Enterprises in Asia Pacific continued to spend on cloud services to support AI but pulled back on managed services in the third quarter in the face of economic uncertainty, according to the latest state-of-the-industry report from Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.
The Asia Pacific ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US $5 million or more, shows third-quarter ACV for the combined market (both cloud-based XaaS and managed services) was up 10 percent versus the prior year, to US $5.7 billion—the best growth quarter this year. The double-digit growth in Q3 represents a rebound from the second quarter, when the combined market was down 1 percent.
To scale AI across their organizations, enterprises are turning to the cloud, with as-a-service (XaaS) spending up 14 percent, to US $4.9 billion, in the third quarter. It was the fourth straight quarter the XaaS market has seen double-digit growth in Asia Pacific, with Q3’s growth rate accelerating by 110 basis points from the second quarter.
Within the XaaS segment, infrastructure-as-a-service (IaaS) ACV advanced 13 percent, at US $4.3 billion, while software-as-a-service (SaaS) ACV grew 18 percent, to US $563 million.
Spending on managed services, on the other hand, was down 9 percent in the third quarter, to US $849 million. A total of 58 managed services contracts were awarded in the quarter, down 6.5 percent from the prior year, including two mega-deals valued at more than $100 million annually. However, the number of contracts in the smallest band ISG measures—US $5 million to US $10 million—advanced 39 percent, a sharp reversal from the first two quarters of 2025 when this category was down versus the prior year.
Within managed services, IT outsourcing (ITO) ACV fell 19 percent, to US $536 million, with the region’s largest and fastest-growing ITO area, application development and management (ADM), up less than 1 percent. Business process outsourcing (BPO) also had a weak quarter, down 63 percent, to US $55 million. Engineering, research and development (ER&D) services advanced 108 percent, to US $259 million.
Among industries, only media and telecommunications (up 253 percent) and retail (up 140 percent) delivered positive results; spending in all other sectors was down significantly.
Geographically, China benefited from the Neusoft automotive mega-deal, with ACV up more than 400 percent from the prior year off a small base. India was up 7 percent, while the region’s largest managed services market, Australia-New Zealand, was down 19 percent. Japan and South Korea both declined 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.”
Nine-Month Results
Asia Pacific’s combined market ACV rose 6 percent year to date, to US $17.0 billion. The bulk of the spending came in the XaaS segment, which was up 14 percent, to US $14.6 billion. Within XaaS, IaaS was up 13 percent, to US $12.8 billion, while SaaS rose 19.5 percent, to US $1.7 billion.
Managed services, meanwhile, declined 26 percent, to US $2.5 billion. ITO was down 27 percent, to US $1.7 billion, and BPO was down 40 percent, to US $342 million. ER&D was flat, at US $462 million. The 184 managed services contracts awarded were down 13 percent from the prior year.
By industry vertical, the region’s two largest segments fared poorly: banking, financial services and insurance (BFSI) was down 24 percent, while the region’s second-largest industry, manufacturing, was down 8 percent year to date. Retail was the only industry that grew, up 13 percent.
Among geographic markets, only India (up 5 percent) and South Korea (up 47 percent) generated growth year to date.
2025 Global Forecast
For the full year, ISG is maintaining its forecast of 1.3 percent revenue growth for managed services, with strong growth in the Americas offset by weakness in Europe and Asia Pacific. At the same time, ISG is raising its previous growth forecast for cloud-based XaaS by 400 basis points, to 25 percent, led by continuing strong, AI-driven demand for IaaS.
About the ISG Index™
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.
About ISG
ISG (Nasdaq: III) 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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