Japan is the world’s most innovative nation, according to a recent study by the business information arm of the Economist magazine.

Defining innovation as “the application of knowledge in a novel way, primarily for economic benefit,” the study ranks Japan, Switzerland, the United States and Sweden as the top four innovators among the 82 economies observed from 2002 to 2006 by the Economist Intelligence Unit.

The number of patents a country generates per million people was deemed to be the most appropriate measure of innovation.

“Because Japan’s population is only 42 percent of that of the U.S., its ratio of patents per million population is 3.5 times higher than the United States and indeed the highest such ratio of all,” a report on the study states. Despite having a lower ranking in the “direct factors” that drive innovation, such as telecommunications infrastructure, and a still lower ranking in the index measuring environmental factors conducive to innovation, Japan still managed to top the list.

Reasons given for this apparent anomaly include the Japanese economy’s large proportion of high-technology activities that are often “more innovation-intensive.”

“This resource-poor economy has long taken an ‘innovate or die’ approach,” the report says, highlighting the symbiotic relationship between many large companies and associated smaller firms. Other factors include proportionately greater investment in research and development than the United States and most other major countries, and the benefit of more people.

For 2007 to 2011, the study predicts that all four leading innovators will retain their ranking, but that China, which has already overtaken Japan to become the world’s second-largest investor after the United States in research & development in absolute terms, is a country to watch in terms of acceleration in the innovation market.

Despite efforts to boost its innovation performance, the EU is unlikely to close the “innovation gap” with Japan and the U.S. over the next five years, the report says.

Even though Japan’s innovation output surpassed those of all the other countries, a majority of 485 senior global executives taking an Economist survey cited the U.S. as by far the best place for innovation.

“The common view among executives is that Japan is not the most conducive place to innovate,” the report says, noting that only 2 percent of respondents saw it as having the best conditions for innovation, compared with 40 percent for the U.S. and 12 percent for the second-place country, India.

Not so long ago, it was rare to see a foreign-made car on the streets of Seoul, as South Korea built up an auto industry to challenge Japan, and protected the industry with high tariffs on imported cars.

Now, increasing numbers of sleek, stylish European, U.S. and Japanese brands ply the capital of Asia’s fourth-biggest economy, and more South Koreans are putting aside patriotism to buy them.

Foreign car sales are still modest-about 5 percent of the total market – compared to those by the local heavyweights, Hyundai and its affiliate Kia, but they are eating into domestic firms’ profits as they compete with the higher-margin, higher-end models.

Sales of imported passenger cars grew 26.3 percent in the January-June period, more than double the rate of domestic manufacturers’ sales.

Import sales were lifted by aggressive promotions, lower prices, a stronger won and a free trade deal with the United States that will cut car taxes.

Despite smoldering hostility toward Japan, local perceptions are changing, and South Koreans are warming to the wider range of models on offer as prices fall. Foreign brands offer a certain cachet.

Hitachi Construction Machinery Co Ltd is targeting 70 percent growth in sales and a doubling in profit over four years as demand for earth-moving equipment booms in China, India and Russia, its CEO said recently in Tokyo.

Like bigger rival Komatsu Ltd and industry leader Caterpillar Inc, Japan’s second-largest maker of construction machinery is gearing up for what it sees as long-term growth for many emerging economies.

Led by India’s construction boom and China’s urbanization drive, global demand for mining and construction machinery has already resulted in four years of record profits for Hitachi Construction - one of the few money making units of electronics conglomerate - Hitachi Ltd.

Japan fell down to the 24th place this year from the 16th place in 2006 in the international competitiveness ranking for 2007 announced by the Swiss business school International Institute for Management Development (IDM). The fall is due mainly to a downgraded assessment on the survey item concerning the government efficiency.

China’s competitiveness went up from 18th place in 2006 to the 15th place, surpassing Japan.

The United States remained at the top of the list, followed in order by Singapore and Hong Kong. The IMD survey covers 55 countries and regions.

Subjected to the survey are a total of 323 items in the four fields of economic efficiency, business efficiency, and infrastructure.

Asia is overtaking the US as the world’s largest market for auto sales but the US will remain the more lucrative market for the next decade, according to a senior executive at GM.

Paul Ballew, director of GM’s global market and industry sales in the Asia-Pacific region were for the first time expected to overtake North America as they approached 21-million vehicles.

US sales are expected to reach about 15-million vehicles this year.

Growth in China, India and other emerging markets will push global auto sales to a record 70-million vehicles in 2007, Ballew said.

“If we go back a decade, 80 percent of global sales were in the developed market of the US, Canada, Australia, Japan and Western Europe,” Ballew said. “So far this year it’s about 62 percent.”