Asia Pacific IT and Business Services Market Overview
The Asia Pacific market for IT and business services has shown robust growth in the latest quarter, showcasing strong demand across managed and cloud-derived offerings. Although the growth trajectory has moderated from the previous quarter, insights from the Information Services Group (ISG) help shed light on the state of this dynamic sector.
Third Quarter Analysis
The ISG Index™, which examines commercial outsourcing contracts valued at US $5 million and above, indicates that the total annual contract value (ACV) for the combined market reached US $4.6 billion in the third quarter. This figure represents an impressive year-over-year growth of 10 percent, even as it reflects a 5 percent decline from Q2.
Managed Services Demand
Managed services have maintained strong demand, with an ACV of US $794 million, marking a significant 17 percent increase from the same time last year. However, this figure is down by 43 percent when compared to Q2, exemplifying the natural fluctuations within the sector. The total number of contracts awarded increased by 36 percent year over year but dropped by 30 percent from the previous quarter.
Cloud Services Performance
Cloud-based services have also demonstrated a healthy growth rate, contributing US $3.8 billion to the market—an 8 percent increase over the previous year and a 10 percent sequential rise from Q2. Despite the XaaS segment not surpassing US $4 billion since Q2 of 2022, it has effectively remained above the US $3.5 billion mark for three out of the last four quarters.
Industry Insights
Michael Gale, an ISG partner and regional leader for Asia Pacific, articulated a cautious optimism regarding market trends: “After two consecutive quarters with managed services ACV exceeding US $1 billion, Asia Pacific now stabilizes around a typical US $800 million range.” According to Gale, the region's mature market is predominantly driven by cloud services. This aspect has notably affected growth trajectories, particularly following previous two-year setbacks.
Geographic Trends
From a geographic perspective, demand for managed services exhibited remarkable growth in regions such as China and Japan, scoring triple-digit increases. Meanwhile, South Korea also experienced double-digit growth. Interestingly, the overall performance of Australia/New Zealand (ANZ) and India diverged, with ANZ achieving a notable 79 percent increase, contrasting sharply with India’s 61 percent contraction, marking its weakest quarter since early 2022.
Sector-Based Review
Industry-specific performance varied, as areas such as banking and financial services, energy, and travel experienced upward trends. Conversely, manufacturing witnessed a substantial downturn of 19 percent during this quarter.
XaaS Segment Breakdown
Delving deeper into the XaaS segment, infrastructure-as-a-service (IaaS) reached an ACV of US $3.3 billion, reflecting an 8 percent annual increase. Meanwhile, software-as-a-service (SaaS) grew significantly, up 14 percent to US $444 million.
Year-to-Date Trends
Year-to-date analyses reveal a combined ACV uptick of 13 percent from the previous year, summing up to US $14.2 billion. This trajectory marks a significant turnaround, contrasting last year's decline. Noteworthy is the managed services sector generating nearly US $3.2 billion in ACV during the first nine months, reflecting a 24 percent year-on-year increase. ITO recorded an 8 percent rise, reaching US $2.3 billion, while BPO surged dramatically by 91 percent to US $946 million.
Future Predictions
Looking ahead to the full year, ISG conservatively projects a 2 percent growth in managed services revenue and an impressive 14 percent rise in XaaS revenue, anticipating further growth in the coming years. Gale reiterates, "Despite a promising third quarter, we will hold our full-year forecast owing to mixed signals in the market, especially in the BFSI sector." He emphasized that recent monetary policy adjustments are likely to stimulate IT spending in the forthcoming year.
About ISG
Information Services Group (ISG) remains a frontrunner in technology research and advisory services, boasting partnerships with over 900 clients globally, well within the ranks of the world's foremost enterprises. Known for its expertise in digital transformation spanning AI, cloud services, and data analytics, ISG has built a reputation for helping organizations achieve hopeful growth trajectories through its experienced workforce.
Frequently Asked Questions
What is the current growth rate of the Asia Pacific IT market?
The market showed a growth of 10 percent year over year in the third quarter.
How did managed services perform in Q3?
Managed services generated US $794 million, showing a 17 percent increase but a decline from Q2.
What role does cloud-based service play in market growth?
Cloud services contribute significantly, growing 8 percent to US $3.8 billion in Q3.
Which regions experienced the most significant growth?
China and Japan saw triple-digit growth, while ANZ increased by 79 percent.
What is ISG's forecast for the future?
ISG expects 2 percent growth in managed services and 14 percent growth in XaaS for the full year.
