The 50 Most Innovative Companies

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Similarly, 88% of executives in China said they were raising their innovation budgets this year, followed by 82% in South America and 73% in India. The rate fell to 48% in the U.S., ahead of only Japan, where just 34% of executives said their companies planned to increase innovation spending. All of which suggests the U.S. may not be dominating the list again soon.

Even in the U.S., barely half of respondents (53%) said they think U.S. companies will be the most innovative over the next five years. "We're moving to a place where innovation leadership is going to be more dispersed than in just the U.S., Western Europe, and Japan," says Boston Consulting's Andrew.

The shift is more apparent when this year's class is compared with the first ranking in 2005. Back then, only six of the Top 20 were headquartered outside the U.S., vs. 13 of 25 this year. In addition a third of 2005's American champs—such names as 3M (MMM), Starbucks (SBUX), and eBay (EBAY)—no longer make the Top 50.

As specific Asian companies charge ahead in the global ranking, many analysts and executives complain that overall, businesses in China, Korea, and India aren't all that innovative. Their domestic economies are growing so quickly—and there are so many opportunities to launch tried-and-true business models—that these companies don't need to come up with the Next Big Thing. Sticking with the Same Old Thing suits many companies and investors just fine.

"You need something revolutionary to come along in the U.S. to really make an outsize return," says William Bao Bean, a Shanghai-based partner with Softbank China & India Holdings, a $105 million venture fund backed by Cisco Systems (CSCO) and Softbank. In Asia's big two countries, "you don't need to make a revolution," he says. "There's low-hanging fruit to be had."

The huge home market is helping China Mobile grow bigger and, the company hopes, more advanced. The world's largest cellular operator agreed last month to buy 20% of Shanghai Pudong Development Bank for $5.8 billion. The investment should help China Mobile provide wireless banking services to its 527 million customers, helping to solve a chronic problem plaguing the e-commerce industry in China, where use of credit cards is not widespread.

For many companies, though, relying on the easy pickings in China and Taiwan is no longer an option. HTC is feeling pressure from Chinese rivals such as ZTE Corp. and Huawei Technologies, which are taking advantage of Google's open-platform Android operating system to get into the smartphone business, too. "Android has become the great equalizer," says Aloysius Choong, an analyst in Singapore with researcher IDC. Because Android takes a lot of the innovation burden off of the hardware companies, it lowers the entry barrier for newcomers. That's one reason analysts think HTC may make an offer for Palm, the U.S.-based smartphone maker that has put itself up for sale, according to people familiar with the situation. The battle is notable, of course, because it is an innovation-driven skirmish between Chinese and Taiwanese players—something that simply didn't happen a decade ago.

Chou, HTC's chief, acknowledges that competition is intensifying. "We never underestimate the potential competition coming from elsewhere, either from top-tier premium brand companies or companies from China or Taiwan. What is important for HTC, we need to continue to provide a unique and differentiated value to our customer."

Apple also wants to take HTC down a peg. In March, the iPhone-maker filed a complaint with the U.S. Federal Trade Commission and a lawsuit in U.S. District Court alleging HTC's smartphones infringed on Apple patents. HTC denies the claims. "HTC has been innovative from the beginning," says Chou. "We were working on this for a long time before the iPhone came out."

Bloomberg BusinessWeek's Most Innovative Companies special report is based on data from longtime partner Boston Consulting Group (BCG). Last December the consultancy e-mailed a 21-question poll to senior executives around the globe. The 1,590 respondents, who answered anonymously, were asked to name the most innovative companies from outside their own industry in 2009. BCG then factored in the financial performance of the top vote-getters. The final list weights the survey results 80%, stock returns 10%, and three-year revenue and margin growth 5% each.

For the 2010 report, BCG changed the survey's distribution so that responses better reflected each country's share in the world economy. That meant fewer questionnaires to India, Italy, Spain, and the U.S. and more to Germany, Japan, and other countries in Asia. To improve the response rate, BCG also translated the poll into Japanese and Chinese. BCG found that the recalibrated sample may have altered the rankings of individual companies by a few places, but it did not account for the tilt away from the U.S. and toward the rest of the world. Performance and reputation did.

With Tim Culpan in Taipei

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Arndt is editor of BusinessWeek's innovation and design coverage. Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau.

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