Abstract city background rendering of buildings

History suggests that once foundational technologies become widely accessible, competitive advantage shifts to complementary capabilities rather than the technology alone (Getty Images Plus)

Australia doesn’t need to win the AI race

It just needs to build an AI capability advantage.

Vikas Kumar

11 August 20263 min read

Artificial intelligence is portrayed as a contest between the United States and China. Headlines focus on who will build the most powerful foundation models and which country will dominate the next technological revolution. For Australia, however, these are the wrong questions.

Australia is unlikely to produce the next OpenAI or Anthropic, nor will it rival Taiwan in advanced semiconductor fabrication. Yet this does not condemn Australia to technological irrelevance. The countries that succeed in the AI era will not necessarily be those that own the best models. They will be those that continually build, connect and renew the capabilities that allow AI to be created, deployed and commercialised.

Long-term prosperity will depend on identifying where it can build enduring capabilities across the AI stack and becoming an indispensable AI partner in the Indo-Pacific.

The first phase of AI rewarded frontier model developers with enormous computing power and capital. A second phase is now emerging. Open-weight models are improving rapidly (Opens in new window) and becoming good enough for many business applications. If this trend continues, foundation models themselves may commoditise far faster than many expected.

History suggests that once foundational technologies become widely accessible, competitive advantage shifts to complementary capabilities rather than the technology alone.

Middle powers rarely succeed by trying to dominate every emerging technology. They succeed by becoming indispensable in selected areas.

This changes how governments should think about AI strategy. Rather than asking whether every country should build its own frontier model, policymakers should ask where their country can become world-class within the broader AI stack (Opens in new window). Value is spreading downward to energy, semiconductors, computing infrastructure and data centres, while also moving upward to enterprise applications, proprietary data, systems integration and industry-specific solutions.

International comparisons illustrate this point.

The United States remains (Opens in new window) the global leader in frontier models and venture capital. China is combining manufacturing strength with a rapidly expanding open-source AI sector. Taiwan anchors advanced chip production. India is drawing on software talent, digital public infrastructure and its enormous data resources to develop AI-enabled applications. Singapore has invested heavily in governance, skills and trusted international partnerships.

None of these countries are pursuing identical strategies. Each is building on distinctive national strengths.

Australia should do the same. It already possesses internationally respected universities, strong scientific institutions, abundant renewable energy potential, critical minerals and trusted relationships across the Indo-Pacific. The challenge is not creating one more institution but connecting these assets into a coherent national capability system.

The recently announced Office of AI (Opens in new window) is therefore an important step, but only one step. Long-term success will depend on sustained investment in research commercialisation, AI talent, computing infrastructure, business adoption and international collaboration. Foreign policy is central to this agenda. Australia should strengthen AI partnerships with Japan, India, Singapore, ASEAN members, European countries and the United States, positioning itself as a trusted regional partner rather than attempting to become an AI superpower.

Middle powers rarely succeed by trying to dominate every emerging technology. They succeed by becoming indispensable in selected areas. Australia should focus less on winning the AI race and more on building AI capability advantage. As AI capability becomes more widely distributed, countries that invest in complementary capabilities and trusted international partnerships will be better placed to shape the next phase of technological and economic development.

About the author

Vikas Kumar

Vikas Kumar is Professor of International Business at the University of Sydney Business School.

Topics

Artificial intelligence Australia Cyber & technology Diplomacy