Asia Pacific Spending on Tech Services Sharply Higher in Q2, as AI Drives Demand, ISG Index Shows

• 15 Jul 2026
• TM Team
• 0 Comments

The Asia Pacific ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows second-quarter ACV for the combined market (both cloud-based XaaS and managed services) climbed 50.5 percent, to a record US $7.6 billion. It was the region’s best quarterly growth rate since the fourth quarter of 2021, and the second quarter in a row it turned in positive results.

“We are clearly seeing renewed momentum in the Asia Pacific market,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Cloud demand continues to accelerate, as enterprises seek infrastructure services to support AI adoption, while managed services is showing resilience, producing its first US $1 billion ACV quarter in a year and a half.

Driven by AI, spending on cloud-based services soared 57 percent year on year, to US $6.6 billion, the segment’s highest growth rate in almost five years. Managed services, meanwhile, advanced 18 percent, to just over US $1.0 billion, and was up 30 percent sequentially from the first quarter.

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV surged 59 percent, to US $5.8 billion, while software-as-a-service (SaaS) ACV jumped 49 percent, to US $818 million.

In managed services, IT outsourcing (ITO) ACV climbed 46 percent, to US $810 million, on strong demand for application development and maintenance (ADM) services and bundled infrastructure and ADM services. Business process outsourcing (BPO), meanwhile, edged lower, down 3 percent, to US $129 million, with strong growth in industry-specific services not enough to offset weakness in customer engagement services. Engineering, research and development (ER&D) services slumped by 53 percent, to US $85.5 million, as AI impacted demand for software engineering services.

During the quarter, 54 managed services contracts were awarded, down 23 percent year on year.

Among industries, several of the region’s smaller sectors showed strong growth in the quarter: both retail and consumer packaged goods (CPG) were up by triple digits, while business services and healthcare/pharmaceuticals each were up more than 50 percent. The region’s two largest industries for outsourcing saw mixed results: banking, financial services and insurance (BFSI) was up 3 percent, while manufacturing pulled back 7 percent.

Geographically, the region’s smaller sourcing markets saw the fastest growth, with Southeast Asia up by triple digits and China up nearly 100 percent. The larger markets delivered solid growth, with Japan up 21 percent and Australia/New Zealand, the region’s largest market, up 12 percent, breaking a string of five consecutive quarters of declining results. India, meanwhile, was down 45 percent.