Estonia is a mid-ranking country on the EIS, coming 13th out of 25 EU countries. It is one of the best performers among the ten new Member States. However, the cluster analysis classifies Estonia in the “losing ground” category because of its negative trend. The explanation for the anomaly between Estonia’s good standing in innovation performance and its classification among the laggards is because Estonia’s strengths are highly skewed, with very good performance on innovation & entrepreneurship and good performance on innovation drivers, but poor performance on IPR, applications, and knowledge creation. Estonia is among those countries that are relatively weak at transforming their innovation assets into innovation results (sales of new products, high tech employment, patents, etc).

Estonia’s weakness in knowledge creation is due to insufficient levels of business R&D. Although this increased from 0.11% in 1998 to 0.28% in 2003, it is still well below the levels observed in Slovenia at 0.90%. Public expenditures have also increased from 0.47% in 1998 to 0.53% in 2003, but are still only 80% of the EU average. As of 2000, only 2.4% of firms received public support for innovation. These figures could be one reason why Estonia performs badly on both applications and IPR. These results suggest that Estonia has already benefited from picking ‘the low-hanging fruits’ and needs to invest substantially more in developing more advanced innovative capabilities, in particular to improve the supply of S&E graduates.