4Q ACV up 35 percent, driven by strength in both traditional and as-a-service sourcing
Combined sourcing ACV exceeds US$1.5 billion for the third consecutive quarter
Full-year combined sourcing market in Asia Pacific rose 30 percent in 2018, to US$6.7 billion.
SYDNEY, Jan. 29, 2019 —
Asia Pacific’s sourcing market grew 35 percent in the fourth quarter of 2018, marking the region’s second-best quarterly performance ever, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.
Data from the Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, show fourth-quarter combined ACV of US$1.8 billion, up 35 percent over the prior year. This was the third consecutive quarter in which the region’s combined ACV exceeded US$1.5 billion. Traditional sourcing ACV rebounded, up 20 percent year-on-year, to US$717 million, driven by an increase of 30 percent in the number of contracts signed. As-a-service ACV continued its steady rise, up 47 percent, to US$1.1 billion.
For the full year, Asia Pacific reached US$6.7 billion in ACV, up 30 percent against 2017. Traditional sourcing ACV of US$2.5 billion was up 3 percent year-on-year, while as-a-service grew 55 percent, to US$4.17 billion. As-a-service now accounts for 63 percent of the regional market, the highest proportion of any region. Demand for Infrastructure-as-a-Service (IaaS) rose sharply, up 57 percent, to US$3.53 billion, while Software-as-a-Service (SaaS) reached US$642 million, an increase of 44 percent over the prior year. IT Outsourcing (ITO) ACV of just over US$2 billion was up 8 percent for the year, boosted by strong results in Korea and Japan. Business Process Outsourcing (BPO), although a much smaller segment, bucked the region’s growth trends, falling 14 percent.
By industry, several sectors registered growth in both traditional and as-a-service sourcing in 2018, including Financial Services, Consumer Packaged Goods, Business Services, Health & Pharma and Travel. The Business Services sector grew sharply, with combined ACV of US$2 billion, up 69 percent on the prior year. The Consumer Packaged Goods sector also saw high growth, up 47 percent, to US$300 million. Financial Services growth was robust but more modest; its US$1.3 billion in ACV was up 26 percent on the prior year. Despite a 31 percent drop in traditional sourcing values, Manufacturing ACV still rose 6 percent for the year, supported by strong as-a-service activity.
“The demand for cloud-based services in Asia Pacific shows no signs of abating,” said Lisa Borden, partner and head of ISG Australia and New Zealand (ANZ). “Companies are making significant investment in digital technologies to improve their ability to compete and to better engage with their customers. The steady performance of traditional sourcing over the past two years shows that organizations are becoming adept at managing their future needs alongside their legacy operations. Getting this balance right is key to their ongoing success.”
Globally, fourth-quarter ACV for the combined global market grew 18 percent, to US$12.3 billion. As-a-service ACV pushed to new highs in the fourth quarter, up 44 percent year-on-year, while traditional sourcing inched up 2 percent.
About the ISG Index™
Now in its 65th consecutive quarter, the ISG Index™ provides a quarterly review of the latest sourcing industry data and trends for clients, providers, analysts and the media. For more than 15 years, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance. 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.
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 75 of the top 100 enterprises in the world, 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; technology 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 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.