Over the past 2.5 years since the start of the Covid-19 pandemic, Nepal’s software and services offshoring industry has mushroomed. The pandemic accelerated the demand for digital services across many countries, and global technology companies and start-ups rapidly expanded their talent base. Many sought to build teams internationally or supplement their home-country teams with international talent. As a result, hundreds of companies and thousands of freelancers from Nepal were able to join the global industry. However, in the short term, technology companies around the world that rely on software and services are facing a difficult winter that may last the next few months or years. Rising interest rates and the end of easy money, combined with the collapse of the cryptocurrency market, have dampened the optimism with which large and small technology companies were investing in growth. While the impact on different technology companies varies, it is likely that many will seek to maintain smaller, high-quality teams for targeted efforts. As wage differences with other outsourcing hubs in Emerging Asia and Africa disappear rapidly, it is uncertain how Nepal’s emerging software industry will continue to develop. To remain competitive during this anticipated tech winter, Nepal’s local offshoring units will need to improve their quality. By focusing on quality, companies can target larger, longer-term contracts and build expertise in specific industry verticals. While larger offshoring companies in Nepal may be able to address quality issues on their own, there is a need for industry-wide efforts.

To improve quality, the local offshoring software and services industry must work on increasing its capacity. This involves establishing a baseline for the industry to measure its size and position relative to similar industries in other countries. The industry should also collaborate to enhance Nepal’s branding in international circles and ecosystems. Finally, it is important to develop mentorship and peer-learning networks within the industry.

Baseline It is essential to have a baseline understanding of the outsourcing industry in order to identify and implement supply-side interventions. Currently, there is a lack of comprehensive and definitive data on the size of the industry, the number of offshoring companies, the number and type of talent they hire, or their total earnings. This information will be crucial for evidence-based advocacy efforts with the government and Nepal’s development partners, as well as for designing capacity-building programs. Having a coherent baseline would allow industry players to advocate favorable policies such as tax incentives on earnings, simplified periodic reporting to the government, and policies that encourage domestic and foreign investment. It would also enable more informed discussions about the types of non-vocational and vocational training programs needed. For example, should the industry prioritize building a strong supply of advanced skills in areas like data science, dev-ops, and animation, or focus on creating a stronger supply of labor for areas like customer support or digital micro-tasks? Branding Collective branding efforts can help the local software and services industry secure international contracts and, in turn, achieve further capacity building. In 2021, Coursera listed Nepal among the top 10 emerging countries in technology and data science skills. This was a welcome surprise for local and international ecosystems, as Nepal is not typically considered a top destination for software development and services. However, Nepal ranks poorly on international indices related to the ease of doing business or digital entrepreneurship. For example, the Asian Development Bank’s 2021 index on digital entrepreneurship placed Nepal among the worst in Asia due to informal institutions, low human capital, and underdeveloped market conditions. Nepal’s emerging outsourcing IT industry must be able to promote itself externally. In addition to its lower cost base compared to other Asian countries, Nepal can differentiate itself through its diverse talent pool, hospitable culture, and unique cultural offerings. Branding efforts can lead to a direct impact on sales for companies, and attract digital nomads and service providers to further enhance the ecosystem’s capacity. This collective branding effort can also give Nepal’s globally dispersed, technically skilled diaspora a sense of identity and belonging, many of whom are eager to engage with and contribute to the development of their home country. The benefits of capacity and branding can create a virtuous cycle. Networks The local IT industry can become stronger by interacting with and supporting each other. One way to do this is through the development of a peer-learning and mentorship network. In order to compete for higher value contracts, local companies may need to work together and combine complementary skill sets. A peer-learning network can facilitate such partnerships, particularly within specific industry verticals like healthcare, cybersecurity, media and entertainment, and financial services. It can also provide a space for mid-level managers to connect and discuss industry best practices related to human resource management, operational excellence, branding, and international sales. A network is also needed to mentor younger companies and software developers. Such networks can provide a beneficial way for younger companies to build their brand and learn how to work alongside or complement larger software service providers. These mentorship networks can also enable the ecosystem to handle higher capacity work, facilitating partnerships and collaborations based on transparency and healthy competition. As entrepreneurial developers and technical talent seek to build products and develop their own ideas, mentorship networks can provide them with advice, financial support, and commercial linkages Nepal’s software and services outsourcing industry is at a turning point and should be strategic in building its capacity going forward. The global technology industry provided a boost to many during the pandemic, but the winds may be volatile and weakened in the coming years. By working together, Nepali players must aim to improve the quality of their work and that of local human capital. The ecosystem should focus on collaborative efforts to secure larger contracts and build expertise in specific verticals that can be developed over time. By setting these goals, the local industry will signal its intentions and attract support from within and outside the country. The author is a senior fellow with the Nepal Economic Forum and is leading Digital Chautari, a platform to facilitate conversations on furthering the Digital Nepal Framework