I’ve dealt with the infantry recruitment dilemma by including a limited number of “recruitment depots” on the map. These reflect those areas where a power did assemble troops, or might have recruited troops if they held that area. Only one can be built per turn, and only by a specific power if it controls that territory.
For example Britain starts in control of Italian East Africa. But this only has an Italian infantry depot (native Askaris) so the UK cannot place a new infantry here. But if the Italians recapture the territory they can place a new inf here on their next turn supposing they still control it.
In some cases I had to speculate as to who would be able to recruit soldiers in which territories, as they never came under the appropriate control in history.
I don’t think this limited placement is unbalancing; it’s only one inf per turn and powers did recruit infantry units in colonies.
I also have the “Osttruppen” rule, whereby whenever Germany/Italy capture a territory from the Soviets they gain one free infantry to represent local anti-communists joining up. Germany had over 1 million Soviet citizens in it’s army at one point. Of course these were not front-line quality, but by occupying rear echelon roles they did free up better troops for the cutting edge battles, so this is not unrealistic.