APAC tech services spending jumps 50% on AI: ISG
CONNECTICUT, UNITED STATES — Asia-Pacific tech services spending hit $7.6 billion in Q2 2026, up 50.5% year-on-year as AI-driven enterprise infrastructure investment surged, but the headline conceals a structural split: IaaS grew 59%, IT outsourcing climbed 46%, and business process outsourcing declined 3% while engineering and R&D services fell 53%, ISG reports.
APAC tech services reach $7.6Bn in Q2 2026, up 50% on AI
The Q2 2026 result — part of a H1 2026 combined market of $14.3 billion, up 29% year-on-year — is driven by XaaS at $6.6 billion (+57%), with IaaS accounting for $5.8 billion of that figure at 59% growth as enterprises build the cloud and AI infrastructure layer that precedes AI-application deployment at scale.
Geographic distribution shows marked divergence: Southeast Asia posted triple-digit growth and China nearly 100%, while Japan grew 21%, Australia/New Zealand 12% — and India posted a 45% decline in tech services ACV, a figure that directly parallels the Indian IT market-cap correction visible in listed IT company valuations throughout the same period.
The Q2 2026 APAC data is the AI investment story at the infrastructure layer — enterprises across the region are spending at the fastest rate in five years, and nearly all of it is going into cloud and IT services rather than business process delivery, a distinction that has direct implications for BPO operators competing for the same enterprise technology budget.
“Cloud demand continues to accelerate, as enterprises seek infrastructure services to support AI adoption, while managed services is showing resilience,” said Michael Gale, ISG Asia Pacific Partner and Regional Leader.
BPO falls 3% as IaaS grows 59%; India ACV drops 45%
Business process outsourcing ACV in Asia-Pacific fell 3% year-on-year in Q2 2026 to $129 million — a decline that occurs alongside 59% IaaS growth and 46% IT outsourcing growth, confirming that the enterprise AI investment wave is flowing into infrastructure and IT services rather than traditional BPO delivery.
Engineering and R&D Services posted the sharpest decline at -53% ($85.5 million), while Retail and CPG led sector growth with triple-digit increases and Healthcare/Pharma and Business Services each grew more than 50% — a vertical distribution consistent with AI investment concentrating in consumer and health services automation rather than industrial manufacturing or engineering functions.
The 2026 global managed services forecast was revised to +2.1% revenue growth, with XaaS raised 500 basis points to 30% growth, signals that the regional acceleration is expected to sustain into H2 2026 and reinforces ISG’s global forecast revision upward across XaaS categories.
For Philippine and Indian BPO operators, the Q2 ACV data presents a structural challenge the BPO decline makes explicit: the enterprise AI investment wave is building cloud infrastructure and IT services capability, not BPO contracts — and the competitive response must situate BPO delivery inside the AI model, not alongside it.
“XaaS markets are now raised 500 basis points to 30% growth as AI infrastructure investment continues to outpace traditional managed services demand,” ISG stated in its Q2 2026 Asia-Pacific Technology Research report.
For BPO operators and offshore vendors tracking enterprise technology spending, the APAC Q2 data establishes that AI investment has reached the infrastructure layer at scale — and that the 3% BPO ACV decline against IaaS’s 59% surge is the competitive pressure that makes AI-enabled BPO delivery the sector’s strategic imperative for 2026.
