Expatriate executives play a central role in helping companies grow abroad, but only on a bedrock of indigenous managers, for without their local connections and knowledge, all of the sophistication that expats acquire in foreign and home office postings means very little, especially in emerging markets. Passing the helm to strong local replacements is essential for sustained profitable growth, since expats fail at impressive rates—15 to 25 percent on average, rising as high as 70 percent in developing countries—and may cost five times as much as home-based managers.¹

Yet many companies still rely too heavily on expatriates to power and guide the ship. In China, for example, 39 percent of the managers at 28 multinational corporations studied in one recent report were expats, though only 18 percent of them worked for the best performers.² To cut costs and make room for Chinese executives in closer touch with the local market, Unilever, a seasoned multinational, announced not long ago that it would cut its expatriate staff in China to 20, from 100. Niall FitzGerald, cochairman of Unilever, says that his company aimed to create a "Chinese business."³

But developing a cadre of local managers is difficult. A...