NEW YORK (Fortune) -- Fortune interviews Andrea Jung, CEO of Avon Products Inc. (Charts):

We're in the middle of a turnaround. We've eliminated 10 percent of our workforce, cut almost 30 percent of our management, and reduced 15 layers to eight. This brings us closer to the market. It also helps us cut costs by almost $200 million annually. Now I have to decide, how do we invest those savings?

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We're increasing ad spending more than 50 percent this year and will double it by 2008. Beyond that, we're investing in innovation: The game in beauty is changing so much, if your product isn't high tech or can't make a unique performance claim - plump your lips, reduce your lines, look glossy, and stay on for 24 hours - you can't go to market today. I'm not just talking about a $20 lipstick, but a $5 lipstick! We've spent $100 million on a new R&D center.

We also need to invest in the Internet. n the U.S. more than 70 percent of our representatives are online. But outside the U.S. the numbers are significantly lower.

I was recently in Turkey, where only 10 percent of the population has Internet access at home. Yet almost 95 percent of our sales in Turkey are submitted online - our representatives go to Internet cafés. So I believe we can move a lot faster to get all our representatives online. Our IT team has developed a global Internet platform, and I've put one of our top strategists full-time on the case.

We're also increasing investments in key geographies, like China, where we've rapidly built a sales force of 188,000 since we received our national direct-selling license in March.

India is the other top priority. Right now we have about 60,000 representatives in India, which sounds like a lot but translates to only 0.04 per thousand population. India has more than 300 million women between ages 15 and 64, and a rising middle class. In developed markets, annual per capita spending on beauty is between $100 and $200, compared with $40 in Russia and Brazil and $5 in China. But it's only $1 in India. Does that sum define a small market or does it define market creation waiting to happen? I say it's the latter. --Interviewed by Patricia Sellers

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