I'd like to take a look at three different perspectives which offer insights into how the world is changing right now. In my opinion, artificial intelligence (AI) is the biggest change agent in the modern world. Back in the past, the steam engine invented by James Watt in 1775 was a revolution, bringing the greatest change to the world among all invented by humanity. This working machine was a huge innovation that triggered the Industrial Revolution. Asia had been the center of the world for over 2,000 years but, with the First Machine Revolution powered by the steam engine, the locus of power shifted to the West.

The energy revolution that the steam engine first achieved was subsequently eclipsed by gasoline, diesel and nuclear power. Just as the exponential growth in power generation has brought about numerous changes in the way we live, so too artificial intelligence stands poised to make a similar impact. Though it emerged only gradually over the past 40-50 years, it has already led to what some have called the Second Machine Revolution. Artificial intelligence can be found even in the smartphones that you use every day from morning till night, as well as in the IoT (Internet of Things) which is ruling our lives, the cloud services we rely on to store our data, in 3D printing, in high-tech robots and even in todays’ driverless cars in which the car actually analyzes data streams in real time to drive itself and minimize accidents. Plus, the way people purchase goods has been fundamentally changed by the switch to e-commerce and international online purchases that artificial intelligence has facilitated. Thanks to machine learning, the world today is smaller and better connected than ever before.

The tremendous changes we have seen in how we as consumers communicate and make purchase decisions call for a more active approach to creating and capitalizing on opportunities. Developments in artificial intelligence can enrich the world, but at the same time it can also widen the gap between individuals in terms of their skills and performance. In the past, the skills gap was mainly caused by inequality of opportunity to use working machines. Today, the skills gap is primarily associated with how well people are able to handle and make use of artificial intelligence. More precisely, it relates to the question of how to become a creative master artisan. Our company is investing greatly into training and fostering creative master artisans, and you all need to push yourselves to make the best use of artificial intelligence in order to enrich yourself and narrow the skills gap.

The second perspective is the growth of emerging markets, particularly the Asian market. Not long ago, I read an article about the growing middle-class population in China. In 2010, it was 50 million; by 2020, it will reach 500 million. This represents a 10-fold increase in 10 years. China is by far the largest and important market for iPhone sales at Apple. Though the iPhone retails at about 600 USD, much higher than rival mobiles priced at 100-150 USD, the iPhone nevertheless outsells all others. In the last few years, China has seen a paradigm shift from Old China to New China. Industries credited with the development of China over the past decades, like heavy industry, manufacturing, iron ore, shipbuilding, cement and chemistry, are now known as the industries of Old China, whereas industries that are seen as driving the current growth of China are known as the industries of New China. They include healthcare, environment, new energy, the Internet and online services. What the industries of New China have in common is that they are all about improving quality of life, whether through associations with nature, the environment, sanitation or health. China is all the time producing more and more super consumers capable of influencing the global economy and their influence is expected to grow much bigger over the next 10 years.

This growth can be observed not only in China, but also in India and major ASEAN countries. When the economy picks up steam and a thriving consumer culture develops, people inevitably travel more. We must keep our eyes open to the ways people travel from city to city overseas, spreading good products and creating new opportunities like the duty free business. This phenomenon leads to the launch of innovative new startups which may someday become our direct competitors. Indeed, China has a number of great local companies across all industries.

In the list of the top 50 smartest companies of 2015 compiled by MIT (Massachusetts Institute of Technology), Chinese companies were second (31%) only to American companies in terms of prowess. Unsurprisingly, Chinese electronics giant Xiaomi was ranked 2nd. Once derided an Apple copycat, Xiaomi has shed its former stigma to grow into a recognized leader in innovation whose innovations can be found in many areas. For instance, Xiaomi recently released a price-friendly self-balancing electric scooter after it acquired electronic scooter maker Segway in April. It lowered the price to about 300,000 KRW from 7 million KRW. Plus, it turned the whole 1st and 2nd floors of its HQ building into a customer service center and has allocated over 60% of its employees to customer service. As a result, the number of customers loyal to Xiaomi continues to grow.

Dear Asian Beauty Creators,

The emergence and growth of new emerging markets and the corresponding rise in customers have accelerated the spread of new culture, products and services. In the face of new competitors arising from new environments, we need to secure singularity in order to capitalize on opportunities whenever they arise. We can respond to change and build loyalty among customers worldwide only when we can offer products and services with singular beauty value.

The last perspective I'd like to talk about is the aging population. This is a very real problem in many Asian countries, including Korea, Japan, Taiwan and Singapore, and many Western countries as well. Trading conditions this year were tough in department store and hypermarket channels. We barely achieved a single-digit growth rate and even that was difficult. Though we seem to be making improvements in the door-to-door channel, we can never be too sure. ARITAUM is not doing as well as it has done in previous years. Looking back over the year, some of our difficulties were due to the outbreak of MERS (Middle East Respiratory Syndrome). Sales dropped as the number of foreign tourists to Korea from the late June to August fell. With inbound tourist sales gone, we saw the harsh truth of the Korean consumer market. And what's more, the aging population is not a matter of a few months. This is the reason that we must continue striving to bring in innovation and enhance our retail competitiveness in Korea. Unless we can innovate our retail and service, we will remain set to hit troubles eventually. However, the aging population can in fact be addressed in the same context as becoming a creative master artisan. Now that people live longer and feel healthier, they have to remain in work longer. And, in order to have a longer working life, they have to develop their abilities and skills through training and education. This is true of everyone, including ourselves.

So far, I have shared three perspectives from which we must observe changes around the world. Given that artificial intelligence has become such a big part of our lives, we must also consider issues associated with it, such as digital management, e-commerce and use of social media. And we also have to find the right approach to mega cities and duty free stores around the world, while making sure we keep up with the growth of emerging markets. As a rule, a house requires four pillars to stand. Let us build one in Korea and one in China. Though the United States has the largest beauty market worth almost 100 trillion KRW, China has the second largest market, which is estimated to be worth 60 trillion KRW today and which is forecast to grow to 200 trillion KRW. The New China era will bring with it noticeable changes, including a burgeoning middle-class and rise in the purchasing power of beauty consumers. We must build our third pillar in Southeast Asia. More than 600 million people live in Southeast Asia, which also has a growing middle-class population. Though countries in Southeast Asia are somewhat alike, there are notable differences in both culture and the environment. We therefore have to study each of them in more depth before we can target them. The location of the fourth pillar of our house should be the United States, the youngest of the advanced countries. It comprises a huge land mass and, though the population is nearing 300 million, it has enough resources to support one billion people. With its large land size, the United States is open to new immigrants. It also has the most flexible immigration policies, which serve as a rallying point for talented people from all parts of the world. I dream of AMOREPACIFIC Group achieving wonderful things in the United States. In fact, we are already hearing good news from Sephora in North America and the retailer Target. Now that the world has become smaller, it is time to find a new formula for success. Customers tend to get pickier as they age and, in an aging society, it can be difficult to suit their individual tastes. This is where innovative customer service needs to play its part. Plus, we have a clear opportunity here to capitalize on the development of innovative healthcare products.

Dear Asian Beauty Creators,

We are still making headway in these times of change. We need to turn change to our own advantage in order to create opportunities for business success. In order to do so, we have to first become creative master artisans who create products and services with singular value. One thing to remember here is that speed is the most critical success factor by far.

Let me give you one example that illustrates the importance of speed. During World War I, Germany and France suffered horrific losses on the Western Front. During the 1914-18 war, about 70% of the young men aged between 20 and 30 were either been killed or injured in France and Germany. Unsurprisingly, defense became the key to French strategy in the belief that no matter how strong the enemy attack, the French could ultimately triumph as long as they could defend themselves throughout. Under the leadership of the French Minister of War André Maginot after World War I, France constructed a line of fortifications and weapons along its border. It was almost like a small underground city connected through a railroad to which were attached various facilities, such as small factories and accommodation. The “Maginot Line” has become a commonly used term or the ultimate defense, but in fact originally refers to this very defensive line along the French eastern front. Post-war German military thinking, on the other hand, adopted a different view. They devised a more offensive strategy. Evasion was not in their nature. It was almost the same as how Genghis Khan and his mounted troops emerged triumphant in Mongolia all those centuries ago. Germany focused on deploying and moving their tank forces fast. Speed was all that mattered in tank warfare. Against all the odds, Germany circumvented the Maginot Line and entered France via Belgium. It was expected to take at least three years to take Paris, but the city fell to Germany in just three months. The key was speed.

Last month, GIANT (Global Integrated AMOREPACIFIC New ERP Transformation) opened. GIANT ensures fast transfer and use of data within the company. All records and data are now based on fiscal year. It is always easy to collect, understand and analyze data when there is a consistent standard. GIANT is expected to be applied to all global branches by April 1, 2016. This is much more than a mere change of reporting system. With GIANT, you need to understand what is happening on the scene right now and decide upon the correct action accordingly. I'd like to ask for your interest and support in GIANT so that it can become a tool of communication to enhance our agility and, at the same time, serve as a framework for more responsive management.

Dear Asian Beauty Creators,

Competition today is not about size, but speed. It is not a big one that survives, but one capable of quickly adapting to new environments. Let us change what we need to in order to implement more agile and responsive management, and put our innovative ideas into practice. We have to be quick to read the customer response and transform our command lines to be more efficient. We have to quickly grasp what is going on in the markets, work with our departments as needed and respond accordingly. If we do not know what other departments are doing right now and if we do not therefore work together, we will face big problems. We can succeed only when we make good products, provide good services and have good management strategies. It is important to add agility to quality-oriented management.

The world is changing fast. And the rising number of middle-class people want to take very good care of themselves and achieve self-realization through beauty. More and more people are investing in their own good. It is time to change the world with beauty. We must not miss our change. Many of our brands, including naturalism based innisfree and premium brand Sulwhasoo, are fulfilling their role well. As we have changed the world with new beauty techniques, Cushion foundations and sleeping masks that are unprecedented in kind, we must continue to devote greater efforts to creating new innovative products. We have to organize our work, pick out what should be included in the business plan for next year, put the plan into action and do it all fast. I hope that our efforts this year bear good fruit next year and beyond. I am looking forward to seeing you playing a big part in accomplishing our vision of becoming a Great Global Brand Company by 2020. Thank you.

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