Asia Pacific Sourcing Slumps in Q2 on Pandemic Concerns

Rhea-AI Summary

According to the ISG Index report, Asia Pacific's outsourcing market faced a significant decline in Q2 2020, decreasing by 24% year-over-year to $1.9 billion due to COVID-19 impacts. Managed services dropped by 47% to $529 million, with IT outsourcing down 42% and business process outsourcing down 71%. However, as-a-service offerings only fell by 9%. For the first half of 2020, overall ACV declined 11%, with managed services down 39%. Despite this, as-a-service grew nearly 5%, albeit at a slower rate than 2019. Forecasts suggest slight growth in the global market for Q3 and Q4 2020.

Positive

• As-a-service market grew nearly 5% in the first half of 2020.
• Infrastructure-as-a-service continued to show strength.

Negative

• Overall outsourcing market in Asia Pacific fell 24% in Q2 2020.
• Managed services decreased by 47%, IT outsourcing down 42%, and business process outsourcing down 71%.
• Managed services ACV slid 39% in the first half, indicating a lack of large deals.

SYDNEY, Australia, Aug. 18, 2020 (GLOBE NEWSWIRE) -- Asia Pacific, the world’s smallest outsourcing region by contact value, saw the industry’s largest decline in the second quarter, as managed services slumped in response to the COVID-19 pandemic, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, found the region’s combined market – both managed services and cloud-based as-a-service – fell 24 percent versus the prior year, to US $1.9 billion, on pandemic concerns as well as a difficult comparison with a record-high second quarter last year.

The market was down across the board, as managed services plummeted 47 percent, to US $529 million, with a 42 percent drop in IT outsourcing (ITO), to US $477 million, and 71 percent tumble in business process outsourcing (BPO), to US $52 million. The decline in as-a-service was less severe, down 9 percent versus last year, to US $1.4 billion. Within this segment, infrastructure-as-a-service (IaaS) was down 7 percent, to US $1.2 billion, while software-as-a-service (SaaS) dropped 23 percent, to US $165 million. As-a-service, which typically powers growth in this region, had its weakest quarter since the fourth quarter of 2018.

“In Asia Pacific, we have come to expect uneven results throughout the year, given the relative size of the market, with as-a-service keeping the region on a generally upward track. Not this quarter,” said Scott Bertsch, partner and regional leader, ISG Asia Pacific. “The pandemic took its toll in the region, with the combined market off 16 percent from the first quarter on slowing deal activity. Even so, there were some notable deals, including Bharti Airtel’s selection of IBM and Red Hat to build its new telco network cloud.”

First-Half Performance

In the first half, Asia Pacific’s combined market ACV dropped 11 percent versus the prior year. Managed Services ACV slid 39 percent, suffering from a lack of large deals. ITO had its weakest first-half ACV since 2010. Within the segment, both applications development and maintenance (ADM) and infrastructure ACV fell precipitously. ACV for BPO, historically only a small segment in Asia Pacific, plunged 54 percent for the first half. Managed services ACV was down across all major geographic markets in the first half.

As-a-Service, meanwhile, rose nearly 5 percent in the first half, but its growth rate slowed from the 27 percent growth it registered in the 2019 first half. IaaS continued to show strength, although its rate of growth cooled somewhat, while SaaS ACV shrunk by 16 percent.

“Competition in the IaaS space remains heated as cloud hyperscalers vie for the enterprise market,” Bertsch said. “In the second quarter, the Australian energy producer and retailer AGL signed with Microsoft in an ambitious push to get all of its business systems into the cloud by 2022. Also, AWS worked with Infosys and DXC to help Kmart-Australia prepare to shift its mainframe applications into the AWS cloud.”

Global Forecast

ISG is forecasting slight sequential growth for the combined global market in the third and fourth quarters of 2020. For the full year, the firm is projecting the managed services market will be down 7.5 percent, slightly more than the 7 percent decline it forecasted for 2020 in the first quarter.

About the ISG Index™

The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 71 consecutive quarters, it has detailed the latest industry data and trends for financial analysts, enterprise buyers, software and service providers, law firms, universities and the media. In 2016, the ISG Index was expanded to include coverage of the fast-growing as-a-service market, measuring the significant impact cloud-based services are having on digital business transformation. ISG also provides ongoing analysis of automation and other digital technologies in its quarterly ISG Index presentations.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 700 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,300 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

FAQ

What does the ISG Index report say about the Asia Pacific outsourcing market in Q2 2020?

The ISG Index indicates that the Asia Pacific outsourcing market declined by 24% year-over-year in Q2 2020, totaling $1.9 billion.

How did COVID-19 affect managed services in Asia Pacific according to the ISG report?

Managed services in Asia Pacific plummeted by 47% in Q2 2020 compared to the previous year, attributed to pandemic-related challenges.

What were the first-half performance results for the Asia Pacific market in 2020?

For the first half of 2020, the combined market ACV in Asia Pacific dropped 11%, with managed services ACV falling 39%.

What growth is forecasted for the global outsourcing market for the rest of 2020?

ISG forecasts slight sequential growth for the global outsourcing market in the third and fourth quarters of 2020.

How did the as-a-service segment perform in the first half of 2020?

The as-a-service segment grew nearly 5% in the first half of 2020, although this was a slowdown from the previous year's growth rate.