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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.

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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.

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"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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