The Information Services Group (ISG) Index reported a 10% year-over-year increase for the Asia-Pacific information technology (IT) and business services market in the third quarter of 2024. But while the ACV reached $4.6 billion, it also marked a 5% decrease compared to the strong performance in the second quarter of the same year.
Despite the downturn, ISG, which monitors business outsourcing agreements with a minimum annual contract value (ACV) of $5 million, continues to project 2% revenue growth for managed services and 14% for anything as a service (XaaS) for the entire year.
The firm anticipates even more robust growth in 2025 due to recent interest rate reductions, a greater emphasis on generative artificial intelligence (AI), and the continuous digital transformation of businesses throughout the region.
Asia Pacific’s mixed performance
Results across various Asia-Pacific markets vary. In China and Japan, the demand for managed services grew by triple digits due to increased government investment in technology and initiatives to implement digital transformation.
In contrast, India faced a 61% decline in managed services demand, driven by an economic slowdown, geopolitical tensions, and increased competition from other emerging markets. This is far from Australia and New Zealand’s (ANZ’s) 79% rise in demand, fueled by strong economic growth and a focus on digital innovation.
“While the third quarter saw a slight deceleration, the overall outlook for the Asia-Pacific IT and business services market remains positive,” said Michael Gale, ISG Asia Pacific regional leader. He identified the region’s diversified economy and heavy reliance on cloud-based services as key growth drivers for the upcoming years.
Industry trends
Demand for managed services showed a steady 17% year-over-year increase, with ACV reaching $794 million. Despite a 43% decline from the previous quarter, the sector saw a significant increase in new contracts, particularly in application development and maintenance (ADM) services, which grew by 238%.
Cloud-based services remained a vital growth driver, with an 8% increase in ACV to $3.8 billion—a 10% sequential improvement from Q2. Meanwhile, the XaaS market has consistently stayed within the $4 billion mark since Q2 2022 and above $3.5 billion in three quarters.
Banking, financial services, and insurance (BFSI) continually expanded due to digital transformation initiatives and regulatory compliance requirements. Meanwhile, energy, travel, and transportation experienced increases as companies use digital solutions more frequently to improve consumer satisfaction and efficiency. Manufacturing saw a 19% drop due to supply chain interruptions and global economic uncertainty.
Global IT, business services market hits new high
Another ISG report reveals that the global IT and business services market rebounded to a record $26.7 billion in the third quarter, a 15% increase year-over-year. This surge follows a prolonged downturn, with the market hitting its lowest point over a year ago. The managed services and cloud-based as-a-service market reached its highest level since Q1 2022.
“This was a redemptive quarter for the IT and business services industry,” ISG President and Chief AI Officer Steve Hall said. He noted that the industry has recovered from 27 months of economic uncertainty. Managed services saw new highs but faced challenges in the BFSI sector, while cloud services surged, driven by firms leveraging the cloud for generative AI rollouts.
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ISG. (2024, October 15). After Prolonged Downturn, Global IT, Business Services Market Reaches New High in Q3: ISG Index. Retrieved October 24, 2024, from https://ir.isg-one.com/news-market-information/press-releases/news-details/2024/After-Prolonged-Downturn-Global-IT-Business-Services-Market-Reaches-New-High-in-Q3-ISG-Index/default.aspx
