The last five years have seen rapid change for Singapore law firms. The next five promise acceleration of change.
The year 2008 saw the opening of Singapore’s domestic legal markets with the granting of six Qualifying Foreign Law Practices or QFLPs to practise Singapore law with certain restrictions. The Singapore government has since intimated that it will grant a second round of licences next year.
These QFLPs licences have been granted to players with global reach and branding: Goliaths whose size and reach make even Singapore’s old and established players look like Tom Thumbs. These QFLP behemoths are effectively large corporations which have already transformed the practice of law into businesses, with machineries for the production process and monitoring efficiency, and with most lawyers, save for a rare few with star billing, just digits in a well oiled factory. These giants also have established and embedded relationships with major banks and financial institutions and multinational corporations.
This altered the landscape for Singapore law firms and raised challenges on many fronts.
High costs
One of the first was costs. In the legal service sector, legal salaries are the overwhelming cost, with office rentals trailing as a distant, albeit not unimportant, second. Almost overnight, in order to attract and retain young Singapore lawyers, Singapore law firms had to raise pay. Not only did annual associates’ packages rise, it also became essential to pay much more in the fixed monthly component.
Sadly, this movement of remuneration upwards, and away from the variable bonus component, created less alignment of interests between the young lawyer and his firm. In turn, this resulted in greater churn amongst young lawyers, including some who, notwithstanding the time and money invested in a legal education, have moved to opening restaurants and wine bars!
The war for talent has thus become hand-to-hand combat on home turf. QFLPs offer the seduction of a global brand-name, their in-house training and the possibility of slaving in an overseas office. Singapore law firms hold out more tangible prospects of career advancement, broader, less pigeon-holed work experiences and client-facing work exposure.
Further, with more players chasing an already crowded market for Singapore legal work, there has been continued pressure on fees which (with rising costs) have squeezed margins for all players in the Singapore legal market, QFLPs and Singapore firms alike.
Singapore firms have not taken the invasion into Singapore legal practice lying down. Many have continued to grow and build on their cross-border practices, continuing to compete with QFLPs based in Singapore for work in Indonesia, China, Vietnam, India, Thailand, Philippines, Cambodia, Myanmar and so forth, with our lawyers working as far afield as Africa and Russia.
Before the granting of the QFLP licences in 2008, foreign firms had used Singapore as a base for their practices in the region. Increasingly, they are seeing a Singapore firm across the table outside Singapore.
Singapore law firms have another asset. Singapore lawyers have always been well regarded for their high standards, knowledge and professionalism. More importantly, unlike many emerging economies, Singapore has a body of experienced, sophisticated and highly regarded practitioners. This has allowed many Singapore law firms to differentiate themselves from QFLPs by their intimate knowledge of the business environment and players in Singapore and the region. This, plus the ability to contextualise any interpretations of laws and regulations, to provide guidance and advice with a read of local markets, is something that a growing body of increasingly sophisticated clients have found invaluable.
Beyond all this, as a result of a coming together of many autogenous Singapore initiatives and exogenous factors in the region, Singapore has, in the last few years, become the hub for legal services in the region, in particular, arbitration and disputes resolution from Indonesia, India, China plus various Asean nations. Also, a growing number of offshore or cross-border transactions in the corporate, banking, finance and projects spheres are hubbed out of Singapore, often with Singapore law as the choice of governing law.
This trend has far wider implications than growing the work pie for Singapore lawyers. The use of Singapore law or Singapore lawyers or the use of Singapore as a forum for dispute resolution means, in some instances, that the laws enacted by the Singapore parliament could have an extra-territorial effect in the region. It means that the Singapore law approach influences cross-border transactions, enhancing Singapore’s de facto position of leadership and influence beyond its shores.
This regionalisation has also meant that we see more and more lawyers of different nationalities working in Singapore law firms - Malaysians, Indonesians, Vietnamese, Cambodians, Japanese, Australians, Brits and Americans are now working side by side with Singaporean lawyers in Singapore law firms.
Future trends
But what of the future for Singapore law firms?
The pressure of regionalisation and globalisation continues apace. More and more corporations are continuing to look further afield for revenues and profits. More and more transactions are not just cross-border, but multi-jurisdictional. The pressure is on to deliver integrated legal solutions across many borders.
Singapore law firms have historically done this through a “best friends” model with local law firms in other jurisdictions. However, increasingly this is insufficient and a more integrated solution is required.
The legal profession all over is also experiencing consolidation, perhaps not dissimilar to what has occurred in the accounting profession some decades ago. When the dust eventually settles, many believe that we will see truly global law firms, probably more than accounting’s Big 4, but fewer than those that exist today. And to continue to participate in top-tier work, Singapore law firms may well have to be a part of a global firm.
With Singapore’s growing importance as a regional hub for legal services, large international firms see the imperative to add the best Singapore law capabilities. Singapore law firms are finding increasingly that to continue to participate in top-tier legal work and to remain competitive in the war for legal talent, there is a need to be part of a global franchise.
A similar process has already started in Australia - long thought of as a mature, crowded and fully developed market. One by one, major Australian law firms are merging with global ones, except for one which has chosen a Chinese firm.
This tide of globalisation and consolidation that may well see many Singapore law firms merge or form integrated alliances with large global players remains, notwithstanding that the recent Allen and Overy merger agreement with Singapore law firm Allen and Gledhill was called off just before reaching the altar.
Indeed, the latest changes to the Legal Profession Act have enhanced the options available to all players. The new rules, under the misnomer of an “Alliance”, allow a foreign law firm to own stakes and share in up to one-third of the profits of a Singapore law firm, including in local litigation and conveyancing, hitherto sacred cows not even permitted for QFLPs. This is a dramatic, and surprisingly unremarked, change.
With the pressures of Schumpeterian creative destruction in their own markets, Singapore law firms face important and difficult decisions for their future.
Lee Suet Fern is Chairman and Managing Partner of Stamford Law
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Staying competitive in a time of transition
By Lee Suet Fern
17 May 2012
The last five years have seen rapid change for Singapore law firms. The next five promise acceleration of change.
The year 2008 saw the opening of Singapore’s domestic legal markets with the granting of six Qualifying Foreign Law Practices or QFLPs to practise Singapore law with certain restrictions. The Singapore government has since intimated that it will grant a second round of licences next year.
These QFLPs licences have been granted to players with global reach and branding: Goliaths whose size and reach make even Singapore’s old and established players look like Tom Thumbs. These QFLP behemoths are effectively large corporations which have already transformed the practice of law into businesses, with machineries for the production process and monitoring efficiency, and with most lawyers, save for a rare few with star billing, just digits in a well oiled factory. These giants also have established and embedded relationships with major banks and financial institutions and multinational corporations.
This altered the landscape for Singapore law firms and raised challenges on many fronts.
High costs
One of the first was costs. In the legal service sector, legal salaries are the overwhelming cost, with office rentals trailing as a distant, albeit not unimportant, second. Almost overnight, in order to attract and retain young Singapore lawyers, Singapore law firms had to raise pay. Not only did annual associates’ packages rise, it also became essential to pay much more in the fixed monthly component.
Sadly, this movement of remuneration upwards, and away from the variable bonus component, created less alignment of interests between the young lawyer and his firm. In turn, this resulted in greater churn amongst young lawyers, including some who, notwithstanding the time and money invested in a legal education, have moved to opening restaurants and wine bars!
The war for talent has thus become hand-to-hand combat on home turf. QFLPs offer the seduction of a global brand-name, their in-house training and the possibility of slaving in an overseas office. Singapore law firms hold out more tangible prospects of career advancement, broader, less pigeon-holed work experiences and client-facing work exposure.
Further, with more players chasing an already crowded market for Singapore legal work, there has been continued pressure on fees which (with rising costs) have squeezed margins for all players in the Singapore legal market, QFLPs and Singapore firms alike.
Singapore firms have not taken the invasion into Singapore legal practice lying down. Many have continued to grow and build on their cross-border practices, continuing to compete with QFLPs based in Singapore for work in Indonesia, China, Vietnam, India, Thailand, Philippines, Cambodia, Myanmar and so forth, with our lawyers working as far afield as Africa and Russia.
Before the granting of the QFLP licences in 2008, foreign firms had used Singapore as a base for their practices in the region. Increasingly, they are seeing a Singapore firm across the table outside Singapore.
Singapore law firms have another asset. Singapore lawyers have always been well regarded for their high standards, knowledge and professionalism. More importantly, unlike many emerging economies, Singapore has a body of experienced, sophisticated and highly regarded practitioners. This has allowed many Singapore law firms to differentiate themselves from QFLPs by their intimate knowledge of the business environment and players in Singapore and the region. This, plus the ability to contextualise any interpretations of laws and regulations, to provide guidance and advice with a read of local markets, is something that a growing body of increasingly sophisticated clients have found invaluable.
Beyond all this, as a result of a coming together of many autogenous Singapore initiatives and exogenous factors in the region, Singapore has, in the last few years, become the hub for legal services in the region, in particular, arbitration and disputes resolution from Indonesia, India, China plus various Asean nations. Also, a growing number of offshore or cross-border transactions in the corporate, banking, finance and projects spheres are hubbed out of Singapore, often with Singapore law as the choice of governing law.
This trend has far wider implications than growing the work pie for Singapore lawyers. The use of Singapore law or Singapore lawyers or the use of Singapore as a forum for dispute resolution means, in some instances, that the laws enacted by the Singapore parliament could have an extra-territorial effect in the region. It means that the Singapore law approach influences cross-border transactions, enhancing Singapore’s de facto position of leadership and influence beyond its shores.
This regionalisation has also meant that we see more and more lawyers of different nationalities working in Singapore law firms - Malaysians, Indonesians, Vietnamese, Cambodians, Japanese, Australians, Brits and Americans are now working side by side with Singaporean lawyers in Singapore law firms.
Future trends
But what of the future for Singapore law firms?
The pressure of regionalisation and globalisation continues apace. More and more corporations are continuing to look further afield for revenues and profits. More and more transactions are not just cross-border, but multi-jurisdictional. The pressure is on to deliver integrated legal solutions across many borders.
Singapore law firms have historically done this through a “best friends” model with local law firms in other jurisdictions. However, increasingly this is insufficient and a more integrated solution is required.
The legal profession all over is also experiencing consolidation, perhaps not dissimilar to what has occurred in the accounting profession some decades ago. When the dust eventually settles, many believe that we will see truly global law firms, probably more than accounting’s Big 4, but fewer than those that exist today. And to continue to participate in top-tier work, Singapore law firms may well have to be a part of a global firm.
With Singapore’s growing importance as a regional hub for legal services, large international firms see the imperative to add the best Singapore law capabilities. Singapore law firms are finding increasingly that to continue to participate in top-tier legal work and to remain competitive in the war for legal talent, there is a need to be part of a global franchise.
A similar process has already started in Australia - long thought of as a mature, crowded and fully developed market. One by one, major Australian law firms are merging with global ones, except for one which has chosen a Chinese firm.
This tide of globalisation and consolidation that may well see many Singapore law firms merge or form integrated alliances with large global players remains, notwithstanding that the recent Allen and Overy merger agreement with Singapore law firm Allen and Gledhill was called off just before reaching the altar.
Indeed, the latest changes to the Legal Profession Act have enhanced the options available to all players. The new rules, under the misnomer of an “Alliance”, allow a foreign law firm to own stakes and share in up to one-third of the profits of a Singapore law firm, including in local litigation and conveyancing, hitherto sacred cows not even permitted for QFLPs. This is a dramatic, and surprisingly unremarked, change.
With the pressures of Schumpeterian creative destruction in their own markets, Singapore law firms face important and difficult decisions for their future.
Lee Suet Fern is Chairman and Managing Partner of Stamford Law
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