Vietnam scored 37.12 out of 100 and secured third place in Southeast Asia after Singapore and Malaysia, according to the report compiled by the World Intellectual Property Organization, Cornell University and the business school INSEAD.

The report, released Wednesday, measured the innovation performance of 131 economies around the world based on seven factors: human capital and research, knowledge and technology outputs, infrastructure, market sophistication, business sophistication, creative outputs, and institutions.

Vietnam ranked first in innovation among the group of 29 lower-middle income economies.

This year, the country has performed better than some of its Southeast Asian neighbors on the global list, moving ahead of Thailand (44), the Philippines (50), Indonesia (85), Cambodia (110), Laos (113) and Myanmar (129).

In the Asia-Pacific region, Vietnam is only behind Singapore, South Korea, Hong Kong, China, Japan, Australia and Malaysia.

Vietnam has made progress in creative output, market sophistication, knowledge and technology output as well as business sophistication, but the country still faces major challenges in terms of human capital and research and infrastructure, the report said.

Vietnam has advantages of political and operation stability but it is hard to start a business in the country, the report said, adding that Vietnam needs to do a lot to improve its business environment.

It advised Vietnam to pay particular attention to improving information technology infrastructure, information technology applications, quality of regulations and quality of labor force, noting that the country's spending on tertiary education remained lower than other countries.

"Over the past seven years, China, the Philippines, India, and Vietnam are the economies in the top 50 with the most significant rank progress over time, possibly due in part to methodological factors but certainly also due to improved innovation performance," the report said.

Switzerland retained its number one spot in the index this year. Others in the top 10 were Sweden, the U.S., the Netherlands, the U.K., Finland, Denmark, Singapore, Germany and Ireland.

Vietnam has been part of the index since its debut in 2007, climbing up steadily since 2013, after several years of hovering just above the 70th place.