Contracts in the managed services market in the Asia Pacific (APAC) region dropped by 40 per cent quarter-on-quarter during the three months to 30 September, new research has indicated.
According to technology research and advisory firm Information Services Group (ISG), the annual contract value (ACV) for the market fell to US$575 million during the third quarter of 2021, coming off the back of the US$929 million earned in the record-breaking three month period to 30 June.
However, this is still up 53 per cent year-on-year when looking back at the same quarter last year.
Meanwhile, the as-a-service market in the region was up 62 per cent quarter-on-quarter to a record US$3.1 billion.
The total combined market, which takes both managed services and as-a-service markets, came to an ACV of US$3.6 billion — a 60 per cent increase on the year prior, but down by 6 per cent from the second quarter.
IT outsourcing took a similar path to managed services in the region, ISG claimed, recording an ACV of US$405 million — a 51 per cent decline on the previous quarter but a 29 per cent increase on the same quarter last year.
Business process outsourcing (BPO) diverged from this trend, increasing by 18 per cent on the June quarter and 178 per cent on the period a year prior, with the firm claiming the market experienced strength in engineering, research and development and industry-specific services.
This took place while managed service ACV on a global scale reached a three-year high of US$8.4 billion for the quarter, up 22 per cent, and as-a-service ACV hit a quarterly record of US$13.4 billion, a year-on-year increase of 55 per cent.
As a result, the global combined market also achieved a record ACV of US$21.8 billion, an increase of 40 per cent on last quarter.
“The demand environment for technology and business services is as robust as we’ve ever seen,” said Steve Hall, partner and president of ISG.
“This is not just pent-up demand coming out of the pandemic, but a real structural shift for the market as enterprise customers accelerate their digital transformation strategies, modernise their legacy environments and move to the cloud.
“We see this trend continuing for the foreseeable future, even against some economic headwinds. There is no let-up in sight,” he added.
In addition, global ITO hit US$6.1 billion, up 18 per cent from last year but down slightly on the prior quarter, and global BPO shot up 32 per cent to a record US$2.3 billion.
Looking out to the end of the year, ISG raised both of its global as-a-service and managed services forecasts, from 12 per cent to 25 per cent and 9 per cent to 10.1 per cent, respectively.
This, Hall claimed, came down to strong demand from enterprises wanting to take on more digital transformation projects.
“Our outlook for the technology and business services market remains bullish, with the volume of managed services deals in the pipeline indicating strong buying intentions among enterprises seeking digital transformation partners,” he said.
“The market is no longer dependent on larger deals and the smaller deals, we believe, will eventually grow into larger engagements as transformation efforts continue to pick up steam. One headwind for this sector is the 'great resignation', which has increased industry attrition and could slow growth.
“We believe the as-a-service market is in the early phase of its maturity cycle. One near-term headwind is inflationary pressures. If providers can successfully navigate potential price increases with their client base or alter the pricing model to another construct, such as outcomes-based pricing, the multiyear secular growth drivers should remain quite healthy.”