A shortage of leadership talent is the greatest obstacle Fortune 500 companies face as they seek to operate on a global scale. McKinsey research shows that most companies have identified rich opportunities created by the globalization of markets, the opening of formerly closed economies, the ability to arbitrage differences in skill and productivity from one region to another, and ready access to a vast pool of capital. But companies also recognize that so long as they do not have enough talent, their reach will continue to exceed their grasp of these opportunities (Exhibit 1). In a world of intensifying competition for human capital, a strong global talent pool has become a strategic asset and one of the few sources of sustainable competitive advantage. As John S. Reed, Citicorp’s chairman, once commented, "Our global human capital may be as important a resource as, if not more important than, our financial capital."

For most companies, expatriate managers are the cornerstone on which international ventures are built. Once the deals have been signed, the last toast has been drunk, and the corporate jet has left for the return flight to North America or Europe, it is the expatriate managers who stay behind to...