SyCip Salazar Hernandez & Gatmaitan has long been king of the Philippine legal market.
Established after the end of WWII in1945, the firm is one of the oldest, and presently the largest firm in the market, boasting 130 lawyers, 30 of which are partners.
The names of the other two top tier firms carry just as much weight.
Angara Abello Concepcion Regala & Cruz, or "ACCRALaw" to players in the market, was the 1970's creation of a number of lawyers who defected from SyCip - why the larger firm often refers to itself as the mother of the local legal market. Romulo Mabanta Buenaventura Sayoc & de los Angeles (RMBSA) traces its roots back to the 1950's, and has evolved into a corporate heavyweight only slightly smaller than the other two.

It is this trio of firms that has dominated for some time - a situation that does not look set to change any time soon. The combination of their size and experience means these firms are nearly always first port of call for multinationals looking to invest in the Philippines. Naturally, they are also taking care of a large share of the domestic legal work available.
However, it is this domestic market that will be hotly contested in coming years, a battle of which multinational investors are likely to take note.

A key trend in the Philippine market has been a large increase in the number of smaller players opening their doors, and the growth of the mid-tier firms. Though there is a significant gap between the mid and top tiers, it is expected the large, full-service firms will have to justify their position as market leaders and struggle to maintain market share, as this growing host of small and mid-tier firms offer an attractive alternative.

Rising from below
If there is a firm likely to feel the heat of competition from below, it's SyCip.

SyCip managing partner Llewellyn Llanillo says in the past five years he has seen a large increase in the number of players in the legal market, and their sophistication.

"There has been a distinctive growth in the number of smaller firms, who have expanded their numbers and are moving into the medium size bracket," Llanillo says.

"Before you could count on one hand the number of firms that went beyond 20 people, but recently, there are more of these players in Metro Manila."

The key reason for this trend has been a splintering of large and mid-tier firms, who have seen groups of lawyers of around eight to 15 people break away to form their own firms.
These renegade groups are setting up more specialised, niche law firms that cater to specific areas of client need rather than providing a one-stop-shop.

"You might get one whole IP group, or litigation group splitting away, and what do they do next, but continue to practice what they do best," Llanillo says.

ACCRALaw managing partner Eusebio Tan agrees. "There have been breakaway groups, with partners and groups of lawyers forming their own smaller, boutique firms, which has definitely increased the amount of competition in the legal market," Tan says.

Economic pressures are to blame for these splinter groups. Law firms are facing lean times after a massive decrease in foreign investment in the Philippines of 75% over 2004 and 2005, and partners and mid-placed lawyers have become dissatisfied with their lot.

Ponce Enrile Reyes & Manalastas, or PECABAR, is one of the smaller, up-and-coming firms in the market, and even they have seen lawyers break away in the current climate.

PECABAR name partner Eleazar Reyes blames increased overhead costs and the decrease in legal business in the market for the splintering of law firms.

"All of the bigger firms so far have had it, even we got hit with it, because of overhead costs that are unmanageable compared to the business we are taking," Reyes says.

"Most of all there is a dissatisfaction among partners in the market - due to the overhead costs of running the firm they are getting a smaller slice of the pie."

Reyes names leases and utilities as growing costs, but says extra pressure is being placed on firms by rises in the minimum wages of staff, especially educated, computer literate non-legal staff who are being attracted to the lure of working overseas.

Clients are also adding to this financial pressure, as they look closely at their budgets and demand more from the legal firms to which they are outsourcing work.

"Clients have been more conscious of their annual legal spend - we are competing more on the basis of efficiency, giving the best service for the least amount of hours, while not sacrificing quality," Llanillo says.

As a result, firms either big or small are being forced to run on very tight budgets, which is not being helped by tough competition on fees.

"The general trend now is to run a lean and mean organisation," Reyes says.

"There is already stiff competition in the market, especially in the litigation area, but due to the attitude of the Philippine clients, when there is more competition it tends to drive down legal fees, and that is putting pressure on us and our operations," Reyes says.

Despite the tough market conditions, small and mid-tier firms are thriving in numbers, mainly due to their increasing share of domestic work.

PECABAR estimates at least 70% of foreign work is taken care of by the top tier, though the mid and lower tier is going "toe to toe" on domestic work, taking about 50%.

The mid-tier firms might gain hope of more work from another trend. Historically, clients have hired one law firm to cater for all their legal needs, but in the last few years the Philippines has seen the evolution of panels, a new step for the market.

"Going back 10 or 15 years, if it was ACCRALaw then it was ACCRA all the way, but an interesting twist in the past three years has been clients having a panel of two or three firms, and giving the type of work to the firm who is doing that work best," Llanillo says says.

However, while the mid-tier firms are closing the gap, most firms agree that it would be a very big gap to close, which is not necessarily something the mid-tier wants.

"The gap is huge. It would take a major effort for a medium sized firm. Most of them say we are happy where we are, and we don't want the problems of a big tier firm," Llanillo says. "However, we will wait and see - there may be some very ambitious law firms out there."

Flavour of the market
Though firms have been under pressure from a lack of foreign investment stimulating legal work, they are still finding there is enough to keep them busy.

All firms name IP as an area of consistent growth in the Philippines, as multinational companies get more aggressive in protecting their IP rights.

"There has been a shift in the last few years toward preemptive enforcement on suspected stores or warehouses housing fake products - clients are fighting back on pirated goods," Llanillo says.

The Philippine court system, notorious for having a long backlog of cases, has also caused a move by companies toward commercial arbitration work rather than litigation.

In an effort to clean up their act, the courts have encouraged this shift, and it is now a requirement to go into mediation prior to litigation in commercial disputes.

A key area of growth has been Business Process Outsourcing (BPO), or call centers, as US companies have flocked to Philippine shores in droves over the past year.

"This market wasn't even existent a few years ago, but in the last year there was a spate of growth in call centers," Tan says.

Tan says there are 70 call centers in the Philippines, and 70,000 call center agents, and predictions are the sector will create another 103,000 new jobs this year.

In the banking sector, the auction of non-performing loans has kept many firms busy during 2005, after new legislation was introduced to combat the problem.

"The cost of these transfers were prohibitive at first, but there are now incentives for banks to do this and tax incentives for investors allowing these transactions to happen," Llanillo says.

The capital markets have also had an injection of hope, with SyCip acting last year for the underwriters on the biggest ever IPO in the Philippines - that of SM Investments.

Reyes says from PECABAR's perspective, he has seen many local business groups acquiring medium scale firms to consolidate their positions in their own industry, or to begin diversifying from their core business areas. However, he says there has been marked tapering off in government contracts due to political instability.

A hazy outlook
Nobody doubts the potential of the Philippines for growth, but it is the uncertainty over its politics that is holding back FDI from growing at the pace that it should.

Only recently, news has arisen of new moves to impeach current President Gloria Macapagal-Arroyo, a process that will take at least four months to blow over. Her Presidency has so far been plagued with election rigging and corruption allegations. The country has historically, of course, been plagued with political upheval.

Law firms agree that the political situation, though volatile, should not put off foreign investors, as they have had successful involvement in the country in the past.

"For those who know the country well, investments continue, but for the first timers, they get spooked," RMBSA partner Perry Pe says.

Llanillo says notwithstanding changes in Government and uncertainties in the executive house, the legal framework has not undergone any drastic change over the years.

"We are still looking at the same civil code that existed in the 1950's," he says.

But the reality is investors are getting spooked - a situation not likely to improve in the near future. Even when investors do come to the Philippines, they are very demanding in ensuring that firms are themselves not caught up in the political situation.

"The good firms better not be politically connected with the administration - multinational companies don't want that," ACCRALaw partner Romulo Espaldon says.

"Firms are becoming more professional in that respect, relying on their merits and professionalism rather than influence peddling," he says.

Traditionally, the most important clients for the large firms have been the huge, family-run conglomerates that dominate the national economy.

Although these groups tend to give their work to Manila's leading firms, they also have close ties with several favourite firms.
For PECABAR, it is these families it sees as being a key source of growth in the future.

"We are basically trying to do work for the business family groups, the local business family groups who are always almost approached by foreign investors for joint ventures," Reyes says. "That way we are able to still get involved in the foreign investment, but get a more or less stable footing with the big business locally," he says.

In this way, it is possible that smaller firms like PECABAR in the next few years could begin to create more competitive heat for the top tier firms.

"I can see middle sized firms getting more work, especially if these firms become specialised in their practice. They will grab a big chunk of business from the law firms now," Reyes says.

And the big three firms are well aware of this fact.
"It's tough work running a big law firm," Llanillo says
"We continue to expect that the trend right now might mean smaller firms will start to become major firms. The challenge for the bigger firms is staying in place, because maintaining your size and competitiveness in this market will be a challenge."

For SyCip, Llanillo says this will mean being continually responsive to the changing needs of its clients, the community and their own people.

Only time can tell how SyCip, ACCRALaw and RMBSA cope with the increased competition, but it is definite their life is about to get a lot tougher.