Asia Pacific's Demand for IT and Business Services Slows in Q2, ISG Index Shows

• 16 Jul 2025
• TM Team
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Asia Pacific’s spending on IT and business services slowed in the second quarter as enterprises remained cautious in the face of uncertain macro conditions, according to the latest state-of-the-industry report from Information Services Group (ISG), 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 second-quarter ACV for the combined market (both cloud-based XaaS and managed services) was down slightly (0.3 percent) versus the prior year, to US $4.7 billion. Sequentially, the market fell 12 percent compared with the first quarter. It was the first time the Asia Pacific market pulled back since the second quarter last year.

Fueled by interest in AI, demand for cloud-based services remained robust, up 16 percent year on year, to US $3.9 billion, even as demand slowed 15 percent from the first quarter. Managed services, meanwhile, slumped 40 percent, to US $823 million, but rose 6 percent against the first quarter.

Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV advanced 17 percent, at US $3.4 billion, while software-as-a-service (SaaS) ACV grew 13 percent, to US $500 million.

In managed services, IT outsourcing (ITO) ACV fell 46 percent, to US $539 billion, with even the largest and fastest-growing service area, application development and management (ADM), down more than 30 percent. Business process outsourcing (BPO) also had a weak quarter, down 34 percent, to US $133 million, with only customer engagement and facilities management services showing growth. Engineering, research and development (ER&D) services didn’t fare much better, down 15 percent, to US $152 million.

During the quarter, 69 managed services contracts were awarded, down 18 percent year on year.

Among industries, the region’s largest industry for sourcing—banking, financial services and insurance (BFSI)—was up 1.4 percent. Travel, transportation and leisure and retail both generated double-digit growth off smaller bases. All other sectors were down by double digits.

Geographically, South Korea was the only market that grew, albeit off a small base. Australia-New Zealand was down 33 percent, India was down 16 percent and Japan was down 35 percent.

“Macroeconomic and geopolitical uncertainty is really taking a toll on the Asia Pacific market at the moment. The only bright spot right now is AI, which has companies investing in cloud services to take advantage of the massive computing power needed to run AI at scale,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Given the quarter-over-quarter improvement we saw in managed services, we hope to see a turnaround in the overall market during the second half.”