The economy is suffering because too many Australian companies are taking the "easy route" of buying out domestic competitors rather than chasing "dynamic" growth in new markets, says competition watchdog Rod Sims.
The chairman of the Australian Competition and Consumer Commission has also suggested that Australia should look at reversing the onus of proof around mergers in highly concentrated markets, whereby the firms involved would need to show why their merger or acquisition should be allowed to proceed.
Mr Sims, who will rule on a swag of crucial mergers this year – including Tabcorp's $11 billion tie-up with Tatts Group and BP's $1.8 billion purchase of Woolworths' petrol portfolio – said the debate around competition in Australia was "not good" and too many companies and advisers were focused on the theory of backing "national champions".
"I think the competition culture in Australia has declined in recent decades. We had a high point in the 1990s and it's gone backwards since then. The idea that you have to defend the concept of competition is very strange," Mr Sims told The Australian Financial Review.
"A huge number of Australian companies subscribe to the national champions theory and I suspect the Business Council does as well – big is better, give me the scale so I can take on the world.
"But having these large companies that dominate the Australian scene is not good for Australia. And if all they are doing is dominating the Australian scene, and if that's where they've spent their focus, they are not going to succeed overseas."
Not up for the challenge
Mr Sims said Australian companies are "too focused on what's happening in Australia and in a sense take the easy route of buying out their competitors, rather than the more challenging route of getting into new markets or new geographies.
"That's dynamic growth. If all you are doing is optimising your current business through taking out competitors, I don't think you've got a sustainable growth plan."
Mr Sims said an example of the poor state of the debate around competition in Australia had been provided by proponents of Sydney Airport exercising its right to build Sydney's second airport at Badgerys Creek focusing on the synergies that could be created by the ASX-listed company.
"If Sydney Airport owns Badgerys Creek, whatever synergies are created aren't going to be shared with consumers – it's a monopoly," Mr Sims said.
"The financial community wants companies to keep growing their profits, that's what maintains their share price and that's all good. But having that happen at the expense of competition is where we are doing our country down."
Possible solution
One possible solution suggested by Mr Sims is to adopt a model used in the US, where parties that merge in highly concentrated markets need to prove to competition regulators why the deal should proceed. In Australia, if the ACCC wants to block a merger it must justify why it believes a deal substantially lessons competition.
"We face numerous cases here where we have, say, four players and going to three, or three players are going to two … and it's as if we are the ones having to explain the problems with that," Mr Sims said. "It should be the other way around. You should have to explain to us why it's a good idea."
Mr Sims said that while it seems obvious that, for example, a reduction from four main competitors to three would reduce competition, too many discussions with companies happen in "this other world" where accepted economic theory doesn't seem to apply.
"These companies say 'Rod, you're being theoretical.' Well, no, it's not, It's common sense and it's what I've observed from 20 years of advising companies on how and where to compete."
Mr Sims stressed he was not pushing for a change to the US model, but he does want to get the business community thinking about the broader debate around competition.
"I'm not advocating law change yet. We'll see how we go."
Focus on start-ups
Mr Sims said 2017 will also see the ACCC closely watching deals involving start-ups being bought out by established players.
"I've spent 20 years in corporate strategy and I understand most people that start up want to get bought out.
"Most of time that's fine. But what you don't want is a situation where you've got two or three main players gobbling up the new entrants."
He compared the banking sector – "I mean, we've got four banks and I don't think they are being seriously challenged," Mr Sims said – to the broadband sector, where Telstra and Optus have seen furious competition from newer players such as TPG Telecom and Vocus.
"But even with the broadband sector you've got to make sure that over time they face new challenges," Mr Sims said. "Because if they don't they'll become like the banks, which is quite cosy and not as competitive as we'd like."
