SYDNEY -- Asia Pacific’s market for IT and business services was fueled in the fourth quarter by double-digit growth in cloud and managed services, driven in part by growing demand for AI, 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 fourth-quarter ACV for the combined market (both cloud-based XaaS and managed services) rose 23 percent versus the prior year, to US $5.5 billion. It was the fourth straight quarter Asia Pacific’s combined market rose year on year, with quarterly growth averaging more than 16 percent during that span. Compared with the third quarter, the market was up 20 percent sequentially.

Managed services ACV soared 33 percent, to US $1.1 billion, and was up 45 percent from the prior quarter. A total of 72 contracts were awarded in the fourth quarter, up 29 percent against the prior year. Within managed services, IT outsourcing (ITO) rose 25 percent, to US $825 million, on the strength of application development and maintenance (ADM) spending, while business process outsourcing (BPO) climbed 59 percent, to US $320 million, supported by growth in customer engagement and engineering, research and development services.

In the cloud space, XaaS ACV rose 20 percent, to US $4.3 billion, driven by 20 percent growth in infrastructure-as-a-service (IaaS), to US $3.8 billion, and 20 percent growth in software-as-a-service (SaaS), to US $527 million.

“Companies increasingly are turning to service providers, seeking specialized expertise and capabilities to accelerate their digital transformations,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “The growth in managed services in 2024 has been extraordinary, with ACV exceeding US $1 billion in three of the four quarters last year. That’s never happened before.”

Gale pointed to rising interest in AI as a catalyst for continuing growth in cloud demand. “Enterprises are migrating more workloads to the cloud, not only for efficiency and cost savings, but to secure more data processing capacity to achieve their AI ambitions,” he said.

Full-Year Results

For the full year, Asia Pacific’s combined market generated record ACV of US $19.7 billion, up 16 percent versus the prior year and just slightly ahead of the previous record set in 2022. By comparison, the combined market was down 13 percent year on year in 2023.

Managed services ACV rose 26 percent, to a record US $4.4 billion, beating the previous record set in 2012. A total of 276 managed services contracts were awarded in 2024, up 28 percent. The ACV of new-scope contracts advanced 27 percent, to a record US $3.3 billion.

Within managed services, ITO ACV rose 12 percent, to a record US $3.1 billion, led by growth in ADM, data center and end user computing services. BPO soared 82 percent, to US $1.3 billion, with strong growth in customer engagement, HR outsourcing and industry-specific services.

The XaaS segment advanced 13 percent, to US $15.3 billion of ACV, reversing course after a 16 percent drop in 2023. IaaS was up 13 percent, to US $13.4 billion, while SaaS grew 16 percent, to US $1.9 billion.

By geography, every market was up for the year except India, which was down 36 percent. Both Australia-New Zealand, up 16 percent, to US $1.4 billion, and Japan, up more than 200 percent, to US $1.1 billion, posted their best years ever, while China, up 80 percent, to US $411 million, had its second-best result ever. Japan and China benefitted from larger contract awards.

By industry vertical, all sectors generated positive results, with the exception of manufacturing, which pulled back 8 percent. BFSI, the region’s largest industry for outsourcing, advanced 57 percent versus the prior year, while the region’s third-largest vertical, media and telecommunications, increased 13 percent for the year.

2025 Global Forecast

For the full year, ISG is forecasting 4.5 percent revenue growth for managed services, up from 1.7 percent growth in 2024, and 18 percent revenue growth for XaaS, in line with the prior year.

“Globally, we expect a gradual recovery in enterprise demand for IT and business services,” said Gale. “Tech modernization and AI adoption will act as market tailwinds, and we expect a recovery in BFSI spending this year.”