The Asia Pacific IT and business services market continued to grow in the third quarter, driven by strong demand for managed and cloud-based services, though the pace slowed from the previous quarter, according to the latest report from Information Services Group (ISG) (Nasdaq: III).
The Asia Pacific ISG Index™, which tracks commercial outsourcing contracts with an annual contract value (ACV) of US $5 million or more, showed a 10 percent year-on-year increase in the third-quarter ACV for the combined market (cloud-based XaaS and managed services), reaching US $4.6 billion. However, this represented a 5 percent decline from the second quarter.
Managed services demand remained strong, with ACV up 17 percent from the previous year to US $794 million, despite a 43 percent drop from Q2. There were 57 managed services contracts awarded, a 36 percent increase year-on-year but a 30 percent decline quarter-on-quarter. Notably, new scope awards boosted the market, with volume up 47 percent and ACV rising 18 percent compared to the prior year.
Cloud-based services grew by 8 percent to US $3.8 billion, with a 10 percent increase from Q2. Although quarterly XaaS demand has not exceeded the US $4 billion mark since Q2 2022, the ACV has surpassed US $3.5 billion in three of the last four quarters.
“After two consecutive quarters with managed services ACV above US $1 billion, Asia Pacific has returned to a more typical US $800 million range,” said Michael Gale, partner and regional leader at ISG Asia Pacific. He highlighted that the region’s growth is largely driven by cloud services, due to its cloud-first mindset and market maturity, with the cloud segment rebounding after two years of slower growth.
In the managed services sector, IT outsourcing (ITO) ACV rose by 18 percent to US $622 million, fueled by a 238 percent surge in demand for application development and maintenance (ADM) services. Business process outsourcing (BPO) grew by 12 percent to US $173 million, supported by strong growth in engineering, research, and development (ER&D) services.
Regionally, China and Japan saw triple-digit growth in managed services demand, while South Korea experienced double-digit growth. The largest markets, Australia/New Zealand (ANZ) and India, moved in opposite directions, with ANZ up 79 percent and India down 61 percent—the latter’s weakest performance since Q1 2022.
By industry, sectors like banking, financial services, insurance (BFSI), energy, and travel and transportation saw growth, while manufacturing pulled back by 19 percent during the quarter.
In the XaaS segment, infrastructure-as-a-service (IaaS) ACV grew by 8 percent to US $3.3 billion, while software-as-a-service (SaaS) ACV rose 14 percent to US $444 million.
Nine-Month Results
For the first nine months of the year, the Asia Pacific combined market ACV increased by 13 percent year-on-year to US $14.2 billion, marking a significant recovery from last year when the market saw a 17 percent decline. However, the year-to-date performance remains 6 percent below the record-setting first nine months of 2022.
Managed services achieved its best first nine months ever, with ACV reaching nearly US $3.2 billion, a 24 percent year-on-year increase. ITO ACV rose by 8 percent to US $2.3 billion, while BPO ACV surged 91 percent to US $946 million.
On the cloud side, XaaS ACV rose by 11 percent to nearly US $11.0 billion, with IaaS up 10 percent to US $9.6 billion and SaaS up 13 percent to US $1.3 billion.
2024 Global Forecast
ISG is maintaining its 2024 forecast of 2 percent revenue growth for managed services and 14 percent for XaaS. Stronger growth is anticipated for 2025.
“Despite a strong third quarter, we are holding our full-year forecast due to mixed market signals, particularly softness in the BFSI sector,” said Gale. He noted that recent rate cuts by the Federal Reserve and European Central Bank are expected to boost IT spending, while trends like GenAI, increased server shipments, and hyperscaler revenue growth signal a more positive outlook for 2025.
About ISG
ISG (Information Services Group) is a global technology research and advisory firm serving more than 900 clients, including over 75 of the world’s top 100 enterprises. Specializing in digital transformation, AI, cloud, and data analytics, ISG helps organizations achieve operational excellence and growth through expert insights and industry-leading market intelligence.
