The Asia Pacific sourcing industry continued its recent growth trend, with third-quarter contract value exceeding US$1 billion for the fifth straight quarter and record as-a-service value year to date surpassing traditional sourcing value for the first time, according to the findings of the 3Q 2016 Asia Pacific ISG Index™ released today by Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.
The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, shows that combined third-quarter ACV in the Asia Pacific market reached US$1.2 billion, up 12 percent year on year and 9 percent over the previous quarter. While traditional sourcing values slipped by 4 percent for the quarter, as-a-service sourcing soared by 30 percent, to US$700 million, setting a new record for the region.
For the first nine months, the region’s combined market rose 15 percent, to $3.3 billion. As-a-service values surged 45 percent, fueled by 51 percent growth in Infrastructure-as-a-Service and 25 percent growth in Software-as-a-Service. Traditional sourcing declined 6 percent, despite 19 percent growth in business process outsourcing, which had its best performance in four years.
The dip in traditional outsourcing values was driven by a decline in contracting activity. The 28 contracts awarded in the quarter was down 30 percent compared both with the previous quarter and the third quarter of 2015, slipping to its lowest level since 2008. Year to date, the 95 contracts signed is down 21 percent on the same period last year, the worst such year-to-date performance in eight years. Information technology outsourcing contracting activity also slumped to an eight-year low.
By sub-region, the Australia/New Zealand market saw year-to-date values rally compared with a lackluster performance during the same period in 2015. ACV rose 65 percent, driven by some large contracts signed in the sub-region. The other major sub-regions showed steep drops in both outsourcing activity and value during the first nine months of 2016. India and South Asia saw ACV drop by 30 percent, while the number of contract signings tumbled by 40 percent compared with the first three quarters of 2015. Japan also struggled, with ACV down 34 percent, accompanied by a 28 percent fall in contract volume.
By sector, Telecom & Media ACV year to date increased 13 percent compared with the same period last year, while Manufacturing values climbed 21 percent compared with 2015’s poor performance. Financial Services ACV dropped to its lowest point in a decade, while Transport and Retail sectors also recorded declines in values awarded.
“Although the Asia Pacific market’s remarkable consistency continues, the make-up of this regional market is evolving,” said John Keppel, president, ISG EMEA and Asia. “Clients are enthusiastically embracing as-a-service solutions and it seems these are inherently well-suited to the mid-sized enterprises that dominate this region. With as-a-service contracting now outpacing traditional sourcing activity for the first time, we will watch with interest and track the effect on the market.”