Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010The World Economic Forum has published the Global Information Technology Report, which compares thecompetitiveness of the IT sector across most countries, including Nepal (WEF, 2009a). On average, Nepal hasranked in the lowest 5 per cent in recent editions (127 th of 134 in 2008/09), and the ranking is similar acrossalmost all indicators, such as ‘broadband cost’, indicators on the legal framework or government’s IT policies.Though one may question the accuracy of some of the indicators, it is clear that Nepal is lagging behind othercountries in the region. While Nepal ranks 127 th , China is ranked 42 nd , India 54 th , Sri Lanka 72 nd , and Pakistan98 th .Index 3: Domestic Supply ConditionsProducers: Though there is not any readily available data regarding the firms providing export services, theinterviews and discussions with the IT companies indicated the existence of about 10 bigger companiesemploying about 100 employees and about 100 small firms employing 15-20 employees on average. A surveyfrom 2004 identified 24 export-oriented IT companies. The eight companies interviewed by ITC for this studyare found to provide services like web application, web designing, desktop application, digitization, CADbasedengineering designing, software development, programming, graphic solution, customized applicationdevelopment, client-based outsourcing, image processing, mapping, telemarketing, customer care, etc.The call centre had the highest number of employees (175), and total employment in the eight firms isaround 550.Production Capacity: The main services are client-based outsourcing, software development, web designingand web application, graphics, customized application development, and business intelligence for retailing.Quality of Service: Industry sources rate the overall quality of IT services as lower than in competing countriessuch as India. However, a detailed evaluation of this indicator is not possible. It is clear that Nepal’s IT industryis not comparable to the one of India, for instance. However, some providers that ITC spoke to are confidentthat they are able to provide the quality demanded in international markets.Productivity: Though the labour cost in general is lower, the labour productivity is also often low. Some ofthe interviewed companies have clearly stated that the labour costs in Nepal are about one-third of overseascosts, though it is around in the same range between Nepal and India. The universities and institutions inNepal produce required quantity of IT professionals, but the companies are concerned about maintaining thequality in IT-producing institutions.Availability and Quality of Labour Force: In 2004, the total ICT workforce in Nepal was estimated at 16,000,of which only 7 per cent (1,120 persons) were working in export-oriented companies (MDT, 2004). The eightcompanies interviewed during the field work employ 550 persons. Based on this and other information, weestimate that around 2,500 people are working in the IT and BPO export sector.The availability of skilled personnel is a key factor for all industry sources that ITC spoke to. There is highcompetition between Nepalese companies for workers, with often high incentives provided to workers if theyare willing to move to another company. There is also a significant brain drain, with workers often leavingabroad after they have received training at the company. But overall, industry sources believe that the labourforce will not be the main constraining factor for future growth. Overall, interviewed companies have ratedthe quality of the education sector as good, though some expressed concerns that required skills are notalways available.Labour Cost and Overall Production Cost: There is no significant labour cost advantage compared to otherlow-cost suppliers because of low labour productivity. The overall production cost is generally low, but it isnot considered to be lower than India. However, labour costs in India are increasing fast, which could offernew opportunities for Nepal.102NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT