"Every morning I wake up and pray that things won't change."

Michael Wong is not a religious man, but he has plenty to be thankful for. The Taipei branch of Baker & McKenzie that he heads is by lawyer count at least the second-largest firm in a market that Wong himself describes as "self-sustaining and lucrative", and has been for some time.

The largest firm by headcount is of course Lee and Li. That firm's co-head, Dr CV Chen, has plenty to be thankful for too as he's getting out of bed. With more than double the number of staff and a client list as long as Taiwan's new high-speed railway, his firm has for decades now enjoyed a single market share the like of which is seen nowhere else outside Korea.

Meanwhile, Jennifer Lin, the Harvard-educated managing partner of Tsar & Tsai, has also been bouncing down to breakfast with a big smile on her face for years. She describes her firm as "one of the oldest and largest". Judging by its swish offices down at the southern section of Taipei's Dun Hwa Road, it's also one of the more prosperous.

The peculiar thing about the Taiwan market is that this triumvirate of firms has been able to keep such a grip on the market for so long. The fascinating thing is to what extent that grip is loosening.

The old days

Twenty years ago Lee and Li and Tsar & Tsai were in many ways ahead of the crowd in picking up the foreign direct investment work that was the predominant force in a rapidly growing economy. "Those two firms were everywhere," confirms MITAC's VP and general counsel, James Yuan.

Lee and Li's eponymous founding partners, equipped with honed western business skills and eastern everything else, on the rebound from Shanghai, found little competition and quickly built a formidable reputation of the kind that draws in briefs (from foreign banks in particular) like moths to a flame. Similarly lighting up the scene was the firm formed by Ruchin Tsar and Paul Tsai in 1965. A decade later Baker & McKenzie, never slow to pick up on that market opportunity overseas, arrived as the first international firm. A number of other firms followed, but it was Bakers that took root. As Wong remembers with just a touch of nostalgia: "In the old days we could just wait by the fax and see which foreign clients were going to come into Taiwan that day. FDI was our bread and butter."

Demand was booming but there was also a supply side to the equation. In those days the bar exam pass rate was, Japan-style, less than 1% and right up to the 1990s it stayed at around 2%. With so few lawyers coming out of the universities and big obstacles to international firms setting up shop, where was the competition going to come from? Hence all that morning happiness.

A changing economy, a changing client...

But with a tip of their hats to the Heraclitean notion of change, these firms have, with varying degrees of agility, geared up for the new economic landscape. Gone are the days of feasting on FDI and lines of deep-pocketed multi-nationals queuing at the office door.

"When I started practising, 95% of our clients were MNCs," says Tsar & Tsai's Lin. "Now that figure is perhaps less than 50% and getting smaller." This situation is no less widespread than it is unsurprising, for two reasons.

Firstly, the big story in the Taiwan economy has for years been the offloading of that carefully built industrial might to mainland China, in particular MNCs chasing low manufacturing wages shifting their focus to the other side of the Taiwan Strait. "The loss of international clients poses a challenge to all domestic firms in Taiwan," says Chen at Lee and Li. "A different type of service is required - it's less centred on manufacturing and FDI."

Secondly, MNCs are not the only ones moving out. Taiwan's own corporations, many of them of course being MNCs themselves, are globalising with a vengeance. Yuan's own MITAC is a case in point. Engaged in the production and distribution of all kinds of computer products, the US$3.5bn hi-tech giant has a subsidiary listed on the NYSE, extensive manufacturing facilities on the mainland, and uses Taiwan largely as an R&D and funding centre. "All our 'daily-operations' legal work has moved to China," explains Yuan. "Now in Taiwan we're mostly concerned with big investment projects and restructuring, so we need more sophisticated legal advice - we need outside help for these things." Yuan does add, however, that even though he has a legal team in China, core decisions and the legal work around them are all still carried out in Taipei.

Taiwan companies, many of which became cash-rich over the boom years, are now targeting world markets for mergers, acquisitions and capital raising, all in a much more deregulated environment, and Chen sees this as the key business trend. "They have to do it to survive and prosper long-term," he says. "They have to globalise and harmonise with the EU and the US."

The increased requirement for transnational legal advice is obvious to other firms too. "Clients want a firm that can act on outbound deals for them," says LCS & Partners' Mark Harty, who reports his firm acts for Taiwanese companies acquiring overseas companies and is retained by the overseas subsidiaries of Taiwanese companies.

Fundamentally different too is the approach to legal services Taiwan companies are adopting. The generalisation that companies wouldn't turn to a lawyer until they got in trouble had a lot more truth a few years ago than in today's world of established (at least in Taiwan's crucial tech sector) in-house legal departments. Wong at Bakers remembers that 10 years ago, in-house lawyers hardly existed and that their recent appearance "helps us because they know better when they need to pay for high-quality external legal advice". And whereas, in the case of mainland investments especially, business owners may have relied more on family ties than sound legal structures for their expansion or JV plans, the trend is now inevitably more towards the latter.

Further underlying change to the legal services market that firms face has come from the hands of the de-regulators, the best example being the formerly tightly-controlled securities market where glorious new products like derivatives now bloom.

Overall the picture is one of a maturing, deregulated local client base looking overseas. As Lin at Tsar & Tsai puts it, there are now more globalised, bigger, listed Taiwan companies that place more compliance and governance requirements on themselves - "We help more local clients now with their international ambitions and partners," she says.

...and a changing legal market

A fairly dramatic change in the work lawyers in Taiwan are doing, and who they are doing it for, will surely mean a shaking of the firm status quo. The question is, to what degree?

The view from the top is one of renewed vigilance. "We've been talking a lot about how to manage, market, coordinate and cooperate to maintain ethical standards and market share," says Chen at Lee and Li. "We're certainly still one of the most successful, if not the most successful, but not as much as 20 years ago. We're very focused, because we don't think we'll stay as far ahead in the market. As the largest firm we have synergy, but we have to maximise strengths and minimise weaknesses." Chen will no doubt be eyeing his firm's breadth of service as a major strength and hoping to optimise consistency across it. "Either we're on top of everything, or we get outplayed in certain areas by boutique firms," he says.

Over at Baker & McKenzie growth is currently a "steady march" of 3-4% a year, and the strategy is to focus more on "areas of law that we want to practise", says Wong. He portrays his firm as a hybrid between a local firm and an international firm, offering "a way of doing a deal that purely local firms don't", but with a base of lawyers that are 80-90% locally trained and qualified. "We're playing a niche," he says, adding that some of the largest work his firm does is local-to-local deals.

Meanwhile, the 45-or-so lawyers at our other market stalwart, Tsar & Tsai, are happy to take the quality-not-quantity route to future prosperity. "Lee and Li and Tsar & Tsai are quite similar, but have a different style," says Tsar & Tsai's Lin. "We have only 10 partners, and we delegate and split up responsibility less. We're more conservative." Yuan at MITAC and Wong both report seeing less of the firm on deals.

So much for the firms that have been around for years. With that bar exam pass rate up at 5-10% for the last few years, the overall supply of lawyers is much greater - to say nothing of more overseas-educated Taiwanese lawyers arriving back on home soil wielding MBAs and the nous to use them. Over the last few years a host of smaller firms have sprung up, many of them run by lawyers with direct experience of working for Lee and Li, Bakers or Tsar & Tsai. Names heard around town include Formosa Transnational, Lee, Tsai & Partners, Tsai, Lee and Chen and, notably, LCS & Partners.

Wong for one says his firm does have to compete with these younger firms. "Most of them tend to specialise in one area or another, and sometimes they quote really low," he says. These firms are also probably the ones that Chen at Lee and Li refers to as the boutique firms that his firm competes with.

So competition there is, but is it as simple as precocious boutiques chipping away at established full-service firms? Victor Chang at LCS vehemently disagrees. "We think of ourselves as the leading financial services firm," he says. "We're in step with the second modernisation stage of Taiwan's financial services industry - we closed the first real estate securitisation, for example -and we can coordinate entire M&A transactions as the lead counsel. We're the only firm that can do ECB [euro convertible bond] work, and we have bigger M&A, capital markets and securitisation teams than any of the biggest three firms." The firm is only six years old but has 30 lawyers; three of the founding partners previously worked together at Tsar & Tsai.

To the market observer, LCS is a standout because of its direction. Here there is no IP department - such an integral part of, say, Lee and Li's business; nor is there a litigation practice. "We've decided these areas won't make the firm competitive in the future," says Chang. "What matters is what you can do for your client in a dynamic business environment. We think you've got to invest time and effort to understand new products." In other words, the firm is zeroing in on the opportunities that deregulation and changes to the underlying economy are producing. The firm's ambition does not, however, stop there. It seems intent on globalising with the clients. "Firms that can think of themselves as international counsel rather than local counsel will be the ones leading in the future," says Chang, who also denies that his firm competes on price.

It may well be that the older firms are choosing to be less vocal about their own responses to a changing market. Or it may be that they don't enjoy the agility and focus of the newer firms, and will take longer to adapt. Equally their current positions and client lists may mean they are able to continue their dominance while smaller firms play niches. It would also be wrong to characterise the competition among firms as being cut-throat - several lawyers mention being happy with the emergence of new firms and even referring work to ex-colleagues.

One thing is for sure, however: these days as our oligopolists get up in the morning they have a little more on their minds.

International firms in Taiwan

Currently: Baker & McKenzie Deacons Finnegan, Henderson, Farabow, Garrett & Dunner Jones Day JTJB Taipei Orrick Preston Gates & Ellis Russin & Vecchi Wenger & Vieli

Been and gone: McCutchen Doyle Perkins Coie Shearman & Sterling Squire, Sanders & Dempsey