While the rest of the world wallows in the aftermath of the financial crisis, Southeast Asia is thriving. Neil Hodge focuses on the region's biggest winner so far: Singapore

While the US and Europe may still be suffering from the ongoing drag of the financial crisis, Southeast Asia seems to have turned a corner, with cash flowing in from overseas and corporate activity on the rebound. And Singapore is the region's shining star.

According to a United Nations Conference on Trade and Development (UNCTAD) report released earlier this year, foreign direct investment into South-East Asia – including Singapore – rose by 26% on last year, with inflows of $117bn (£72.5bn), the highest figure since the global economic crisis took hold.

With such welcome signs that business confidence is coming back, law firms in Singapore look set to reap the financial rewards that improvements in corporate deal-making and project financing are likely to deliver as companies begin once again to engage legal advice.

Singapore has a well-developed and sophisticated legal market that has continued to fare well in the five years since the onset of the global economic crisis.

Lawyers based in the region describe the sector as "very competitive at all levels" for both Singaporean and foreign firms, and several point to the numbers to prove it: there are 799 law firms and more than 4,300 lawyers licensed to practise Singapore law and the number of registered foreign law firms has doubled to 116 with more than 1,200 foreign lawyers.

Back in vogue

Increasing numbers of firms want to set up in Singapore. In 2011, the Attorney-General's Chambers in Singapore granted 32 licences for the establishment of foreign law firms.

This year, offshore law firm Bedell Cristin has expanded to Singapore, while litigation and arbitration specialist One Essex Court is opening offices at Maxwell Chambers, the world's first integrated dispute resolution complex.

Even some big hitters have decided to move back to the region, notably Freshfields Bruckhaus Deringer.

Stephen Revell, head of Freshfields' Singapore office and co-head of the capital markets group, says that the firm decided to close its previous Singapore office five years ago due to the economic downturn and a feeling that it could field its work in South-East Asia from Hong Kong.

"That was probably the right decision at the time," says Revell. "But deal and corporate activity, involving many of our existing clients, is picking up again across the region and will continue to grow, and we believe that it is the right time to set up an office here again with a new team with a new focus."

Revell (pictured) adds: "There are now two distinct Asian markets. Hong Kong is a hub for legal work for China, while Singapore is the base for work throughout South-East Asia, so it makes sense to have a presence in both. Our plan is to make the offices complementary with staff moving between both locations to suit client needs."

According to the Singapore Ministry of Law, the legal services sector's contribution to the country's economy increased from SG$1.4bn (£711m) in 2007 to SG$1.8bn (£914m) in 2011, a growth of 6.5% per annum.

It has also cemented its reputation as a leading centre for arbitration. For instance, the Singapore International Arbitration Centre (SIAC) handled 118 new cases in the first five months of 2012 alone, with a combined total value of more than SG$2bn (£1.02bn).

This is on track to significantly exceed the 188 cases handled by SIAC in 2011, and has already exceeded the total value of cases handled by SIAC in 2011 of SG$1.3bn (£660m).

Set up in 1991, SIAC has grown to become the preferred destination for international arbitration in Asia.

According to Rachel Foxton, SIAC's business development director, and Vivekananda Neelakantan, its head (South Asia) and counsel, this is due "in part to the strong rule of law, the clear and consistent judicial views on arbitration, and the ability to legislatively respond quickly to developments in international arbitration jurisprudence".

Furthermore, "proportionate" fee and costing structures and a strong track record in enforcing SIAC awards throughout Asia and other jurisdictions have also helped establish Singapore as a leading arbitration centre over the past 20 years, as has the use of unique special procedures such as the expedited procedure and emergency arbitrator provisions.

Enhanced reputation

Firms are certainly benefitting from Singapore's enhanced reputation. Herbert Smith Freehills says that dispute resolution work remains the firm's most profitable area.

Ken Cheung, corporate partner in the Singapore office of Berwin Leighton Paisner (BLP), says that arbitration work is having a major impact on Singapore's legal services market.

"Where previously dispute resolution clauses would refer arbitration to London or New York, now they are likely to state that they want their case to be heard in Singapore, and this is increasingly common for clients from India, for example," he says.

The Singapore Government says that it is committed to creating an open environment that allows both Singaporean and international law practices to develop and grow.

In 2008 the Ministry of Law began measures to liberalise the commercial practice of Singapore law by awarding six Qualifying Foreign Legal Practice (QFLP) licences to foreign law firms (Allen & Overy, Clifford Chance, Herbert Smith, Lathan & Watkins, Norton Rose Freehills and White & Case) to practise in permitted areas of local law.

The Singapore market has been open for decades for foreign law firms to establish their presence in Singapore, but not to practice Singapore law. 

The Ministry is currently in the midst of its second QFLP exercise and has received 23 applications, more than it received in the 2008 round. It has also made a number of "enhancements" to the foreign law regime to allow for deeper collaboration between Singapore law practices and foreign law practices through formal law alliances or joint law ventures.

A Ministry spokesperson said: "Our liberalisation is aimed at expanding the pie for all players by tapping into the growth of commerce in Asia. For instance, 80% of the QFLP's revenue in the past two years has come from offshore work.

"This means that work which would have been done elsewhere is being done out of Singapore, with increased opportunities for Singapore lawyers."

Both Singaporean and international law firms feel that the liberalisation of the market is a positive step, and most feel that the Ministry of Law's efforts will enhance Singapore's status as a legal centre and help drive advisory work to it.

But there are mixed views about the effect awarding QFLP licences to international firms will have on local law firms, and what benefits the international firms will gain from having them.

Jai Pathak, partner-in-charge of the Singapore office of international law firm Gibson, Dunn & Crutcher, sees the QFLP licences as a "measured and cautious approach by the Government to review how the policy permitting certain selected foreign law firms to practise Singapore law will affect the market".

He added that "if the experience is beneficial, I could foresee the Government taking steps to further liberalise the market in due time".

Not all international firms have decided to apply for a licence. Revell says that Freshfields has "no intention" of developing a general local law practice in Singapore.

"We will focus on international work and work in partnership with local law firms where necessary, when international clients require expertise in Singaporean law,"
he says.

Why Singapore?

Some Singaporean lawyers also question why international firms would want to practise Singapore law. Stefanie Yuen Thio, joint managing director at TSMP Law Corporation, says that "most international firms are in Singapore to do international work, and not to compete with local firms for domestic work".

She adds: "Their larger cost base also means that it is not economical for international firms to take on domestic work. So I don't believe there will, in the short term, be any eroding of the onshore work that Singapore firms do.

"In fact, having more international firms here will give Singapore lawyers the opportunity to work on international transactions and expand their professional horizons."

Rachel Eng, managing partner at WongPartnership, is also unsure how effectively international law firms will use the licences they are granted.

She says that when the first round of licences was announced five years ago, "some of the international law firms applied for them as a supplement to their existing practice.

"As a result, local firms are still recognised as the obvious choice for clients to go to that want in-depth and specialised expertise in local Singaporean law."

But Eng also says that local Singapore law firms need not feel threatened by the awarding of licences to foreign law firms.

"The international firms have a higher cost base than locally-based firms, so some of them may find it harder to compete based on price," she says.

"Furthermore, they are going to be unlikely to handle the 'run of the mill' stuff as there is no real profit margin in it for them."

Eng adds there are other potential barriers: "Given the relatively fewer local lawyers they have, it may be unfeasible to try to offer the range and depth of services that a local law firm can provide.

"Added to that, licence holders will not be able to provide advice on some areas of Singaporean law, such as litigation and conveyancing."

A full service

Those firms applying for the licence do not necessarily believe that it will provide a competitive advantage. Instead, they see it as a way of providing clients with a broader service.

Stephen Peepels, head of US capital markets for Asia and director of the Singapore office of DLA Piper – which has applied for one of the latest round of licences – says that the firm has a general strategy of acting as a one-stop shop in key financial centres, providing legal advice on local law and international law for clients wherever permitted, and the firm simply wants to do the same in Singapore.

"We want to be able to offer clients the full package," says Peepels. "Our focus is very much on the international legal aspects of corporate M&A, capital markets, project financing and so on.

"But we want to also want the option to advise on the elements of the transaction that might require expertise in local law, rather than be required to retain a Singaporean law firm," he adds.

"I don't think that the granting of licences to foreign law firms will have a significant impact on the majority of Singaporean law firms. International firms that gain a licence are unlikely to target work that is purely local in nature – it is more about their ability to offer clients a complete service."

Local benefits

Some believe that local firms can benefit from the changes. Cheung of BLP, which has also applied for a QFLP licence, says that "large Singaporean law firms may feel the greatest effect from the liberalisation of the market, but those changes do not necessarily mean that they will be negative.

"Already these firms are going head-to-head with international firms to attract clients investing in the region, which is driving down fees and ensuring better quality service."

Although the relaxing of rules regarding foreign law firms in Singapore is being welcomed, the issue of QFLP licences is not the main cause of excitement among international law firms – it is the fact that corporate M&A activity and associated transactional work has spiked.

In September, Thomson Reuters reported that Singapore has seen a significant uptick in deal value this year, compared with the first nine months of 2011, increasing 105.5% and capturing 9% of Asia's target M&A activity.

Overall, Singapore M&A deals continued to increase quarterly since the start of 2012, pushing the total value of announced M&A deals this year to $51.3bn (£31.8bn), up 43.8% from the first nine months of 2011, and the strongest year-to-date volume since 2008.

According to Rob Bratby (pictured), Asia managing partner at Olswang: "demand reflects economic activity in the region and includes all major practice areas – corporate, finance, commercial, intellectual property and litigation/arbitration.

"Sectors such as shipping, energy and natural resources have been historically strong although we are currently seeing high growth in the technology, media and telecoms (TMT) sectors that we focus on."

Revell adds: "M&A activity is picking up across the region, including Indonesia, Malaysia, Myanmar and Indo-China and cross-border deals and transactions are becoming more common.

"We therefore hope to target these areas and we believe that Singapore is the right base from which to operate and gain better access to those markets."

Michael Walter, South-East Asia managing partner at Herbert Smith Freehills, also believes that the most competitive areas are M&A and projects and finance, but warns that "the number and strength of competitor law firms have been growing faster than the markets".

He also states that equity and debt capital markets work has been "pretty thin on the ground in recent months", and that the few mandates which are available are keenly sought by all of the main players.

"The global economic problems have of course had an impact on Singapore over the last few years," says Walter.

"The markets for some of our legal practices, such as M&A and capital markets, have been depressed but they are starting slowly but surely to show signs of recovery. Those areas have naturally been particularly price sensitive and there has been a lot of pressure on fees as a result.

"This has affected domestic and international firms alike but there has been no sign of a widespread narrowing of focus or withdrawal from affected practice areas by the larger domestic firms."

Under fee pressure

Other lawyers have also noted the pressure on fee income through corporate transaction work. Yuen Thio says that "on the transactions front, there continues to be good activity in the finance sector, in addition to M&A and capital markets.

"But across the board, there is pressure on fees. Disputes are busy too, with international arbitration making great strides. There is probably less pressure to give fee discounts in dispute resolution matters."

Amid the excitement of an upturn in Singapore's legal services market, lawyers also believe that the future landscape for law firms may present challenges. Already, many firms have found that the market has split, with local firms opting to specialise in local law, leaving much of the lucrative M&A work to Singapore's largest firms and their foreign competitors.

Yuen Thio says that the Singapore legal services sector has become more "polarised".

"Some firms do the more profitable 'Wall Street' work, while others do the more retail based 'High Street' work," she says, with fee structures following accordingly.

But she adds that the rise of Asia as a growth driver has been good for Singapore as more companies move their headquarters there, and there's more legal work.

Jeff Smith, Singapore-based partner and head of South-East Asia at Norton Rose, also believes that the legal market in Singapore is segmenting.

"On the one hand you have the pure on-shore legal work, which is dominated by local firms of all sizes and then there's the international work, which is being done by the large local firms and the international firms," he says.

Goes both ways

Smith says that traditionally, Singapore has been a legal hub for servicing countries in the region, such as Indonesia, India, Malaysia, Thailand, Vietnam and Myanmar.

"In the past, that work has been characterised by project development and inward investment in sectors such as energy, infrastructure, mining, transport and financial services," he says.

"That work continues but there is also work going the other way as large corporates and banks in, for example, Singapore, Malaysia, India and Thailand invest overseas."

Kevin Owen, managing partner at Mayer Brown JSM, says that the volume of international work is likely to increase as surrounding jurisdictions develop, in particular Indonesia and also Malaysia and the newly opening and developing Myanmar.

"While many domestic Singapore law firms will be focused on serving domestic clients in areas that have become somewhat commoditised over recent years – such as real estate, intellectual property, ship finance and debt collection and so on – a number of the larger Singapore firms are competing for big-ticket cross-border transactions," he says.

The growing presence of international firms in Singapore, may, however, make it more difficult for the larger Singapore firms to compete for higher-end regional and cross-border work, says Owen.

"The regional market is sufficiently large for Singapore and foreign firms to co-exist but it will only be the larger Singapore firms or small boutique specialist firms that will be able to compete with international firms for high-end regional work," he says.

The key for Singaporean firms if they want to compete with the international firms – particularly those seeking QFLPs – is to decide whether they should stick to being generalists, or opt to provide specialist, niche services.

As Smith says: "Singapore is certainly an economic success story, and that has had an impact on the legal market. Law firms here are looking to grow and more firms are arriving, which is understandable given the growth of region and Singapore's desirability as a regional base.

"The market is competitive and each firm will need to find its own operating model – so, like in other major centres, some of those firms will be very niche and some will be full service."

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Singapore rising – and still they come

Despite it emerging in September that Clifford Chance (CC) had asked a small number of associates in its equity capital markets team in Singapore to take sabbaticals in response to the relative lull in the Asian initial public offering market, the pace of firms expanding in the key Asian hub has if anything intensified. Since the start of September recent developments include:

• Morrison & Foerster announces plans to launch in Singapore early in 2013

• King & Spalding recruits partner to its Asia energy practice with the hire of oiland gas specialist Merrick White from CC

• Reed Smith launches a four-partner office in Singapore after recruiting with two lateral hires from Holman Fenwick Willan and a number of relocations

• News emerges that 23 law firms applied for Qualifying Foreign Law Practice (QFLP) licences ahead of the 31 August deadline. Bidders include DLA Piper, Olswang and Stephenson Harwood, Berwin Leighton Paisner, Jones Day, K&L Gates, Watson Farley & Williams, Gibson Dunn & Crutcher and Shearman & Sterling.

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