The present study adopts the most commonly used national intellectual capital framework, containing human capital, market capital, process capital and renewal capital. Selection of the seven variables for each capital was mainly based on the literature. Variable selection was implemented in two rounds. In the first round, the requirement was that variables must be
31 supported by at least two studies, and must be included in the OECD databank or the IMD World CompetitivenessYearbook.“Marketcapital”turned outto havethefewestidentified variables.To remedy the unbalanced number of variables in market capital, a focus group was formed to obtain initial feedback regarding the appropriateness of the variables selected. With input from ten Taiwanese professors who also engaged in intellectual capital related research, the authors were able to revise the variables, finally settling on those shown in Table 1. Financial capital is also included, as it is a key factor of national wealth. Consequently, a total of 29 variables were selected;
seven each for human capital, market capital, process capital, renewal capital and a single variable (GDP per capita) representing financial capital.
The first type of national capital - human capital –is defined as the competencies of individuals in realizing national goals (Bontis, 2004). According to OECD (2000), human capital consists of knowledge about facts, laws and principles in addition to knowledge relating to specialized, teamwork and communication skills. Education is the foundation of human capital. It is through education that knowledge and skills are developed. Students are taught a variety of subjects, not only to improve their labor productivity, but also to enrich their lives, make them better citizens and create additional value for the nation. However, formal education alone is not sufficient for the continuing development of human capital. Post-education training institutions, including private companies, must provide ongoing training to enable citizens to cope with a rapidly changing world. Therefore, the variables used in this study include the amount of skilled labor, the degree of employee training, the literacy rate, higher education enrollment, the pupil-teacher ratio, the number of Internet subscribers, and public expenditure on education.
The second type of national capital - market capital - is similar to social capital in a micro setting in that it represents a country’s capabilities and successes in providing an attractive, competitive solution to meet the needs of its international clients, while also sharing knowledge with the rest of world through knowledge coordination and contextualization (Bontis, 2004).
Therefore, one major factor that determines market capital is international trade. The flow of people, technology, and ideas between countries is the key to overall market success. The present study therefore incorporates variables concerning investment and achievements in foreign relations, coupled with exports of quality products and services. In this study, we focus primarily on whether corporate tax policy facilitates trade, cross border venture, openness to foreign cultures, the degree of globalization, transparency of economic information, the image that the country projects abroad, and exports and imports of commercial services.
The third type of national capital –process capital –comprises the non-human powerhouses ofknowledge in anation,embedded in acountry’sinfrastructure,which facilitatethecreation, accessibility and dissemination of current data, information and knowledge. The overall environment, government, capital and information technology appear to be the decisive factors here. Apart from these factors, countries with inadequate resources in terms of computers, Internet access and telecommunications are at risk of falling even further behind their competitors in the
32 world market (Bontis, 2004). Therefore, the business competition environment, government efficiency, intellectual property rights protection, capital availability, the number of computers per capita, the convenience of establishing new firms, and the number of mobile phone subscribers are included in this category of capital.
Table 1 Variables included in each type of capital proposed by this study
Human Capital index Market capital index
1. Skilled labor* 1. Corporate Tax*
2. Employee training* 2. Cross border venture*
3. Literacy rate 3. Openness to foreign culture*
4. Higher education enrollment 4. Globalization*
5. Pupil-teacher ratio 5. Transparency*
6. Internet subscribers 6. Image of your country*
7. Public expenditure on education 7. Exports & imports of services
Process capital index Renewal capital index
1. Business competition
environment* 1. Business R&D spending 2. Government efficiency* 2. Basic Research*
3. Intellectual property right
protection* 3. R&D spending/GDP 4. Capital availability* 4. R&D researchers*
5. Computers in use per capita 5. Cooperation between universities and enterprises*
6. Convenience of establishing new
firms* 6. Scientific articles*
7. Mobile phone subscribers 7. Patents per capita (USPTO + EPO)
Remark:
Financial capital is the logarithm of GDP per capita adjusted by purchasing power parity.
Thosevariablesmarked with an asterisk aretheonesrated using ascaleof“1-10”.
The fourth type of national capital - renewal capital – is defined as a nation’s future intellectualwealth,which sustainsanation’scompetitive advantage. Research and development (R&D) and patents are two key parameters in renewal capital. Their significance derives from the directrelationship between thesuccessofacountry’sfinancialsystemsand theeffectivenessofits R&D sector (Bontis, 2004). Foreign patent applications represent the acknowledgement and renewing of ideas and innovation within industries throughout a country. Therefore, we selected business R&D spending, degree of basic research to enhance long-term economic development, R&D spending as a percentage of GDP, the number of R&D researchers, the level of cooperation between universities and enterprises, scientific articles, and USPTO & EPO per capita for inclusion in this capital type.
The fifth type of national capital –financial capital –is represented by a single indicator: the logarithm of GDP per capita adjusted by purchasing power parity. This is the most common metric denoting the financial wealth of a nation.
33
Method
In this section, we describe the data collection and data analysis methods. Using the variables listed in Table 1, we collected data from several sources including the OECD database, the World Competitiveness Yearbook published by the IMD, and the Taiwan Economic Statistical databank provided by the Taiwan Economic Data Center for matching Taiwanese data. A comprehensive list of 47 countries was compiled from these data sources. Due to the large number of missing values, the datasets for Columbia, Hong Kong, Indonesia, Israel, Luxembourg, Slovenia and Venezuela were excluded. The data analyzed in this study therefore covers 40 countries for a period of 12 years extending from 1994 to 2005.
In thisstudy,therearetwo differentdatatypes,onewith an absolutenumbersuch as“patents per capita”; the other with a qualitative rating on a scale of “1-10”, such as “image of your country”. Although subjective, rating on the degree or magnitude of certain variables is unavoidable as we are evaluating intangible assets, and intangibles cannot be fully represented by merely adding up certain quantitative variables. For a meaningful integration of the quantitative score and qualitative rating in each capital, we calculated the ratio of the absolute value relative to the highest value of each quantitative variable and multiplied it by 10 to transform the number into a 1-10 scale. The data transformation procedures have been repeated for all number indicators of human capital, market capital, process capital, and renewal capital. For financial capital, we use the logarithm of GDP per capita adjusted by the purchasing power parity of each country, calculated itsratio to thehighestvalueand then transformed itinto a“1-10”scale.Finally,we totaled the scores of the five capitals to come up with the Overall Index in Table 2.
Result
Based on the data analysis described in the last section, Table 2 displays the score and ranking of the five types of national capital investigated. The overall index is particularly revealing because it provides valuable information for policy makers to reflect on. As mentioned earlier in this paper, one of the purposes of this study is to provide another version of the national intellectual capital model for future researchers to replicate and refine. We have tried to identify variables that are well represented based on the literature review, while at the same time balancing the number of variables for the four capital types (7 variables each, excluding financial capital) and balancing the number of quantitative and qualitative variables (13 vs. 16).
With 12 years of data spanning the period from 1994 to 2005, the overall results agree with the general perception that the Nordic countries have the highest degree of national intellectual capital. The top ten countries in the list are, in order, Sweden, Finland, Switzerland, Denmark, the USA, Norway, Iceland, Singapore, the Netherlands, and Canada. Of these, five are Nordic countries, two are in other parts of Europe, two are in North America, and one is in Asia. Taiwan is
34 number seventeenth in the list.
The bottom five countries in the list are India, China, Mexico, Russia, and Argentina. Three of the BRIC countries, namely -- Russia, India, and China, which are currently showing so much promise, are among the bottom five, probably because the rankings is based on historical data covering an 12-year period, and not the last few years; in addition, the population of these countries is relatively large, which may lead to their efforts in certain areas being stretched too thin.
Table 2 Composite Score and Ranking for the Different Types of National Capital Index for 40 Countries from 1994 to 2005
Mean 5.71 5.59 5.13 3.78 8.75 28.96
SD 1.24 0.93 1.44 1.88 1.06 5.85
Country Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking
Argentina 4.60 32 4.14 38 2.91 39 1.74 36 8.32 26 21.70 36
Australia 6.48 11 6.04 15 6.81 7 4.33 17 9.42 18 33.07 11
Austria 6.69 9 6.46 7 5.94 15 4.33 18 9.63 7 33.04 12
Czech Republic 4.90 28 5.41 23 4.18 28 2.54 25 8.22 27 25.24 27
Denmark 8.30 1 6.59 5 7.06 3 5.54 7 9.81 5 37.30 4
Malaysia 4.95 26 6.11 13 4.94 21 2.22 28 7.89 31 26.12 25
Mexico 4.08 37 4.71 34 3.26 37 1.41 40 8.04 29 21.51 38
Netherlands 6.47 12 6.92 3 6.60 9 5.20 8 9.57 10 34.77 9
35
New Zealand 6.05 16 6.25 10 6.26 12 3.54 21 9.14 20 31.24 19
Norway 7.81 3 5.96 16 6.99 4 4.69 13 9.92 2 35.37 6
Poland 4.36 34 4.89 29 3.29 36 1.67 38 7.80 32 22.00 33
Portugal 4.86 29 4.05 39 3.19 38 2.11 30 8.78 24 23.00 30
Philippines 5.49 24 5.24 25 4.43 27 2.01 32 6.75 38 23.92 29
Russia 4.64 31 3.89 40 2.70 40 2.94 22 7.42 36 21.57 37
Singapore 5.88 19 8.17 1 6.95 6 4.64 14 9.52 15 35.17 8
South Africa 4.19 35 4.67 35 4.11 30 2.21 29 7.65 34 22.83 31
Spain 5.32 25 5.66 20 4.77 22 2.60 24 9.12 21 27.47 22
Sweden 8.08 2 6.18 11 6.98 5 7.54 2 9.61 8 38.39 1
Switzerland 7.01 6 6.27 9 6.38 11 7.80 1 9.94 1 37.40 3
Taiwan 6.20 14 5.83 18 5.82 16 4.75 12 8.97 22 31.57 17
Thailand 4.48 33 5.55 22 3.80 31 1.57 39 7.38 37 22.78 32
Turkey 3.99 38 5.01 28 3.46 32 1.67 37 7.59 35 21.72 35
UK 5.74 21 5.67 19 6.17 14 4.43 16 9.51 16 31.52 18
USA 6.98 7 6.07 14 7.26 2 7.00 5 9.82 4 37.12 5
Conclusion
Assessing the intellectual capital of a nation reveals the hidden values of individuals, companies, institutions, and communities that constitute current and potential sources for wealth creation. The expectation is that finding a reliable measurement of knowledge assets will help governments to achieve more effective management of the intangible resources that increasingly determine thesuccessoftheireconomies(Bontis,2004).Although assessing anation’sintellectual capital is a daunting task, the steady stream of research results that have been published in the last few years has made managers and policy makers begin to pay more attention to the increasing importance of intangible assets issues. The present study provides a platform that a country can use to examine its strengths and weaknesses and identify the areas on which it should be focusing as it strives for excellence.
Year Two research report:
The major purpose of the second year project is to explore the dynamics of the human capital, organizational (structural) capital, and social (relational) capital at the organizational level. Various scholars have devised their own definitions of intellectual capital, including a collective brainpower or packaged useful knowledge needed for problem solving and for performing certain tasks (Stewart, 1997); employee intelligence, know-how, knowledge and process (Bassi &
McMurrer, 1998); the sum or stock of employee knowledge (Roos et al., 1998); and the multiple effects of employee ability and commitment (Ulrich, 1998).
36 The common elements listed above are employees, knowledge, and values. Intellectual capital mainly resides in employees with knowledge, intelligence, and experience, which should be accumulated and transformed to organizational wisdom through organizational (structural) capital for facilitating social (relational) capital.