SYDNEY -- Asia Pacific’s IT and business services market delivered a resurgent performance in the first quarter, with spending at a level last seen almost two years ago, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows ACV for the combined market—both managed services and as-a-service (XaaS)—climbed 25 percent versus the prior year, to just over US $5 billion, the first time the region topped the US $5-billion level since the second quarter of 2022. It also broke a string of five straight quarters the region produced negative year-over-year results.

Managed services ACV rose 18 percent, to just over US $1 billion, versus the prior year, and was up 21 percent sequentially from the fourth quarter of 2023. Business process outsourcing (BPO) drove all the growth in the first quarter, up 72 percent to US $399 million. IT outsourcing (ITO), meanwhile, declined 1 percent, to US $643 million.

A total of 66 managed services contracts were awarded in the first quarter, up 12 percent year on year. The volume of smaller deals, those under US $30 million, rose 2 percent. New-scope awards accounted for more than 80 percent of the region’s managed services ACV, while the ACV of contract restructurings fell more than 60 percent.

ACV in the XaaS segment advanced 27 percent, to US $4.0 billion, led by growth in infrastructure-as-a-service (IaaS), up 30 percent, to US $3.6 billion. Software-as-a-service (SaaS) was up 4 percent, to US $427 million.

Results by Industry, Geography

Among industries, the banking, financial services and insurance (BFSI) sector led the way, generating ACV of US $434 million, more than double that of the prior year, and accounting for 137 percent of the region’s managed services growth in the quarter. Manufacturing and telecommunications spending was down significantly, while other industries generated gains, albeit off small bases.

By geography, all markets in the region were positive, except for its largest market, Australia-New Zealand, which declined 15 percent year on year. India, Japan, Southeast Asia and China were all up by double digits.

“As we noted last quarter, Asia Pacific has bottomed out and is poised for a rebound in 2024,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “The region is off to a strong start, with double-digit managed services growth led by the BFSI sector and BPO overall. ACV for cloud-based services surpassed the US $4 billion level for the first time since the second quarter of 2022 and produced its second straight quarter of double-digit growth. Early indications are that Asia Pacific is leading the way in a global rebound of IT and business services spending among the three regions.”

2024 Global Forecast

ISG is forecasting 3 percent growth for managed services, down 125 basis points from its January forecast, and maintaining its forecast of 15 percent revenue growth for XaaS in 2024.

“Looking ahead, economic conditions are forecasted to be less volatile as the year progresses and inflation continues to slow, but challenges persist,” Gale said.

“In this environment, outsourcing could see a boost as companies seek to balance cost management and service quality. GenAI, meanwhile, is poised to be a growth catalyst, with large hyperscalers expected to manage increasing workloads. The data layer, integral for training AI models, presents a prime opportunity for service providers.”