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The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows third-quarter ACV for the combined market fell 10 percent versus the prior year, to US $4.0 billion, dragged down by declines in both the managed services and cloud-based XaaS segments.
Managed services ACV slid 13 percent versus the prior year and 40 percent sequentially versus the second quarter, to US $651 million. It was the first time in the last 12 months that managed services ACV fell below US $800 million in a quarter, a period that included two quarters with ACV greater than US $1 billion.
A total of 41 managed services contracts were awarded in the third quarter, down 24 percent from the prior year. The ACV of new-scope contracts was up 28 percent, while ACV of restructured contracts was down 81 percent year on year. The market was down in virtually all industry segments, except for manufacturing, which produced 16 percent ACV growth.
In the XaaS segment, ACV was down 9 percent versus the prior year, to $3.4 billion. Even though it was the fifth straight quarter of decline, the market appears to have stabilized the last three quarters, after peaking at US $5 billion at the end of 2021.
“Managed services has been running hot in the region over the past year, so this quarter’s decline represents a pause for the market,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific “XaaS, although still down, looks like it may have bottomed out and is likely to register year-over-year growth in the fourth quarter on a favorable comparison with last year.”
In managed services, IT outsourcing (ITO) ACV declined 9 percent, to US $502 million, in the quarter, while business process outsourcing (BPO), fell by 25 percent, to US $149 million.
In XaaS, infrastructure-as-a-service (IaaS) ACV was down 11 percent, to US $3.0 billion, while software-as-a-service (SaaS) ACV was up 3 percent, to US $389 million.
Year-to-Date Results
Asia Pacific’s combined market was down 13 percent versus the prior year, to US $12.9 billion. It was the region’s first decline through nine months since 2016 when the market pulled back by 3 percent.
Managed services rose 25 percent, to US $2.6 billion, its highest level since 2012. A total of 160 contracts were awarded, down 10 percent from the prior-year period. ITO ACV rose 37 percent, to US $2.1 billion, while BPO was down 9 percent, to US $502 million. The region saw strong growth in manufacturing and media and telecommunications, while financial services was down year to date. Australia-New Zealand, the region’s largest geographic market, was up 54 percent, while India, its second largest market, nearly doubled its spending over the prior year.
In the XaaS segment, spending through nine months fell 19 percent, to US $10.3 billion, the region’s first down market at the three-quarters mark. IaaS was down 19.5 percent, to US $9.2 billion, and SaaS declined 18 percent, to US $1.1 billion.
2023 Global Forecast
ISG raised its forecast for managed services growth by 40 basis points, to 5.4 percent for the year, and maintained its forecast for XaaS revenue growth in 2023 at 11.5 percent.
“From a macroeconomic perspective, we’re seeing slower enterprise decision-making, spending being stretched out over longer periods of time, and persistent concerns with energy prices and the expectation of a prolonged period of high interest rates,” Bertsch said. “Clients, though, are still modernizing their IT landscapes to adopt multicloud environments and hybrid work arrangements, and are beginning to experiment with enterprise-grade GenAI use cases. Given these scenarios, we expect the applications market to continue to expand in 2024.”
About the ISG Index™
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 84 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. For more information about the ISG Index, visit this webpage.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.