Singapore firms poised to feel the competitive heat as foreign outfits eye the South East Asia market
With the rise in the number of Qualifying Foreign Law Practice (QFLP) licences issued, ‘increased competition’, ‘market saturation’ and ‘sustainability of practices’ are some of the buzzwords that have surfaced again in Singapore legal circles.
The second batch of QFLP licenses have been awarded to Gibson Dunn & Crutcher, Jones Day, Linklaters and Sidley Austin, bringing the total to 10. The initial batch were awarded in December 2008 to Allen & Overy, Clifford Chance, Herbert Smith, Latham & Watkins, Norton Rose and White & Case.
Some 10 months ago, minister of law K Shanmugam offered an interesting perspective on competition in the QFLP era, revealing that 80 per cent of QFLP revenue in the previous two years had come from offshore work.
Offshore work, in particular from Asia, is and has been the main target of international law firms, with the bigger Singapore firms now in the mix. In their pursuit of regional work, it has been common for foreign firms to set up offices in Singapore and use it as a hub to service clients in South East Asia. All the QFLPs have had offices in Singapore for years. Although the licences allow them latitude to practise Singapore law in limited areas, competition between QFLPs and Singapore firms for local work and clients has not been as pronounced as some had expected.
The same cannot be said of the competition for regional work, which is intensifying. This trend is sometimes attributed to the QFLP scheme. However, another plausible explanation is the increasing number of foreign firms setting up in Singapore. There are now 132 foreign law firms, including the QFLPs, many focused on exporting their legal services into the region.
If one considers the numbers and the strategies involved, it is clear that the subject of competition should be assessed on a wider axis.
What is driving the optimism for work in South East Asia? In addition to domestic growth in some economies, the potential of an Asean trade bloc cannot be underestimated. The Trans Pacific Partnership (TPP) has been identified as having the potential to realise the vision of an even larger free trade area.
With competition for regional work showing no sign of waning the latest batch of QFLPs may step up efforts to compete for local clients, talent and retention, which could be a game-changer. Partners with a ready local network of clients will be eyed and competition could lead to business costs spiralling, putting a squeeze on profits.
The market for regional work has already created pressure on the hourly billing model. Additional pressure may be brought to bear on firms to look at office budgets, raising questions over sustainability.
When the QFLP scheme was introduced it was hoped it would increase investment in Singapore’s legal industry and the results appear to be encouraging. How competition will shape up is yet to be seen.
Directors Angeline Poon and Lakhbir Gill also contributed to this piece