IDC forecasts that Worldwide IT and business services revenue to grow by 5.6% (in constant currency) in 2022, 4.2% based on today’s exchange rate (due to FX fluctuation). The 2022 market growth represents an increase of 160 basis points from IDC's October 2021 forecast.
According to the IDC Worldwide Semiannual Services Tracker the improved market view reflects robust 2021 bookings and pipelines by several large services providers, an improved economic outlook (compared to the previous forecast cycle), and inflationary impact on the services market, offset slightly by the negative impact of the Ukraine/Russia conflict.
IDC believes that the market will continue to expand throughout the next few years at a rate of 4-5%, representing an overall increase of 40 to 80 basis points each year, pushing the market's long-term growth rate to 4.6%, up slightly from the previous forecast of 4.3%.
Regional growth drivers
Asia/Pacific's growth outlook improved by 0.9 percentage points in 2022, largely due to PRC (China) and other developed Asian markets (i.e., Australia, Japan, Singapore, Korea, etc.). Japan's growth rate was lifted by 0.2 to 0.6 percentage points per year for the next five years while Australia, New Zealand, Korea, and Singapore all saw adjustments of 100+ basis points in 2022 and 2023 growth rates.
The forecast for China's market growth has been adjusted up to 6.4% and 8% for 2022 and 2023. While China's GDP growth is expected to cool down, IDC believes that digital transformation remains central to the country's long-term "new infrastructure" initiatives, which will further drive services spending in both the public sector and strategic industries such as BFSI, manufacturing, and energy.
Within the IT and business services markets and across all regions, cloud-related services spending has been the main growth accelerator since 2020. IDC forecasts it to continue to grow close to 20% year over year in 2022 and between 15% to 20% over the next three years.
IDC is also seeing more services providers crossing over from IT and business services to operational technology (OT) services, based on figures from IDC's new Tracker for services spending on the OT side (also defined by IDC as Digital Engineering & Operational Technology Services (or DEOTS)).
Even after accounting for the supply-side disruption caused by the Ukraine/Russia crisis, IDC still forecasts the product engineering & operational technology engineering services and operational technology services markets to grow twice as fast as the IT and business markets.
Overall, while inflation may artificially boost market size in the short term, this is largely offset by demand instability and rising labour costs.
"In this forecast cycle, IDC services analysts have looked at short-term impacts, such as pent-up demand and the Ukraine/Russia conflict, as well as more structural ones, such as the adoption of public cloud, the talent crunch, inflation, data security/residency/sovereignty, and more," said Xiao-Fei Zhang, program director, IDC Worldwide Services Tracker program.
He commented that at the individual vendor level, service providers will need to brace for more volatility. IDC posits that enterprise buyers face another black swan event in 2022, which will accelerate large global trends, such as remaking the global supply chain and value chain and exacerbating the talent crunch by changing demographics.
"We should expect more of 'the unexpected' in the years to come. During the last two years, the service providers who succeeded were the ones who have proven to be resilient partners in helping their clients thrive in change. This has always been the constant force to drive growth in the services market," he added.
Where IT and business services are headed in APAC
In the context of Asia/Pacific excluding Japan (APeJ), IDC anticipates growth for the IT and business services market across all countries in 2022. Select countries in ASEAN, namely Indonesia, Malaysia, Philippines, and Thailand, will likely see marked improvements compared to their respective 2021 growth. Developed markets such as Australia and Singapore are also expected to grow above their respective 2021 performance though subdued compared to emerging markets.
In 2022, the top 3 country contributors by market size are PRC (China) at 35.8%, followed by Australia at 18.9%, and India at 10.6%. The ASEAN market (comprising Indonesia, Malaysia, Thailand, Singapore, Philippines, and Vietnam) is anticipated to contribute 18.1% of the IT and business services market in that same year.
Roger Ling, research director – IT Services Tracker, IDC Asia/Pacific, comments that the diversity of the APeJ market presents different challenges and opportunities across countries, creating subtleties in how businesses engage with IT and business service providers.
He cites some of the more common drivers including discussions around how service providers can support businesses ready for expansion as the world opens, IT and business services investments driving improved customer experience (CX) and business operations, as well as growing investments to improve cybersecurity posture.
“The acceleration of Dx plans is also driving increased investments around cloud-related services; businesses, not just in developed markets, are weighing the benefits between different types of clouds. This has ultimately shaped expectations on the role of IT service providers to deliver on SLAs by drawing synergies across various cloud technologies and services,” says Ling.
In terms of foundation markets, IDC anticipates higher growth rates for Hosting Infrastructure Services driven by a confluence of factors, including demand for datacentre services and hosted private/dedicated cloud services as part of an overarching hybrid cloud strategy by businesses.
IT services favoured in ASEAN in 2022
The diverse market presents different opportunities across different countries. In Malaysia, for example, the government's MyDIGITAL initiative will be a boon for the IT services market in the long run (e.g., government cloud migration plans, etc.).
In Indonesia, M&A activities in the banking sector continue to pave the way for opportunities around integration, migration, and overall IT infrastructure management, while efforts around FDI in the manufacturing space, as well as public sector initiatives including the relocation of the nation’s capital, are core areas driving overall IT services opportunities (beyond 2022).
In Singapore, government-led initiatives on sectoral transformation will continue to drive IT services opportunities, along with the focus on large-scale public-sector cloud migration, while digital banking will drive increased competition, innovative products, and demand for digital services.
“Unlike other developed countries that are experiencing tapered IT managed services growth, the overall IT managed services market for ASEAN is forecasted to experience continued positive year-on-year growth across the 2022-2026 forecast period,” says Ling.
The year-on-year growth for 2022 is anticipated to close at 7.0%, up from 5.9% in 2021. In terms of foundation market share mix, the key contributors for 2022 are IT Outsourcing at 35%, followed by Application Management at 25%.
According to Ling, the share mix for both these foundation markets is anticipated to remain stable across the forecast period. Increased demand for cloud and datacentre related services is expected to drive up the share mix for hosting infrastructure services. This is the case as datacentre providers gear up to cater to expansion plans of cloud hyperscalers.
On the application management front, activities range from the management of legacy applications common to select public sector organisations to application modernisation efforts as organisations embrace cloud services and broader digital transformation themes.
Also common are opportunities related to application refreshes for core systems (e.g., banking, manufacturing etc.) and investment around digital government services. As organisations expand and ensure seamless connectivity across branches and remote sites, investments around network resiliency are also contributing to the growth in network management services.
“This is especially the case in selected ASEAN countries where there are growing efforts to develop tier-2 cities and designated economic zones,” concludes Ling
