The latest Asia Pacific ISG Index shows that activity in the Australian and Aotearoa New Zealand (A/NZ) market had softened in the first quarter for MSPs, but across the APAC region, there are plenty of positive signs.
The index focuses on large contracts with an annual contract value (ACV) worth US $5 million or more. In A/NZ, the first quarter saw a decline of 15% year-on-year in the area, on the back of a strong year in the same period last year.
However, other key APAC markets, including India, Japan, SE Asia, and China, were up by double digits.
“As we noted last quarter, Asia Pacific has bottomed out and is poised for a rebound in 2024,” Michael Gale, partner and regional leader, ISG Asia Pacific, said in a media release. “The region is off to a strong start, with double-digit managed services growth led by the BFSI sector and BPO overall.
“ACV for cloud-based services surpassed the US $4 billion level for the first time since the second quarter of 2022 and produced its second straight quarter of double-digit growth. Early indications are that Asia Pacific is leading the way in a global rebound of IT and business services spending among the three regions.”
Managed services is the opportunity
Breaking the nature of the contracts down, managed services ACV lifted 18% on a year-on-year basis. This was driven by business process outsourcing growth (up 72%). However, IT outsourcing saw a small decline of 1%.
These numbers come from a total of 66 managed services contracts being awarded in the first quarter, which was an increase of 12% in raw numbers.
Overall, ISG is forecasting 3% growth for the managed services space this year. This will be driven by lower volatility and slowing inflation, but an ongoing challenging market will encourage organizations to look to outsourcing as a way of balancing cost management and service quality.
Gale also echoed the likes of Google and Microsoft in recent weeks, saying that ISG data points to AI being a big opportunity for MSPs.
“GenAI, meanwhile, is poised to be a growth catalyst, with large hyperscalers expected to manage increasing workloads,” Gale said. “The data layer, integral for training AI models, presents a prime opportunity for service providers.”
