Continuing strong demand for cloud services boosted the Asia Pacific sourcing market in the first quarter, with contract value reaching US$2 billion, the region's second-best quarter ever, according to the latest state-of-the-industry report from Information Services Group (ISG), a leading global technology research and advisory firm.

Data from the ISG Index, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, show first-quarter ACV for the Asia Pacific market (both as-a-service and traditional sourcing) climbed 33 per cent versus the same period last year. Growth in ACV was recorded across all sub-regions, with only China posting a decline in value, down 84 per cent year on year. Activity in Australia/New Zealand (ANZ), South Asia and Japan drove the market.

Traditional sourcing was up 34 per cent for the period, to US$631 million, with IT outsourcing (ITO) ACV climbing more than 70 per cent, driven by large infrastructure and network services awards. Business process outsourcing (BPO), however, dropped 38 per cent due to the impact of uneven contract flow, which is normal in this region. Contract volume, although down 9 per cent, was paced by larger contract values.

As-a-service ACV advanced 33 per cent, to a quarterly record of US$1.35 billion, as more work is moved to the cloud. Infrastructure-as-a-Service (IaaS) growth accelerated, up 37 per cent, to just over US$1.16 billion, while Software-as-a-Service (SaaS), rose 14 per cent, to US$190 million.

ACV in the Retail sector jumped 66 per cent for the period, fueled by a number of large traditional sourcing deals and a 52 per cent uptick in as-a-service values. Combined ACV for the Energy and Business Services Industries each grew more than 50 per cent, while the regional powerhouses, Financial Services and Manufacturing, posted growth of 31 per cent and 25 per cent, respectively.

ISG ANZ head Lisa Borden says, "The drive for digital transformation shows no signs of slowing. Businesses across Asia Pacific are investing in their future, despite concerns of a broader, global slow-down. Much of the regional growth is being fueled by a robust IaaS market, with hybrid and multi-cloud emerging as the architecture of choice. On the traditional side, ITO remains robust, as enterprises continue to focus on application and architecture modernisation."

Globally, first-quarter ACV grew 12 per cent, to US$13.5 billion. As-a-service ACV was up 26 per cent, exceeding the US$6 billion mark for the first time, while traditional sourcing inched up 2 per cent.