Hard Facts about Nepal's Software Industry

By santosh poudyal

A study commissioned by the New Business Age concludes that a cranking up is needed to lift the Nepali IT software industry from the multiple vicious cycles that have condemned it to a low level equilibrium

First, let’s sample the following cases.

# When the government-owned Nepal Telecom (NTC) called for proposals to install software for an automatic answering system to help students know their SLC results, a Nepali company that had deployed similar software for a cable TV channel for a song-on-request programme, quoted Rs. 140,000 as development cost. The software company says it was never asked by NTC for a demo or details of the services promised. The contract was awarded to another company for around Rs. 1 million. Once deployed, the system handled the requests only for around half an hour and went down.

# A software project granted to a local company by the VAT office six years ago is not yet complete.

# When the government was planning new traffic lights at key areas in major cities, a Nepali company offered the government the system for Rs. 5 million. The company did not receive any response and later a similar system was purchased by the government from a foreign company for Rs. 20 million.

# The Ministry of Industry, Commerce and Supplies is planning to deploy software to track the activities of business houses, business associations, chamber of commerce and many other organisations. Instead of collecting proposals from the domestic companies, the government is scouting for a foreign software developer.

# Two years ago, a Nepali company demonstrated its software to the stock exchange to automate floor trading. The employees of the exchange were satisfied with the software but the consultant appointed by ADB to implement the project funded by ADB did not even bother to watch the demo and advised against hiring a Nepali company arguing that domestic companies lack experience. In the bidding process, the Nepali companies were eliminated in the first round itself.

# In another instance, when NTC called tender for another type of software the criteria regarding experience and turnover were kept high enough to keep the local companies out of the bid.

# When Nepal Electricity Authority (NEA) got the budget to enhance a system developed and deployed by a local company, they simply replaced it by purchasing a new one from a foreign company rather than asking the local company to upgrade it paying much higher charge than it would have cost for upgradation.

# In a tender for software by the Department of Immigration, bids ranging from Rs. 2.5 million to Rs. 200,000 were received. The cheapest bid was approved without questioning how a full-fledged software could be developed for such a low cost. The winner of the contract was indeed not able to implement the project.

These cases prove one point – the software providers think the government, which is or should be the largest buyer of software, is not at all favourable for the development of software industry in the country.

But this is only one side of the story. The entire software industry of Nepal is deep in a vicious circle of low level equilibrium. For this, let’s sample some more cases.

# Though graduates of BE (Civil) course are allowed to enrol into MSc computer course offered by TU, graduates of BIM/BIT/BBIS courses are not allowed while the course of study in the bachelor’s level is such that the former have to learn much less about IT than the latter. This bias is attributed to the fact that the group of decision makers in this regard has majority of civil engineers.

# l IT colleges collect rather than select the students for enrolment. Parents go shopping to select a college that is ready to offer the same course at a cheaper fee. Some colleges charge such low fee that they are unable to invest in creating the required infrastructure and to hire good quality teachers.

# Some IT colleges use the services of brokers who collect students from different places and bring them to get admission in an IT college that offers the best deal to the brokers. The students are admitted even without an admission test. The Tarai region where the aspiration is high among boys to get into an engineering degree so as to command a high price in terms of dowry is the major market for such colleges and brokers.

Thus Nepal ’s software industry lacks trust from the buyers and tries to explore market abroad, instead of investing for the development of the local software industry. With the local software industry thus stunted, the demand for quality human resource is low forcing good quality people to go abroad which in turn results in an underdeveloped software industry and lack of trust from the local buyers. (See illustration in page 36)

Way out: Crank it up

The solution to the problem is, obviously to speed up the growth of this industry by some outside intervention. Once the industry is on a growth trajectory, it will create demand for more talents and thus arresting brain drain which in turn will enhance the quality of the product and trust of the clients. This will encourage the IT colleges to improve the course and quality of the students enrolled and certified. But how can we achieve such growth?

A study conducted by the author among the software companies, IT colleges, businesses that use IT and students of IT and topped up by an interaction on the findings among the major players in the country’s IT industry including from the government, the IT colleges, the Computer Association Nepal and software companies (who helped to refine the findings), has come up with conclusion that the High Level Commission on Information Technology (HLCIT) and Computer Association Nepal (CAN) should lead the way. They have to enhance the IT awareness among the stakeholders, particularly the government agencies, the policymakers and the private sector companies through the chambers like FNCCI and CNI and lobby for policy changes wherever necessary. They should also try to ensure that all the jobs, particularly for the government and that the domestic companies can undertake, go to the domestic companies, not to foreign companies. This will develop a mutual trust among the stakeholders and start an upward spiral in the industry. This should be done at least for a couple of years, within which the software companies should develop their basic competencies. After that the government should leave the industry to compete on its own in the domestic and international market.

Quality Certification

No doubt, in this period, there will be many cases of project failures. About this the participants of the interaction agreed that it should not be taken as a pretext to distrust the domestic companies, rather these should be treated as lessons which all the stakeholders should learn from and improve themselves. However, to avoid or reduce such project failures, there should be a national quality control body jointly under HLCIT and CAN. The quality body should issue certificates to the software companies of different grades and this certification should be made mandatory to be produced while bidding for different grades of jobs. Similar certification should be put in place for human resource and IT colleges too, it is suggested. If there is a separate national level certification for doctors and engineers before they are allowed to practice their profession, why not the same provision for software engineers?

Meanwhile, if any lack of competent human resource is felt, the same should be invited from outside to train the local human resource, but not to develop the software themselves. This will create more opportunities in the local market and start attracting more investment in Nepal’s IT industry from within and outside the country. With this, the share of the software industry in the country’s GDP very soon will be significant and the government will be automatically forced to make suitable policies and rules for this industry, and there would be no such hard time for the industry to convince the government to make the policies, hoped the participants.

Another suggestion is to set up a separate association, other than CAN, for the software industry as CAN is more like a federation of software and hardware sides of the business. The new association is suggested to be in line with NASSCOM (National Association of Software and Service Companies) of India.

Noticing the problem due to the absence of enough software experts in various decision making positions in the government, universities and banks, which made the decisions for these agencies unable to speed up the adoption of software and thus failing to address the problem of this industry, it is suggested to ensure proper representation of experts in such bodies.

If IT is accepted as a very important tool to speed up the process of economic development by helping to enhance the efficiency in the economy, all concerned (the government, educational institutes, software developers and various industrial sectors) surely need to pay heed to these findings and suggestions. But Will they? The question still lingers.

What IT Students Say

My area of interest is
(multiple choice allowed)

Most of the students are interested in web application (60+39) followed by hardware, animation/graphics and networking.

I rate fee structure of my college against quality education and meeting my expectation parameters as

(5 most appealing, 1 least appealing)

Analysis/Conclusion: Most of the students feel the quality of education they are receiving does not match with the fee they are charged.

After graduation, I’m planning

(multiple choice allowed)

though not the majority. Number of students giving high value on going abroad for work was a whopping 85 – much higher than those giving high value for working within the country (79).

I think the infrastructure provided by our college is

(5 most appealing, 1 least appealing)

Big majority of students think the infrastructure provided by the college is not enough.

Practical exposure (lab activities/ IT industry visit etc.) provided by our college during the program is

(5 most appealing, 1 least appealing)

The claim by the employers that the graduates from Nepali IT colleges lack practical exposure seems to be true.

Exposure the teachers provide in the software field

Self-explanatory

I rate the present domestic software market as

To sustain the fresh graduates in the industry (to stop brain drain), salary and facilities have to be increased.

I see the future of domestic software market as However, the students are optimistic about the domestic IT industry’s future.

I’ve proper knowledge of domestic and foreign software companies and their products

Domestic software companies

Options	Total
Yes	81 (53.64%)
No	69 (45.6%)

Foreign software companies

Options	Total
Yes	59(39.07%)
No	85(56.29%)

But the awareness about the software companies and products is very low among the students. This shows that the students lack the habit to explore the market.

I think the most important factors that have prevented the growth of domestic software market are
(multiple choice allowed) The most important factor according to the respondents for the lack of growth in the software industry is the political instability.

What IT Studends Say

I think

Very few students think they need to get trained on their own in professional courses before joining a job. They think it is upto the employer to train the employee.

Apart from the college course, I am planning/ currently taking other software related course from the professional institutes.

This supports the outcome of other questions.

I Posses

College provides us enough motivators (e.g. good teacher attitude, fast internet access, enough computer etc.)

Majority feels that college does not provide enough motivating factor to study the course.

Minimum salary I expect immediately after graduation

Analysis: Self-explanatory

Do you think that current curriculum fulfills the software industry need?

The course needs updating as soon as possible.

In my opinion, the most important activity in software development domain is
(multiple choice allowed) This shows where to focus to update the course.

Which statement is most plausible for developing the course?

However, the best case examples (of DASS, the Supreme Court, Muncha.com and D2Hawkeye) as presented along with the report indicate that things are moving in the positive direction. It wouldn’t be being too optimistic to hope for more of similar innovative case examples to develop in the near future.

Also the findings of the survey conducted among the students of the IT colleges indicate to the same future (see page 36-40). The only challenge is to retain the new graduates within the country.

(Poudyal is pursuing MBA in Delhi University and conducted this study in August 2006)

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“We don’t expect much from the government”

Biplav Man Singh
President, Computer Association Nepal

What is the market situation of software industry?

Emerging and expanding but we are not able to tap the market fully. Only small software are selling in domestic market. The market for big software is either the government or the industrial sector. Government sector has just started working on e-governance. So it is not a big market as yet. The other market, the industrial sector is itself in a very bad condition due to political instability.

CAN members are not satisfied in the way CAN is moving ahead. What do you say to this?

Both side of the coin must be viewed. Members have been expressing their dissatisfaction outside the CAN forum only. We have a bad culture; we only point fingers at others but never try to be the part of the solution. CAN is here to facilitate the members, therefore, members should provide feedback on timely basis; if CAN fails to get their problems addressed, they should raise the voice more strongly, but within the CAN forum itself. I don't remember any case of written complaints from our members registered with CAN.

Members say that CAN is biased towards hardware sector and has done nothing for software. What is your view on this?

It is a wrong perception. We try to accommodate all the sectors related to the IT industry. All of them are CAN members though different members have different interests. If someone feels that his problem is not addressed then he should come forward and raise the issue.

Software companies expect CAN to function as NASSCOM. Why is not CAN functioning like that?

No, we are not NASSCOM of Nepal. We are trying to accommodate all the sectors of IT industry inside CAN. We are working to make CAN a federation by incorporating all the IT sectors rather than being focused on a particular sector.

Does it mean that the members are not clear about what to expect from CAN?

May be. It is the duty of the members to study about what CAN is. Our objectives and activities are clearly published on our website.

Since there is no association specialised to address the issues of software industry, do you feel such an association is required in the present context?

There already are different associations to address the interest of different groups. For example, ISPAN addresses the interest of internet users. If one feels such a requirement then we will always support formation of such association. Since CAN is already a federation, I don't think we require an alternate to CAN. If someone feels the need for an alternate, he may be thinking of an entirely different kind of association which may coexist with CAN , both playing distinct roles.

One of the major issues raised by all the stakeholders was the need for a tax holiday for software sector. Why is CAN not able to convince the government regarding this?

CAN has raised this issue. In the first step, we were able to convince the Ministry of Science and Technology (MST). MST adopted it as its agenda but other ministries didn't support this arguing that the IT industry cannot be provided this as the government was suffering declining revenue.

Why is it so difficult to get IT related data? CAN itself does not have the vital data.

CAN alone can do nothing in this. No one wants to disclose business information. They fear the tax burden. Also the laws are to blame for this. One can register the firm under the Department of Cottage Industry and start a software business. It is not possible to tack such firms. Neither is there any compulsion to get permission from the government to export software. So where can we tap the data?

So what is the solution?

The government should come up with a proper strategy. For example, if there is tax holiday declared, then companies may be more open to providing data. Starting a system to recognise or reward the firm that pays highest amount as government revenue or records highest software export may be the other method. On its part, CAN is planning to introduce a policy that whenever someone wants to open a software company, he has to first take permission from CAN. This will help us to maintain data.

Why was Nepal unable to feel the spill over effect from India 's IT boom?

There are lots of factors. Software companies lack initiative and are not clear about their target market. CAN acts as a bridge between the Nepali and foreign software companies and it helps to develop relationship by helping members to participate in international IT exhibitions. But I feel that the members are not working hard to further the relationship so created. CAN can only provide the members the net not the fish.

What do you want to say to the government?

We need the government when we plan to work in a big way. It can act as a facilitator. We don't expect much from the government. The only thing we have to say is that if the government cannot help IT, it should at least resist from putting hurdles on the way of IT development.

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“Government & policies dont’ affect us much”

Muncha.com , an extension of Muncha House, a retail and wholesale store, is the first fully functional pure e-commerce site in Nepal ’s online business market. Excerpts from an interview with its CEO, Amrit Tuladhar.

How was the idea of e-business conceived when the internet and credit cards are still inaccessible for a majority of Nepalis?

It was just a gut feeling. When the idea was conceived, internet was not highly developed and was very expensive. But by being the early bird, I wanted to grasp the Nepali online market as it started rather than just wasting time in waiting for the infrastructure to come about.

Who are your target customers?

We have been developing the site phase wise. In first phase, the site was targeted at Nepalis living abroad. There was only one pricing option, USD, on the site. But in the second and third phases, we targeted domestic customers as well. If you browse through the site in Nepal , then the price list comes in rupees but for the rest of the world, it is in USD. As of now, Nepalis based in the US are our biggest customer pool which is followed by Nepalis in UK , Australia and the rest of the world.

What is the awareness level among the Nepali customers about e-business?

Most Nepalis living within the country don’t have any idea about e-commerce. The positive side is that they are very interested in knowing more about this. However, due to the lack of supportive infrastructure, most people don’t explore this side at all. Hence, knowledge is very limited. A lot of people also think that ecommerce is only for the rich and prices are more expensive.

What are your plans for the future?

Currently, the site is under-construction for the fourth phase which will incorporate suppliers as well by giving them different sections. Suppliers will themselves fix the price for their products and they will themselves maintain their sections. Muncha.com will only support their product sales and site infrastructure. They will pay us membership fee and commission out of their sales. We are also planning to create network in all of Nepal .

How are you promoting your site in domestic and international market?

We have not yet promoted our site in domestic market till now because we still lack the credit card payment system and affordable internet facility. We don’t expect customers to do e-transaction using dial up internet connection. But, after the completion of the fourth phase, we are planning on domestic promotion. Because, by the time broadband becomes cheap, we already want to be in domestic market.

For the international market, currently we have placed banner in 10 different sites, hoarding board in an international airport. We send emails to Nepalis living abroad, and we have been maintaining a stall in the CAN INFOTECH for the past three years. Besides that, when ANA (America Nepal Association) organises the three-day convention of Nepalis in different part of the US we show our presence there as well.

What are the factors that are hindering e-business in Nepal ?

First of all it is the people’s attitude. They think e-business is only for the elite. Secondly, internet connection in Nepal is still very bad and prohibitively expensive. Third, internet payment system is non-existent. Internet service is heavily taxed, and hence ISPs either pass this tax on to the customer or decrease the service quality. VOIP is also illegal in order to protect the monopoly of NTC and because of this whole lot of other businesses is suffering.

What about government and policy?

Let us fully cater to the customers first. Infrastructure issues as mentioned earlier should be addressed for that. Government and policies don’t affect us a lot right now because our main issues are the lack of the very infrastructure that fuels this industry. Once the infrastructure comes into place, we will have an opportunity to flourish and then we can look into government policy.

Are not there any cases in your business history when you felt urgency of proper government policy?

When people tried to hack our site, even though nothing bad happened, our credibility was at stake. But that stopped when the cyber law was introduced. We were the first to benefit from the cyber law that came without our requesting it.

How does muncha.com serve its customers?

We are operating on the “Delivery and Payment” concept in domestic market because of security of data and lack of credit card users. None of the e-business sites operates on electronic payment basis for domestic market. For international market, we accept cards like Master card, Visa, American Express and Discover. We have taken service from an American company called Authorisenet for credit card processing.

Did you face any problem during political instability?

No, in fact our business increased at that time as the number of Nepalis going abroad increased and people feel easy to shop online during strikes. We get affected only when the internet connection is down.

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