Singapore has been ranked the eighth most innovative among 142 economies surveyed by business school Insead for the Global Innovation Index 2013.
But this is five places lower than the third position it garnered last year, according to the report, released yesterday.
Mr Bruno Lanvin, the report's co-editor and executive director of Insead's European Competitiveness Initiative, said methods for the ranking were tweaked this year, adding, among other things, an emphasis on quality and impact. As a result, the United States shot up to third position from 10th.
Singapore is one of two Asian economies in the top 10, the other being Hong Kong, in seventh spot in the Global Innovation Index (GII). Switzerland and Sweden took the top two positions respectively.
Singapore did well in top criteria such as government support for innovation, logistics, human capital and research and sophisticated business operations. But the Republic's key weaknesses included low returns on investment in innovation despite heavy government support and a lack of quality and impactful research.
A clear indication of this is in the innovation output and input figures. While Singapore is ranked No. 1 in terms of innovation input, as reflected by government support, its is ranked 18th in terms of innovation output which refers to results arising from innovation and research efforts.
As a result, the Republic's so-called "innovation efficiency ratio" fell from 0.7 last year to 0.6 this year, sending Singapore's innovation efficiency ranking tumbled from 83 to 121.
Mr Wong Meng Weng, co-founder of tech accelerator Joyful Frog Digital Incubator, said there is a lot of innovation happening here but that this was not reflected in innovative products and services.
"I'm not sure if Singapore's investments, which are very well-intended, are paying off because we don't fit the research and development to market needs."
Compared to the US, where Mr Wong spent several years building his own company, the government there spends billions of dollars on the demand side, buying technology from start-ups.
"Here the Government spends its billions on the supply side, funding researchers and investments."
The result is start-ups find it difficult to grow and have an impact on the economy, he added.
But efforts are under way to ensure innovation in the public sector is more finely tuned to industry's needs.
Mr Philip Lim, chief executive of Exploit Technologies, said it is investing $100 million over the next five years in four innovation clusters, namely speech and language, additive manufacturing, diagnostics and membrane technology. Industry will be invited to participate in the projects.
"Innovation clusters are areas in which we have built up intellectual property. Participants in the clusters will integrate, strategise, build capability and conduct competitive research. This will in turn lead to a more robust knowledge base, increased competitiveness, and ultimately, greater impact."
Exploit Technologies is the technology transfer arm of the Agency for Science, Technology and Research.
Compiled by Insead, the GII was first released in 2007. Insead worked with Cornell University and the World Intellectual Property Organisation for this report.