One of the challenges of globalization is the fact that multinational organizations—most notably, energy and natural-resource companies—experience increasing pressure to become "local." Governments demand that they implement localization programs, and they themselves are coming to recognize the commercial benefits, which include a better understanding of local customers and business environments. Our analysis highlights the approaches that successful multinationals take to develop a high-quality local workforce and to select and groom local leaders in a variety of regions.

We conducted in-depth interviews with 25 leaders of local business units from 21 multinationals, active in more than 25 countries, to see how they attract, retain, and develop local talent. Our sample spanned five sectors (banking, consumer products, energy, health care, and minerals), as well as one private equity firm, a nongovernmental organization (NGO), and a government agency. Although few respondents believe that their organizations have fully solved the talent-management puzzle, the consensus is that a successful strategy must integrate the nurturing of local leaders with broader localization efforts, such as promoting education, building a supplier base, and improving the local business infrastructure.

Initiatives to develop talent within a country sometimes reflect legal obligations: production agreements between governments and natural-resource companies, for example, can require 90 percent or more of the workforce to consist of local people (exhibit). Even more important, in many cases, are commercial factors, such as a better knowledge of local languages and culture, corporate values (for instance, a company's determination to promote a meritocratic global culture), and lower labor costs (local employees tend to be cheaper). More than two in five of the interviewees' companies have installed a local CEO or business unit leader, and nearly as many have one or more nationals on the top executive team.

More than two-thirds of the organizations in our sample have recruited talented locals working or studying for MBAs abroad and brought them back to fill key leadership positions. Such people combine a commitment to their home countries, local knowledge, personal initiative, and global business skills, and their contributions are often vital in the early stages of localization, before leaders have developed from within. Nearly all the interviewees' companies have a pool of rising stars, either composed wholly of locals or chosen with the development of locals in mind. These pools generally include no more than 5 percent of the local workforce, although the more successful organizations tend to have smaller pools and to review their members regularly.

For the most part, companies identify budding local leaders through their track records or through recommendations from management, though the companies of more than three in five respondents incorporate formal testing. The vast majority of them said that overseas rotations are important in providing local staff with an international perspective, exposure to the corporate culture, and an appropriate network of colleagues throughout the organization. Our respondents indicated that the most successful rotation programs involve short assignments (6 to 18 months), focus on specific business and development needs, and include retention incentives—such as the promise of a job with greater responsibilities after the local staff members return or involvement in the local unit's activities while they are away.

Most of our sample saw value in stretching the roles of high-potential employees to accelerate their development, though several respondents warned that some degree of failure is unavoidable. Indeed, one-third to one-half of all high-potential employees do not fully meet the objectives set for them. Companies that focus on high-potential candidates and emerging business unit leaders rather than on the workforce as a whole achieve the best results: three in five respondents said that their companies assign mentors to their rising stars. Interestingly, general managers and expatriates are not always seen as effective coaches: expatriates, in particular, may lack the cultural sensitivity to train local staff. Nevertheless, most companies acknowledge the value of a small expatriate contingent to facilitate the sharing of knowledge, demonstrate their international credentials, and relieve the pressure on locals by overbearing government officials or interest groups (particularly in the area of contracting).

The results of the interviews confirm our experience that strategies for developing local talent should be embedded in a company's business plan and underpinned by specific targets and accountability. Three-quarters of our respondents said that their companies explicitly measure progress toward localization at least annually, using metrics such as the number of locals who move to higher grades and the number of local employees recruited. Line managers should be held accountable for meeting specific targets in these performance areas.

Moreover, the analysis confirms our view that corporate programs to develop a local workforce and leaders should form part of a broader effort within the community. Indeed, the companies most pleased with their local workforce also, for example, support the local education system or offer health and sanitation assistance in local communities. The result is not only a more harmonious relationship with local stakeholders but also better and more committed recruits.