The Asia Pacific IT and business services market experienced a slight decline in Q2 2025, with the combined market annual contract value (ACV) dropping 0.3% year-on-year to $4.7 billion, according to the Information Services Group (ISG) Index™. Despite robust 16% growth in cloud-based services (XaaS), a 40% slump in managed services demand drove the overall slowdown, marking the first regional market pullback since Q2 2024. As seen in the finance card above, ISG’s stock (Nasdaq: III) closed at $3.75 on July 16, 2025, down 1.1% from the previous day’s close of $3.79.
Asia Pacific combined market ACV down 0.3% to $4.7B in Q2 2025.
Cloud-based XaaS ACV up 16% to $3.9B, driven by AI demand.
Managed services ACV slumped 40% to $823M, with ITO down 46%.
Only South Korea showed growth; Australia-NZ, India, Japan declined.
BFSI sector up 1.4%, while travel and retail saw double-digit gains.
ISG forecasts 1.3% managed services and 21% XaaS growth for 2025.
The Asia Pacific ISG Index™, tracking contracts with ACV of $5 million or more, highlights a cautious market amid macroeconomic and geopolitical uncertainties. Cloud services remained a bright spot, with XaaS ACV rising 16% to $3.9 billion, fueled by AI-driven demand for computing power. Infrastructure-as-a-Service (IaaS) grew 17% to $3.4 billion, and Software-as-a-Service (SaaS) increased 13% to $500 million. “The only bright spot right now is AI, which has companies investing in cloud services to take advantage of the massive computing power needed to run AI at scale,” said Michael Gale, ISG Asia Pacific regional leader.
Managed services faced significant challenges, with ACV dropping 40% to $823 million, though up 6% sequentially. IT outsourcing (ITO) fell 46% to $539 million, with application development and management (ADM) down over 30%. Business process outsourcing (BPO) declined 34% to $133 million, and engineering, research, and development (ER&D) services dropped 15% to $152 million. Only 69 managed services contracts were awarded, down 18% year-on-year, reflecting cautious enterprise spending.
The banking, financial services, and insurance (BFSI) sector, the region’s largest for outsourcing, grew modestly by 1.4%, while travel, transportation, leisure, and retail sectors saw double-digit growth from smaller bases. Other sectors declined significantly. Geographically, South Korea was the only market to grow, while Australia-New Zealand (-33%), India (-16%), and Japan (-35%) saw sharp declines. For the first half of 2025, combined market ACV rose 4.3% to $10.1 billion, driven by XaaS growth of 17%.
ISG maintains its 2025 forecast of 1.3% revenue growth for managed services, citing a stabilizing tariff environment but ongoing weakness in discretionary spending. The XaaS forecast was raised to 21% from 18%, reflecting strong AI-driven cloud demand. “Given the quarter-over-quarter improvement we saw in managed services, we hope to see a turnaround in the overall market during the second half,” Gale noted. The global IT services market, valued at $1.2 trillion in 2024, is expected to grow, with Asia Pacific’s cloud focus and AI adoption as key drivers.
The ISG Index™ is recognized as the authoritative source for marketplace intelligence on the global technology and business services industry. For 91 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 2Q25 Global ISG Index results were presented during a webcast on July 10. To view a replay of the webcast and download presentation slides.
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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