APAC’s IT, business services market up in Q1 but growth remains uneven

Scott Bertsch, Partner and Regional leader, ISG APAC

APAC’s IT and business services market grew by 28% in the first quarter, but demand slowed dramatically from a record fourth quarter as the region continues to produce uneven results, according to the latest state-of-the-industry report from Information Services Group (ISG).

What were the findings of ISG?

The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows full-year ACV for the combined market—including both as-a-service (XaaS) and managed services—reached US $4.2 billion, up 28%, but that was the region’s lowest growth rate in the last four quarters.

First-quarter annual contract value was off ten percent from the region’s fourth-quarter high of US $4.7 billion, the steepest quarter-over-quarter drop in more than two years.

“This is the fourth straight quarter the region has produced ACV of at least $4bn, but growth has been uneven. It’s been a bit of a roller coaster ride, with each new quarterly high followed by a sequential drop in ACV,” said Scott Bertsch, partner and regional leader, ISG APAC.

XaaS spending rose 28% in the first quarter, to $3.7bn, but was down 1% from the fourth quarter. Infrastructure-as-a-Service (IaaS) rose 30%, to $3.3bn, but was down 1% against the prior quarter, while SaaS advanced 14% over 2021, to $400m, but was flat with Q4.

Managed services, likewise, grew 28% in the first quarter, to $498m, but dropped 47% against the fourth quarter. The 28% YoY growth rate was the slowest in the last four quarters, with the three preceding quarters averaging 54% annual growth.

Within managed services, IT outsourcing (ITO) was up 31%, to $370m, but was down 50% against Q4. Business process outsourcing (BPO) grew 18%, to $128m, but fell 33% versus the fourth quarter. The region generated 45 managed services contract awards in the first quarter, up 50% versus a soft first quarter last year, but down 26% versus a stronger Q4.

The year-over-year growth in volume was driven entirely by the smallest band of contract awards measured by the ISG Index – those falling within the US $5 million to US $10 million range. Contract awards at this level were up ninety four percent versus last year.

From a geographical perspective, ANZ, at $114m of managed services ACV, was down 5% year on year, and off 77% against a very strong Q4. Both South Korea (up 67%) and Japan (up 25%) advanced versus the prior year off a small base, while the ASEAN region was up significantly as it posted its third straight quarter with ACV of more than US $100 million.

What is ISG’s 2022 global forecast?

ISG is forecasting the global market for cloud-based XaaS (IaaS and SaaS) will grow 22% for the year, up from its 20% forecast last quarter, while the global market for managed services is expected to grow 5.1%, unchanged from last quarter’s forecast.