21 June 2024, Kathmandu
Nepal is emerging as a promising destination for business process outsourcing (BPO) and IT outsourcing, sectors that hold significant potential for economic growth.
Future of IT Outsourcing in Nepal
A comprehensive report by the Institute for Integrated Development Studies (IIDS), titled “Unleashing IT: Advancing Nepal’s Digital Economy,” sheds light on the current state and future possibilities of these industries in Nepal.
Supported by data and insights from the Digital Nepal Framework and other sector reports, this article explores the prospects of Nepal’s BPO and IT outsourcing industries, highlighting opportunities, challenges, and strategic pathways to harness their potential.
A Growing Industry with Significant Contributions
The IT and BPO sectors in Nepal have shown remarkable growth, contributing substantially to the country’s economy. According to the IIDS report, the IT service export industry in Nepal was valued at approximately USD 515 million in 2022, reflecting a significant 64.2% growth from the previous year. This growth underscores the increasing global demand for Nepali IT services and the sector’s ability to deliver high-quality solutions.
Freelancers play a crucial role in this burgeoning industry. Nepal has over 14,728 IT freelancers in software development and technology and 51,781 IT-enabled services (ITeS) freelancers. These freelancers, primarily aged 20 to 29, contribute significantly to the growing export of IT services.
Comparative Advantages and Economic Impact
Nepal’s IT sector, including BPO and outsourcing, benefits from several comparative advantages. The country’s large, young, and English-speaking population, coupled with lower labour costs, makes it an attractive destination for outsourcing services. Additionally, the absence of physical border constraints for digital services allows Nepal to compete on a global scale without the challenges faced by traditional industries like tourism and agriculture.
In 2022, IT service exports accounted for 1.4% of Nepal’s GDP and 5.5% of the foreign exchange reserves, underscoring the sector’s critical role in the country’s economic development. Revenue from IT services not only supports the national economy but also fosters job creation and skill development among the youth.
Challenges Hindering Growth
Despite the promising growth, Nepal’s BPO and IT outsourcing sectors face several challenges that need to be addressed to sustain and enhance their growth trajectory. The IIDS report identifies key areas requiring improvement:
Skills and Competence:
There is a need to enhance the skills and competencies of the IT workforce. Continuous upskilling and reskilling initiatives are essential to keeping pace with technological advancements and global market demands. A significant portion of the workforce requires additional training to meet international standards.
Infrastructure:
Reliable and high-speed internet connectivity remains a challenge in many parts of Nepal. The Digital Nepal Framework emphasizes improving broadband services and physical infrastructure as critical components for the seamless operation of IT and BPO services.
Policy and Regulation:
While initiatives like the Digital Nepal Framework provide a roadmap for digital transformation, there is a need for more robust policies and regulations to support the IT sector. Simplifying tax processes, reducing bureaucratic hurdles, and ensuring political stability can create a more conducive business environment.
Awareness and Promotion:
Increasing awareness about Nepal’s capabilities in the global market is essential. Strategic branding and promotion efforts can position Nepal as a competitive player in the international IT and BPO sectors.
Strategic Pathways to Growth (Future of IT Outsourcing)
To fully unleash the potential of the BPO and IT outsourcing sectors, the IIDS report outlines several strategic recommendations:
Infrastructure Development:
Investing in high-capacity, energy-efficient, and secure data centres, along with enhancing internet connectivity, is crucial for supporting the IT industry’s growth.
The Digital Nepal Framework highlights the importance of robust digital infrastructure to support various sectors.
Investment and Financial Support:
Providing financial incentives and funding for IT startups and creating a supportive ecosystem for innovation can attract more investment into the sector. The IIDS report stresses the need for financial mechanisms to support emerging IT companies.
Human Capital Development:
Focused efforts on education and training programs in STEM fields can equip the workforce with the necessary skills to meet global standards. Encouraging youth-centric policies can harness the talent of Nepal’s young population. The rise in IT graduates from 5,935 in 2018 to 10,084 in 2021 demonstrates the growing pool of skilled professionals.
Policy Reforms:
Aligning policies with industry needs, simplifying regulations, and ensuring government support can create a more favourable business climate for IT and BPO services. The Digital Nepal Framework outlines the need for policy updates to foster a conducive environment for digital growth.
Branding and Promotion:
Promoting Nepal’s IT sector through international platforms, trade shows, and digital marketing can enhance its visibility and attract global clients. The IIDS report emphasizes the importance of strategic marketing efforts to position Nepal as a key player in the global IT market.
Coordination and Collaboration:
Fostering collaboration between government, industry associations, and educational institutions can drive collective efforts towards sector growth. The Digital Nepal Framework highlights the importance of public-private partnerships in achieving digital transformation goals.
Innovation:
Encouraging innovation through research and development, and supporting tech startups can position Nepal as a hub for cutting-edge IT solutions. The establishment of special economic zones and tech parks as part of the Digital Nepal Framework can stimulate innovation and entrepreneurship.
The future of Nepal’s BPO and IT outsourcing industries looks promising, with significant potential for growth and economic contribution. By addressing existing challenges and implementing strategic initiatives, Nepal can further enhance its position in the global digital economy.
The combined efforts of the government, industry stakeholders, and the young workforce can transform Nepal into a competitive destination for IT and BPO services, driving sustained economic growth and development.
Future of BPO and IT Outsourcing in Nepal
The journey towards realizing this potential requires concerted efforts, investment, and a commitment to fostering a conducive environment for the IT sector. With the right strategies in place, Nepal can unlock new opportunities, create jobs, and elevate its digital economy to new heights.