The theory states that when an aspect of the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.

Market imperfections

Explanation:

  The market imperfection is one of the type of theory in which the both the customer and the producer can easily influence the production and also the price of the specific product in the market.

 In this type of imperfect market the information about the products are not disclosed and this type of theory is widely used by the sellers for the purpose of earn maximum amount of profit.

According to the given question, the  market imperfection theory basically makes the less efficient transactions and the company start adopting the direct investment process.

 Therefore, Market imperfection is the correct answer.    

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