ISG Index™: Strong Managed Services Demand Boosts Asia Pacific Sourcing to New Record

The Asia Pacific outsourcing market reached a record high in the second quarter, boosted by strong demand for managed services, according to the latest state-of-the industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

Data from the ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, show second-quarter ACV for the combined Asia Pacific market (both managed services and as-a-service) reached an all-time high of US$2.2 billion, up 6 percent. It was the region's third straight quarter with ACV above US$2 billion, and the fourth in the last five quarters above that mark.

Overall growth was powered by a surging managed services segment, which climbed 15 percent, to US$967 million, its best quarterly result in five years. In all, enterprise buyers signed 10 managed services contracts each worth more than US$20 million in ACV, double the number of the year-ago quarter. Demand was particularly strong in China, South Korea and India, offsetting some weakness in Japan and in the Australia-New Zealand market. Despite the surge in large contract awards, overall deal volume was down 18 percent for the quarter.

Demand for cloud-based solutions, long the driver of the region's growth, produced as-a-service ACV of US$1.3 billion in the second quarter, flat with prior year. It was the sixth straight quarter the region surpassed US$1 billion in as-a-service ACV, but the first time in 11 straight quarters that as-a-service ACV did not establish a new quarterly record. Sluggish results for infrastructure-as-a-service (IaaS) in China pushed regional IaaS ACV down 3 percent, to US$1.1 billion, for the quarter. Software-as-a-service (SaaS), meanwhile, rose 18 percent, to US$206 million.

For the first six months of 2019, Asia Pacific's combined market generated ACV of US$4.3 billion, up 19 percent. Managed services ACV climbed 22 percent in the half, to US$1.6 billion, driven by strong demand from the manufacturing and telecommunications industries, which offset weaker results in the region's largest sourcing industry, banking, financial services and insurance (BFSI). As-a-service ACV for the half reached US$2.7 billion, up 17 percent over the prior year.

"Effectively, the combined sourcing market in Asia Pacific has doubled since 2016," said Scott Bertsch, ISG partner and regional head of Asia Pacific. "Enterprises are modernizing and rationalizing their entire IT estate, with cloud migration, open APIs and infrastructure platforming being used to increase efficiency, drive growth and enhance the digital experiences of customers."