Strong Cloud Demand Fuels Q1 Double-Digit Growth in Asia Pacific’s IT and Business Services Market, ISG Index Finds

Asia Pacific’s IT and business services market grew by double digits in the first quarter, powered by strong cloud demand amid a slump in managed services spending, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered 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)—rose 10 percent versus the prior year, to US $5.3 billion, the region’s fifth straight quarter of year-on-year growth.

Asia Pacific was powered by strong demand for cloud services, with as-a-service spending climbing 19 percent, to US $4.5 billion. Infrastructure-as-a-service (IaaS) advanced 18 percent, to US $3.95 billion, while software-as-a-service (SaaS) climbed 30 percent, to US $556 million.

Managed services ACV, meanwhile, slumped 26 percent, to US $778 million, its weakest result since the third quarter of 2023 and coming on the heels of four straight quarters of double-digit growth averaging 31 percent per quarter. IT outsourcing (ITO) dropped 16 percent, to US $539 million, with application development and maintenance (ADM), up 7 percent, and multi-tower infrastructure, up 88 percent, the only areas of growth. Business process outsourcing (BPO) fell by 31 percent, to US $155 million, and engineering services (ER&D), broken out from BPO for the first time, declined 54 percent, to US $84 million.

A total of 57 managed services contracts were awarded in the first quarter, down 14 percent year on year. A major driver of the shortfall was a decline in the number of smaller deals, those between US $5 million and US $9 million, which slumped 26 percent versus the prior year.

“The Asia Pacific market continued to be driven by strong demand for cloud-based services, as companies forged ahead with digital transformation and AI adoption,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “The focus remains on cost resiliency, productivity and IT modernization.”

Gale said the market is likely headed into a period of increased volatility, driven by heightened economic uncertainty and the impact of U.S. tariffs. “Organizations are assessing the indirect impact of U.S. tariffs and the potential for further economic disruption,” he said.

One potential sign of that impact, Gale said, is the sharp decline in the number of small deals during the first quarter. “That could be a signal that discretionary spending is under pressure,” he said.