Channel Insider content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

Demand for managed services across the APAC region is soaring, according to the latest state-of-the-industry report by Information Services Group (ISG).

ISG measures commercial outsourcing contracts with an annual contract value (ACV) of more than US $5 million. At the end of Q1 of 2023, managed services revenue across APAC was $825 million. That’s an increase of 62% year-over-year, but down 37% compared to the prior (fourth) quarter.

Broken down, the Australian and Aotearoa New Zealand (ANZ) MSP market saw its highest performance since the fourth quarter of 2021, and a triple-digit gain over the prior year. India and South Asia saw an increase of 32% YOY, and both Southeast Asia and Japan experienced a decline of 25% YOY.

Meanwhile, the cloud-based XaaS space, which ISG also tracks, grew 24% compared with the fourth quarter, but it experienced a 23% YOY decline. Combined, the overall sector reported growth of 4% across the region, up to US $4.1 billion.

This is still a 14% YOY decline. However, as ISG APAC partner and regional leader, Scott Bertsch, said in a release, this is a normalisation after a particularly hot previous year. “Asia Pacific had quite a run in 2021 and 2022, with six straight quarters of ACV over US $4 billion, including one US $5 billion-plus quarter in Q4 2021, before dropping below the US $4 billion level last quarter,” he said. “It’s good to see the market above $4 billion again and to see the return of sequential growth after four straight quarters of declining results.”

A Bullish Outlook for the Year Ahead

The soft results in the XaaS space mean ISG has lowered its global forecast. However, it anticipates overall growth of 15%. Managed services, meanwhile, are expected to grow by 5%.

As Bertsch said, strong pockets of opportunity remain for managed service providers. Principally, opportunities will be found in helping customers limit expenditure.

“There continues to be more scrutiny on deal signings, especially in discretionary spending areas,” he said. “Enterprises are revisiting cost optimisation, efficiency gains, and vendor consolidation deals.”