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Enterprises across Asia Pacific are ramping up investments in cloud services to fuel AI initiatives, even as economic uncertainties temper spending on managed services, reveals the latest ISG Index report from Information Services Group (ISG). This shift underscores the region's reliance on AI-driven technologies to navigate market challenges, with cloud-based solutions emerging as a key growth driver.
The Asia Pacific ISG Index, tracking commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, indicates a robust rebound in the third quarter. Combined ACV for cloud-based XaaS and managed services reached US $5.7 billion, a 10 percent increase from the prior year, reversing a one percent decline in Q2. This growth highlights enterprises' strategic pivot toward AI-enabling infrastructure amid broader economic headwinds.
To deploy AI at scale, organizations are increasingly adopting as-a-service models, propelling XaaS ACV to US $4.9 billion—a 14 percent year-over-year gain and an acceleration from Q2's pace. Infrastructure-as-a-service (IaaS) advanced 13 percent to US $4.3 billion, supporting foundational cloud needs, while software-as-a-service (SaaS) expanded 18 percent to US $563 million, catering to application-layer AI integrations.
In contrast, managed services ACV contracted nine percent to US $849 million, with 58 contracts awarded—a 6.5 percent drop from last year, including just two mega-deals over US $100 million. IT outsourcing (ITO) declined 19 percent to US $536 million, with application development and management (ADM) barely growing under one percent. Business process outsourcing (BPO) plummeted 63 percent to US $55 million, though engineering, research and development (ER&D) services soared 108 percent to US $259 million.
Performance varied sharply by sector, with media and telecommunications surging 253 percent and retail climbing 140 percent, while other industries like banking, financial services and insurance saw steep declines. Geographically, China leaped over 400 percent due to a major automotive deal, India rose seven percent, but Australia-New Zealand fell 19 percent, and Japan plus South Korea each dropped more than 50 percent.
“AI is the engine that continues to power the Asia Pacific market, with cloud spending keeping the market afloat,” said Michael Gale, partner and regional leader, ISG Asia Pacific. “Macroeconomic and geopolitical uncertainty is keeping managed services spending down, but the uptick in small deals we saw in the third quarter could signal a pivot to more discretionary spending going forward.”
Year-to-date, the region's combined market ACV has grown six percent to US $17 billion, predominantly from XaaS at 14 percent to US $14.6 billion. Managed services lagged with a 26 percent decrease to US $2.5 billion. ISG maintains its 2025 forecast of 1.3 percent managed services growth globally but has upgraded XaaS projections to 25 percent, driven by AI-fueled IaaS demand.
This quarterly snapshot from the ISG Index positions Asia Pacific as a resilient hub for AI-centric cloud adoption, offering enterprises tools to thrive despite volatility in traditional outsourcing.
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 92 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.
The 3Q25 Global ISG Index results were presented during a webcast on October 9. To view a replay of the webcast and download presentation slides, visit this webpage.
ISG is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.
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