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Asia Pacific Sourcing Market Driven By Cloud Services In Q3

IaaS and SaaS demand continues to climb to record highs, but managed services growth slows after strong second quarter

Record demand for cloud computing continued to drive Asia Pacific’s IT and business services market in the third quarter, even as growth in traditional managed services slowed from a strong second quarter, according to the latest state-of-the-industry report from Information Services Group a leading global technology research and advisory firm.

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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 cloud-based as-a-service ACV reached a record US $3.1 billion in the third quarter, up 62 percent versus the prior year when demand was weaker due to the pandemic, but up only 5 percent from its previous record high in the second quarter. Cloud services accounted for more than 84 percent of Asia Pacific’s IT and business services spending in the third quarter, by far the greatest percentage of any region.

Within the as-a-service segment, infrastructure-as-a-service (IaaS), at a record US $2.7 billion, was up 60 percent year over year, but only 3 percent sequentially, while software-as-a-service (SaaS), at a record US $407 million, soared 69 percent against the prior year, and was up 18 percent versus the second quarter.

Traditional managed services also advanced against a weaker 2020 third quarter, with ACV of US $575 million, up 53 percent, but down 40 percent from the second quarter this year. IT outsourcing (ITO) rose 29 percent, to US $405 million, but was off 51 percent versus the second quarter. Business process outsourcing (BPO), at US $170 million, shot up 178 percent versus last year and rose 18 percent over the second quarter, with strength in engineering/R&D and industry-specific services.

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The region saw 53 managed services contract awards in the third quarter, up 26 percent over the prior year. Most major markets, with the exception of China, posted double-digit gains in managed services ACV in Q3 versus the prior year.

The combined market, encompassing both cloud and traditional services, stood at US $3.6 billion in the third quarter, up 60 percent over the prior year, but down 6 percent from a record second quarter.

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“The past two quarters have seen the best year-over-year quarterly growth rates in Asia Pacific since ISG began to measure cloud computing in 2014,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific. “Much of that is attributable to skyrocketing demand for cloud services to support digital transformation. Although traditional managed services hit a high mark last quarter coming out of the pandemic, it couldn’t sustain that level of growth for two consecutive quarters.”

Year-to-Date Performance

Over the first nine months of 2021, the combined market generated a record US $10.4 billion of ACV, up 45 percent. As-a-service, at a record US $8.5 billion, was up 50 percent, with IaaS reaching a record US $7.4 billion, up 52 percent, and SaaS hitting a record US $1.1 billion, up 37 percent.

Managed services, at US $1.9 billion, was up 26 percent. ITO reached US $1.5 billion, up 15 percent, with growth in both infrastructure and applications development and maintenance (ADM). BPO advanced 87 percent, to a record US $421 million.

Notable Deals

In the IaaS segment, AWS won deals in the third quarter with Axis Bank, the third-largest private-sector bank in India, to migrate most of Axis’ on-premises data center infrastructure, and with RBL Bank, also in India, for AI banking solutions. In the SaaS segment, Oracle won awards with India telecoms company Bharti Airtel and with Taiwan-based computer maker Acer. ServiceNow inked a deal with Asahi, the Japanese drinks and food company, which chose the Now Platform to provide service catalogues.

In ITO, Accenture signed a deal with Japan’s Chubu Electric Power Group to transform its operations, and with Kubota, the Japanese equipment manufacturer, to accelerate migration of legacy systems to the Microsoft Azure cloud. Infosys also signed a multiyear deal with Australia’s Ausgrid, an electricity distribution company, for cloud modernization leveraging Microsoft Azure.

2021 Global Forecast

ISG is forecasting the market for cloud-based services (IaaS and SaaS) will grow 25 percent globally in 2021, up from its 21 percent growth forecast last quarter. The firm also is raising its forecast for managed services growth to 10.1 percent, up from its prior forecast of 9 percent.

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