figures). Despite this, education as well as the number of researchers per million inhabitants are Portugal’s strengths.

With regard to the infrastructures indicator, which assesses information and communication technologies, infrastructures in general, and ecological sustainability, Ireland dominated the scores, and after the decrease observed in 2020, the year 2022 showed a slight upward trend (39th PT, 20th CZ, 37th BE, 15th IE of the 132 countries analyzed). Portugal was in the last position, motivated by the weak use of information and communication technologies.

The market sophistication indicator assesses credit, investment and trade, diversification, and market size. The year 2022 was a year of decline for all four economies; Portugal, which ranked last, apparently suffered less from the factors that led to the indicator’s decline. In 2022, diversification was a Portuguese strength as opposed to investment, which was a weakness (but a strength in the Czech Republic, despite its less favorable position) (42nd PT, 76th CZ, 45th BE, 55th IE out of 132 countries analyzed). Credit, investment, and diversification were strengths of the Irish innovation ecosystem, placing it in a prominent position worldwide.

The indicator of business sophistication evaluates highly qualified work, innovation partnerships, and knowledge transfer. Although the profile presented by Portugal in this indicator over the last four years was similar to that presented by the countries of comparison and even showed a positive trend in the last year, Portugal presented the lowest score of the comparison (34th PT, 28th CZ, 11th BE, 13th IE out of the 132 countries analyzed). This ranking was influenced by the low result in innovation partnerships and the weak knowledge transfer, an indicator that clearly marks another of Portugal’s weak points and one of the areas where Portugal has more to learn from countries like Ireland.

The indicator for the outputs of the innovation ecosystems concerning knowledge and technology evaluates the creation of knowledge, its impact, and its dissemination. Portugal occupied the last position in the comparison (35th PT, 17th CZ, 18th BE, 14th IE out of the 132 countries analyzed), a fact which is in line with what has been mentioned regarding the transfer of knowledge but which should lead to serious internal reflection since human capital and research is the indicator where one of the best classifications in the world ranking was obtained (22nd out of 132 countries). The outputs indicator revealed a trend of the weak performance of the Portuguese innovation ecosystem, which shows signs of a cycle that may not improve in the short term. Albeit it should be noted that despite the low results in this indicator, scientific production and spending on software are considered strengths of the country; however, the diffusion of knowledge ranked 49th (vs. 16th CZ, 23rd BE, 1st IE out of 132 countries). On this specific point, Portugal should learn from Ireland how to disseminate knowledge since it is in 1st place in the world ranking. With regard to the impact of knowledge, the decrease in labor productivity (−0.3% PT, +1.4% CZ, 0% BE, −0.3% IE), which is in line with the decrease in productivity registered in the European economies, should be of particular concern in a country with marked aging of the population and the departure of highly qualified young people [12].

In the world ranking, Portugal had a high score in the creativity outputs indicator (25th PT, 37th CZ, 32nd BE, 29th IE out of 132 countries analyzed), which assesses intangible assets, creative products and services, and online creativity. The score on this indicator has risen over the last two years and is clearly a strength of the country, which should be seen as a source of value creation that should be encouraged.

4.2. How Innovation Has Evolved in Portugal in the European Context

The EIS report evaluates the innovation ecosystems of different countries, assigning innovation indicators a score as a percentage of the EU average (representing 100%). The EIS classifies the various countries into four groups, according to their ranking in descending order: Leading Innovators, Strong Innovators, Moderate Innovators and Emerging Innovators. In 2022, according to the EIS, Portugal was classified as a Moderate Innovator, with 85.8%, below the average of its group (Moderate Innovators), which is 89.7%. The Czech Republic was classified in the same group as Portugal but had an overall score above the group average of 92.6%. Ireland was a Strong Innovator and Belgium a Leading Innovator, respectively, with 118.9% and 128.8%. Ireland was above the average of its group (114.5%), and Belgium, although with a higher score, was below the average of its group (134.4%) (Figure 5).

Belgium’s innovation performance is growing (16.8%) faster than the EU (9.9%) and Ireland’s slower (7.1%). The Czech Republic was slightly below the EU average on innovation, but its performance is growing at 19.8%, almost twice the EU average, and is expected to exceed it in the short term. Portugal was of the four countries with the lowest score and growth (6.4%), i.e., innovation in Portugal is growing at a lower rate than in the EU, and the gap between Portugal and its European counterparts is expected to widen (Figure 6).

Regarding the evolution of the indicators in the last 5 years (2020 does not present data), the four countries are grouped into two groups: one with performance above the EU average with positive evolution, represented by Ireland and Belgium, and another, with performance below the EU average, where the Czech Republic and Portugal are, with the lowest results being presented by the latter country (Figure 7). While the Czech Republic showed a sustained improvement in the last 5 years, Portugal showed a lower performance in 2021.

This analysis shows that Portugal is moving away from the EU countries with which it has already been compared in terms of innovation, and the fact that the growth of the innovation ecosystem is below the European average makes Portugal’s recovery more difficult and predicts the stagnation of the country’s economy.

Over the past 5 years, Portugal has shown innovation indicators far behind those of Belgium and Ireland. Business investment, as well as investment in innovative products and business processes, fell significantly in 2021 and 2022 (Figure 8). As for intellectual assets, Portugal was below Ireland but above Belgium and the Czech Republic. Indeed, in line with what was found for GII, intellectual capital was a strength of Portugal. From the environmental point of view, the country’s performance was well below that of the other countries in the comparison, with a negative trend.

In 2022, the Portuguese innovation ecosystem scored below the other countries in the comparison of environmental sustainability, an aspect considered by the European Commission to be a weak point in the country due to atmospheric emissions by fine particles but also due to poor investment in environmental technologies and low resource productivity (Figure 9).

Portugal’s corporate investment in innovation was the lowest in the comparison, highlighting the low investment in innovation per employee. The impact of innovation on the country’s exports was also low. The performance of innovative SMEs, namely regarding innovation partnerships, and the impact of innovation on job creation was the lowest in the comparison. Only in the digitalization indicator did Portugal manage to surpass the other countries, but the score was obtained based on only one sub-indicator, broadband penetration. The panorama outlined was negative for the future of the Portuguese economy. The path toward digitalization of the Portuguese public and private sector has only just begun; Industry 4.0 is not yet a reality for most SMEs, and Industry 5.0 is practically a chimera [28,29]. The country’s strengths are its human resources, the attractiveness of its innovation systems, and its innovation and digitalization environment, but it has difficulty in transforming these assets into growth in the economy and wealth for the country. Business investment in innovation, the impact of innovation on exports, and environmental sustainability stand out as weaknesses of the Portuguese innovation ecosystem. A breakdown of the various innovation indicators is presented below.

The human resources indicator is assessed by the number of PhD holders, the percentage of the population between 25 and 34 years old with tertiary education, and the longevity of education for the population between 25 and 64 years old. The attractiveness of research systems is assessed through international scientific co-publications, the citation of publications by national authors, and the percentage of foreign doctoral students in national R&D entities. Digitalization has only two components: broadband penetration and the percentage of the population with digital skills above basic. Except for broadband penetration, Portugal’s scores on all items were below Ireland’s and above the Czech Republic’s (except for the number of PhD holders). Portugal was in line with Belgium in broadband penetration, digital skills, and foreign doctorate students, which shows the attractiveness of the Portuguese research system.

Regarding finance and support, public expenditure on R&D, venture capital spending, and government support to R&D companies were assessed. Business investment was assessed through R&D expenditure, expenditure on non-R&D innovation, and innovation expenditure per employee. The use of information technologies was measured by the number of firms providing ICT training and the number of employees specializing in ICT. Belgium’s scores were higher than the other countries in all items, except for the employment of ICT specialists, an item dominated by Ireland. Portugal presented the lowest values of the four countries, surpassing, however, Ireland in public sector innovation investment and non-R&D innovation investment and the Czech Republic in government support to R&D companies. There was a particularly negative focus for R&D expenditure per employee in the Portuguese case. The Czech Republic had less public sector and business investment in innovation, but the country’s spending on non-R&D innovation exceeded all others (+60% than the EU average), which could be a lever for innovation growth in this country.

In the innovators (SMEs) indicator, product and business process innovation was considered and, and in the linkages indicator, innovative SMEs that collaborate with others, public-private co-publications, and the mobility of highly qualified workers were considered. To evaluate intellectual assets, patent, trademark, and design registrations were considered. Belgium, followed by Ireland, dominated half of the parameters under evaluation. Portugal presented the lowest results in terms of product innovation and business process innovation, as well as in the establishment of linkages/partnerships, revealing that the establishment of partnerships and coopetition are not regular practices in the Portuguese business environment, which may be related, in part, to the national culture [18]. Data from the EIS 2020, 2021, and 2022 show that not only does Portugal show indicators for cooperation between SMEs and between the public and private sectors below European counterparts, but indicators for these two items have been falling since 2020. In line with the creative innovation results referred to in the previous section [5], Portugal showed good results in brand and design registration. Regarding the high mobility of highly qualified workers presented by Portugal, it could be considered that the lack of qualified resources in the Portuguese labor market could partly justify the score.

The employment impacts indicator evaluates employment in knowledge-intensive activities and in innovative SMEs. Regarding the sales impacts, exports of high- and medium-technology goods and knowledge-intensive services were evaluated, as well as the sale of innovative products. Regarding environmental sustainability, resource productivity, air emissions of fine particles, and environmental technologies were evaluated. Ireland dominated most of the parameters, namely employment in knowledge-intensive activities and exports of innovative products. Portugal had difficulties in employment in innovative companies and in exporting high- and medium-technology goods and knowledge-intensive services. Portugal had poor environmental sustainability, with a score of zero for atmospheric emissions of fine particles and poor resource productivity, in line with what was previously mentioned based on GII data.

5. Conclusions and Implications

This article contributes to the literature by providing insight into the state of innovation in Portugal and identifying the areas where it excels and those where others achieve better results. The success of vaccination in Portugal could have represented a competitive advantage for Portugal, but contrary to expectations, the indicators regarding the Portuguese innovation ecosystem dropped in 2022 in a country increasingly dependent on tourism to raise national GDP [30].

In global terms, most EU countries have fallen in the GII ranking over the last 5 years. Of the four countries under comparison, Ireland occupied the highest position (23rd), followed by Belgium (26th), the Czech Republic (30th) and, finally, Portugal (32nd), which showed the greatest decrease in 2022 and which presents a growth in innovation in line with its level of development, thus foreseeing an evolution without major qualitative leaps in the coming years. Portugal showed the largest deviation from the GII average for the EU27 countries. The data cast a shadow over the country’s capacity to face the challenges of the future and to retain talent (rather than letting talent emigrate to countries offering higher salaries, better working conditions, and better career opportunities), which is so necessary for the national economy. According to the GII 2022, institutions, business sophistication, and knowledge and technology outputs were the indicators in which Portugal scored the lowest. Portugal’s sharp decline in institutions, motivated by the low score in terms of business environment, may reveal less confidence in the institutions’ capacity to undertake reforms and face the challenges of the future. The country had the lowest score in terms of business sophistication (despite showing a positive trend in the last year) because of the low scores on innovation partnerships and knowledge transfer, aspects that may be related to the country’s culture (additionally, a slow judicial system may hinder innovation partnerships). Regarding knowledge and technology outputs, Portugal occupied the last place in the comparison (influenced by the low score in knowledge diffusion), a fact that should lead to serious internal reflection, considering that human capital and research are a national strength. On this specific point, we should learn from the example of Ireland, which was first in the world ranking in knowledge diffusion. Finally, a negative note for the decrease in labor productivity, which should be of special concern in a country with an aging population and the departure of highly qualified young people (though there are policies in place to bring back emigrants, apparently little is being done to avoid emigration in the first place—with perhaps more positive organisations, led by positive leaders, who encourage young talent and innovative ideas [31], promoting brilliant minds instead of maintaining the status quo and existing relationships [32]).

As regards human capital and research, Portugal’s evolution was in line with Ireland’s and ranked highly. Education as well as the number of researchers are strengths of the country; however, Portugal has not demonstrated the capacity to transform this advantage into results that promote the growth of the economy and retain talent. The country has a highly qualified and much-needed fraction of the population for economic growth, vital for the renewal of the aging active population, who have difficulty finding in Portugal the answer to personal and professional aspirations and who choose to leave the country. In line with human capital, Portugal scored high on creativity outputs, which was clearly a strength.

Portugal was in the 3rd quartile of the EIS 2022 (EU 27) and in the last 5 years has performed below the EU average and presented the lowest results of the comparison. Business investment, as well as investment in innovative products and business processes, fell significantly in 2021 and 2022 and were lowest in the last year. In 2022, Portugal was ranked as a Moderate Innovator at 85.8%, below the average of its group (Moderate Innovators), which was 89.7%. The Czech Republic was ranked in the same group as Portugal but had an overall score above the group average of 92.6%. Ireland was a Strong Innovator and Belgium was a Leading Innovator, respectively, with 118.9% and 128.8%. Ireland was above its group average (114.5%), and Belgium was below its group average (134.4%). In Belgium, the performance of the innovation ecosystem is growing at 16.8%, which is faster than the EU (9.9%); in Ireland, it is growing at 7.1%, in the Czech Republic at 19.8% (almost twice the EU level), and in Portugal at 6.4%. Hence, the gap between the country and its European counterparts is expected to widen. The impact of innovation on exports as well as the performance of innovative SMEs scored lowest in Portugal. Only in broadband penetration did Portugal manage to overcome the remaining countries, but the concept of Industry 4.0 is still distant from many companies in Portugal. In terms of intellectual assets, Portugal was below Ireland but above Belgium and the Czech Republic, in line with the GII results for human capital, as well as in brand registration and design (creativity). From the environmental point of view, Portugal performs well below the other countries, with a negative trend.

From the analysis, it is evident that Portugal is moving away from the EU countries in terms of innovation and from those with which it has been compared in socio-economic indicators in the last decade. The fact that the growth of the Portuguese innovation ecosystem is below the European average makes the recovery of the country more difficult and predicts the stagnation of the economy in the short term. The country’s strengths are its human capital, the attractiveness of its research systems, and creativity, but it has difficulty capitalizing on these assets. The aging of the population is worrying, and the birth rate shows no signs of reversing, making it vital to have policies to encourage and support motherhood, like what has been done in other EU countries (which face the problem of an aging population in a generalized manner). Low salaries in Portugal make it difficult to increase the number of children per couple, and bringing up a young person continues to be a significant financial effort for most families.

On the other hand, the implementation of Industry 4.0 in companies causes transformational changes in talent management, which should motivate leaders, managers, and entrepreneurs to undertake changes in organizational culture. The speed of technological change creates a significant gap between the current capacity of human resources and the rapidly evolving requirements of their roles. New skills are required not only in the technical area but also in the behavioral area, and to attract talent, companies must promote themselves as employers, a task that appears difficult given the mismatch between present needs and the expectations of future recruits. Leadership within organizations is fundamental to retain talent, and new generations expect more from leaders. Middle managers are increasingly recognized as critical talent given their essential role in managing change [33]. Precarious youth employment, low wages and housing difficulties not only make it difficult to retain young people and talent but also jeopardize one of the country’s most important assets—people. The departure of young people from the country and the flight of talent is one of the most serious problems facing the country and has been aggravated by the aging of the population. Eurostat data reveal that 100,000 young Portuguese people between the ages of 25 and 29 live outside the country [12].

This study contributes to the knowledge about the Portuguese innovation ecosystem and provides clues to entrepreneurs and governments on what to do better and how to contribute to create a strong commitment of the scientific community and civil society in the exercise of a responsible and active citizenship. To face the challenges of the future, Portugal must redefine policies and strategies, face internal challenges related to culture, leadership and governance, retain talent, reverse the low productivity and low birth rate, and invest in digitalization.

5.1. Suggestions for Future Research

An upcoming wave of research focuses on negative organizations and is dedicated to the explanation of how the status quo may triumph over the implementation of innovation in firms of all sizes and in all sectors [32,34]. If it is the case that Portugal has a considerable number of negative organizations, where talented young people will not want to work for a dearth of growth opportunities, then government policy may be needed to increase the existence of a meritocracy in firms, much as it already exists in academia (comparatively and to a certain extent). Further research could look into the existence of negative organizations, which are seen to be more prolific in relationship cultures such as those found in South-Western Europe [35]. This exacerbates the need for the existence of more positive organisations, indeed worldwide, to make work more pleasant, more satisfying, more challenging and engaging, as is already the case in certain successful organisations where transformational leadership is enjoyed.

5.2. Limitations and Directions for Future Work

This study has some methodological limitations that affected its potential contributions. The specific period selected could affect the causal relationships. A historical perspective could provide clues to the understanding of the scores obtained and Portugal’s ability to overcome difficulties or leverage strengths. Another limitation of the study comes from the countries selected for comparison; in future work, the results obtained can be compared with the results of similar studies in other European Union economies. The conclusions could be complemented with the study of data from other sources, and data should be cross-checked to assess whether there is information bias motivated by different country perspectives.