What I am about to say is not an exhaustive list of reasons for the low yield of MBB local recruitment effort, but simply an observation.

The recruiting at MBB is rather unique in that it employs mainly case interviews... where we put a candidate in a situation where s/he needs to assess 1-2 business issues in a short amount of time. Each interview is an interactive process over the course of 45-60 minutes designed to test several skillsets that are important in the strategy consulting world; e.g., understanding business concepts, ability to think logically, intellectual curiosity, and composure in client situations. In my observation, local grads don't perform comparatively well in the last two. I have met candidates that have very high GPAs and yet appear to be intellectually lazy; they don't prod and question the interviewers (which is key to be able to "solve" the problem) when they are stuck in the interview. They seldom take the initiative and are more reactive. Perhaps they want to solve the problem by themselves. But failing to progress in problem solving in turn destroys their confidence and they become flustered in the interview.

One thing to understand is that almost no one is a natural at case interviews, and that you need to have QUALITY practice in order to succeed at the interviews. This is perhaps what is lacking with local grads. They can practice with their fellow students but that does not replicate the actual case interview experience well enough. The advantage of US/EU grads from our target schools (and we only focus on the top schools) is they can practice with MBA students who were once MBB consultants themselves.

As for the underlying quality of the candidates, this is harder to assess. We can only gauge this via the interviews... and a typical candidate will have seen about 5-6 of our consulting staff members across 3-4 rounds before s/he gets hired. Can an otherwise good candidate fall through the crack by failing in the early interview rounds? Very possible, nothing is perfect. But with this process, while we may not hire the "best" candidates all the time, we still get them most of the time.