Singapore's legal market is gradually liberalising and, with it, the competition keeps flying in. Elizabeth Broomhall finds out what's in store for southeast Asia's latest glittering legal hub 

From the top of the world's most expensive casino building in Marina Bay, Singapore's central business district is an impressive sight. Overlooking the water, an array of glittering silver skyscrapers bear the names of banks, insurance companies and luxury hotel brands, while a mix of local landmarks, shopping malls and restaurants keep tourists happy. 

The scene, in all its grandeur, reflects not only the sunlight, but the commercial achievements of a city that has now become a hub for southeast Asia, with Singapore now ranked as one of the four leading financial centres in the world. Alongside Hong Kong, Taiwan and South Korea, it is also one of the Four Asian Tigers. 

Singapore owes some of its success purely to its strategic location; lying between two of the world's fastest growing economies, Indonesia and India. Equally important have been the Government's efforts to establish and maintain a corruption-free, investment-friendly business environment, complete with world-class infrastructure, low tax rates and a skilled workforce.

And, as its prominence as a financial centre has soared, so too have the number of international law firms entering the market, with the legal sector now providing its own contribution to the region's growth. 

As well as advising Singapore's abundance of high net-worth individuals, international law firms are playing a key role in promoting the use of Singapore as a centre for international arbitration and its law as a basis for commercial contracts.

According to the Singapore Ministry of Law (MinLaw), the legal services industry has grown 23% in the past five years, jumping from S$1.5bn (£787m) in 2008 to around S$1.85bn (£971m) in 2012.

For the law firms themselves, the former British naval base has long been an attractive proposition due to its location and sophistication. But interest has climbed steadily since the Government allowed a clutch of global firms the chance to practise local law in 2008. 

That year, six outfits were awarded Qualifying Foreign Law Practice (QFLP) licences: Clifford Chance (CC), Allen & Overy (A&O), Herbert Smith, Norton Rose, Latham & Watkins and White & Case, while a host of others practising only UK or US law continued to enter the market. 

Last year, news of a second round of local licences emerged and the hype surrounding the island city state was reignited, drawing QFLP applications from a further 23 outfits. And, this February the Government granted four more licences, adding magic circle firm Linklaters to the mix, alongside three US outfits: Gibson Dunn & Crutcher, Jones Day and Sidley Austin.

Meanwhile, a number of other British, US and even Japanese firms have continued to pour into the market regardless of their lack of QFLP licences. Today, MinLaw estimates that more than 20% of Singapore's lawyers are foreign. 

But beyond the hype and excitement, there is a growing feeling of anxiety in Singapore. Many fear that market overcrowding could result in a string of law firm casualties further down the line, while others predict that the full extent of the clash between local and international outfits is yet to be seen.  

From foreign to native 

As it turned out, speculation in the run-up to the most recently awarded QFLP licences that the Singapore legal market was set for dramatic change was unfounded. The expectation at the time was that numerous firms would receive permission to practise local law but, ultimately, just four licences were handed out.

"At one point, people thought there could be as many as 10 or 12 QFLPs awarded," says Jones Day corporate partner Dennis Barsky, who has helped grow the firm's Singapore practice. "But there were only four. Of those four, [only] two or three are likely to make significant moves, so it really has had a negligible impact on the market as a whole, and certainly on the local market. If it had opened up to 12 firms, it might have been a game changer."

Local firms agree, maintaining they have seen no significant drop in revenues or staff numbers since the second, or even first, round of QFLP licences were granted. 

"As the market opens up, the question is always whether we can retain our best lawyers – that really is key," says Ng Wai King (pictured), joint managing partner of Singapore-based outfit WongPartnership. "Liberalisation would pose a problem to local firms if people started poaching the best Singapore lawyers from Singapore firms. But we haven't seen that happen." 

 Most local players suspect that the lack of movement is partly due to international firms' desire to cherry-pick individual stars from local outfits rather than take whole teams. To date, partners at Singapore firms have been reluctant to make moves on their own. 

Another possible reason for the limited poaching is a worry among local lawyers about their ability to transfer a book of business as many of their clients are institutionalised. Others argue that the top performers at local firms are already well looked after financially, making them less inclined to switch.

"If you look at compensation at associate level, it is fair to say that there is a differential when we compare ourselves to the top international firms," says Ng. "But the difference narrows and eventually disappears altogether when you become a partner at a major Singapore firm."

Also at play is the inevitable tendency for international firms – even those with QFLP licences – to focus exclusively on cross-border deals, which has prevented liberalisation from drastically shifting market dynamics.

"We've been here for more than 20 years, and the practice has always been cross-border," says Linklaters' Singapore managing partner Kevin Wong. "Singapore has effectively been a launchpad for the regional practice. From here, we cover Southeast Asia; we also cover India and we do some Australia work. So the way the practice has evolved has mirrored the way Singapore has developed as a financial services hub.

"There is Singapore work in Singapore, but there are very large local firms that are very competitive – they are providing quite a high level of service to their clients and they are doing it at lower rates to what most international firms charge. So if your business model is to target only the Singapore law market, you're facing quite a few challenges."

Indeed, Linklaters' desire to focus on cross-border law and a lack of client appetite for Singapore law advice is understood to have been one of the firm's reasons for agreeing to terminate the joint venture arrangement with local partner Allen & Gledhill. There were later some tie-up discussions between A&G and A&O, but these also ended last year.

Nonetheless, there is anticipation that some firms will start making more significant efforts to enhance their domestic practice, just as local outfits are beginning to appear more on cross-border deals. 

Should this happen, it could spark increased competition between local and international firms that has been missing to date, and render a local licence ever more important.

Michael Walter, Southeast Asia managing partner at Herbert Smith Freehills, says his firm could be among those to grow its local offering: "Historically, our Singapore legal team has been a support function to the rest of our teams, and we haven't really attempted to compete on an equal footing with the local firms.

"We would not be able to compete unless we could compete on cost, but the difference is narrowing and some of the local law firms are becoming as expensive as we are in certain respects. 

"I think all 10 firms [with QFLP licences] are looking at becoming more involved in the domestic market, but that hasn't really happened yet. That change will happen over a period of time, just as the local firms are competing on international deals now."

Those with the coveted licences admit that being able to practise local law is extremely useful in an over-lawyered market. Not only can it boost revenues at a time when fee pressure is high, but it also allows firms to offer a full book of services in a place where only a small portion of the sector can. 

"There is something about being able to tell a client we can handle everything, including the Singapore aspects," says Barsky. "In the scheme of things, that is the biggest win – we can go out there and say 'We can do this, only a third of the market can, two thirds of the market can't' and we're on the good side of that."

Linklaters' Wong has a similar view: "If you're offering a suite of services to your clients and they have an aspect of Singapore law that they need advice on, it is much better to be able to provide a one stop shop. It is not that we want a full-scale, full-service Singapore law offering. But if our competitors have local capability and we don't, then we are at a natural disadvantage."

The next