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This paper aims to assess the existing situation of psychological empowerment to employees and explore the relationship between psychological empowerment and competitive advantages in service sector of Nepal.

The study followed descriptive cum exploratory research design. Data collected through structured questionnaire based on Menon’s three-component model and Wright’s four-component model used to measure psychological employment and competitive advantages from employees of banking and hospital sector.

Psychological empowerment of employees in service sector is significantly different between public and private organizations. Even though the factors that are extracted are quite different than of Western practices, psychological empowerment has positive and significant impact on the competitive advantages.

This study is mainly based on service sector of Nepal: Banking and Hospital.

This paper is useful to academicians and practitioners seeking to develop psychological empowerment to achieve competitive advantages in their organizations and help to add values in people management areas particularly in South Asian corporations.

This is perhaps the very first investigation of its kind in the Nepalese context.