It’s hard to believe, given the number of shoe manufacturers in Maine that have been forced to shut down because of foreign competition in recent years, that one of the world’s best-selling women’s shoes still comes from here.

What’s also hard to believe is that The Daniel Green Co. – formerly Penobscot Shoe Co. – in Old Town is experiencing double-digit profit margins while operating its headquarters in a state that its chief operating officer says isn’t as business-friendly as other states. The transportation infrastructure isn’t ideal for distribution facilities, said Greg Tunney, and the state and town governments haven’t offered any tax incentives that generally entice a company to stay.

But after buying Penobscot Shoe for $17.8 million in April 2000, The Daniel Green Co. moved all of its New York-based operations to Old Town and, with the help of local employees, has grown the merged firms into a $50 million-a-year business.

At the time of the acquisition, the two companies were struggling to outrun dramatic, international-level changes in the footwear industry that eventually forced many other shoemakers in Maine and the rest of the United States to give up.

Willie Pfander, who has been with Penobscot Shoe since 1962, painfully witnessed the industry change over the years from “Made in the U.S.A.” to “Made Overseas.” Shoes that once were completely manufactured and stitched only in Maine were being assembled here; their parts were being produced internationally. Eventually, assembly, too, would be done in Brazil, China and other countries where labor costs are a fraction of what they are in the United States.

“Even [in 1995] we couldn’t compete with the labor and the costs,” Pfander said. “Either you go out of business or you go where there’s cheaper labor or you go where there’s quality material.”

To survive in the late 1990s, Penobscot Shoe developed a new domestic operational focus that put greater emphasis on designing and marketing shoes that people would buy because they still were made the old-fashioned way, by hand, although not by the hands of Mainers, but Brazilians. The manufacturing plant in Maine soon was closed, but the shoes that were being made in Brazil were shipped to Boston, New York and other ports, and then trucked along the state’s four-lane interstate to this small community on the banks of the Penobscot River.

And from warehouses in Old Town, they would be sent back along the same roadway and distributed nationwide. Shipping costs from Maine to the other states accounted for less than 3 percent of the wholesale price of each pair.

Back at Daniel Green in New York, Tunney was watching with envy as Penobscot Shoe moved away from manufacturing and proceeded with its new strategy of “sourcing,” or having the shoes made elsewhere, and of marketing particular high-end brands to develop a niche.

Tunney decided to implement a similar focus at Daniel Green, but his plan went a couple of steps further, including making an offer to buy the Maine firm he had come to respect.

First Daniel Green reduced debt by 39 percent, and cut inventory levels by $3 million. Then the company closed two separate manufacturing facilities in New York, sticking instead with overseas operations.

The third step involved acquisitions. Tunney believed Daniel Green had a better chance of survival in today’s footwear industry if it had more top-notch, high-quality name brands under its umbrella. The more names, the greater the company’s presence in a crowded market.

That’s when Tunney made a bid for Penobscot Shoe.

Though Daniel Green was the smaller of the two shoe companies, Penobscot Shoe officials felt the sale would benefit them as well, especially if it meant keeping operations in Maine.

“The acquisition gave us a bigger playing field,” Pfander said. “Naturally you get a bigger customer base.”

The publicly traded PSC Acquisition Corp., a wholly owned subsidiary of Riedman Corp., a Rochester, N.Y., insurance conglomerate, owns Daniel Green. A couple of years ago, Daniel Green was one of the nation’s leading manufacturers of men’s and women’s slippers, with operations based in Dolgeville, N.Y.

Before the purchase could go through, Tunney said he had to convince shareholders that it would be a sound financial decision to shut down manufacturing altogether in Dolgeville after 118 years and move Daniel Green’s headquarters to Old Town. At a stockholders’ meeting earlier this month, the investors asked him to explain once again why he chose to make the move.

When the decision was made to buy Penobscot, Tunney said, its remote location certainly was an objection that had to be overcome by a stronger incentive. Although the area is a nice place for him to raise his family, “shareholders don’t want to know how much my family likes living in Maine,” he said.

The primary motivation behind the purchase was to acquire Penobscot Shoe’s skilled designers and marketers, who knew the shoe industry better than most. These individuals have the expertise to persuade retailers and subsequently consumers to buy the well-made shoes instead of the cheaply priced, glued-together foot coverings, Tunney said.

“We’re not cheap,” said Pfander, who now serves as senior vice president for sourcing and product development for Daniel Green. “We’re not taking things out of the shoe. We’re putting things into the shoe.”

The customers are those individuals who are willing to pay $75 or more for a pair of leather or suede shoes and who frequent department stores such as Dillard’s and Nordstrom. The brands include L.B. Evans, Daniel Green and Soft Walk.

The Trotters-brand woven leather loafer, which is sold at upscale department stores and boutiques, also remains among the best-selling shoes in the world.

Very few styles sold under the Daniel Green umbrella are available for purchase at retailers in Maine.

Keeping the brands current is as much of an undertaking for Daniel Green’s designers and marketers as growing the shoe business is for management. The team gathers regularly to talk about what styles are selling, which aren’t, and which ones people might be buying 18 months from now.

At a product development meeting earlier this month, all the styles currently sold were laid out on tables in front of Daniel Green’s executives. Each shoe was held up and evaluated for its color, design, and, most importantly, sales potential.

A number of styles were killed from some product lines, then the group moved on to evaluate the new ones for fall 2002.

It was hard to separate whether the executives were talking about the future of a shoe style or the future of the company.

“We don’t want to be [just] today and tomorrow,” Pfander told the designers and marketers. “We want to be today and tomorrow and the next day.”

Those frank, philosophical discussions – and the decisions that are made in those meetings – appear to be working.

Net sales for Daniel Green have increased to $50 million in 2000, up from $15 million in 1998. During that time, gross profit has gone up, from 15 percent to 35 percent.

But shareholders still are irked by the decision to leave New York. Tunney said he sometimes wonders if he made the right decision, too, even though for the most part he believes he has. The company is looking at expansion, but is questioning whether Maine, compared to other high-growth states, is willing to offer financial incentives.

“We made an assumption that the state of Maine would be a friendly business environment,” Tunney said, recalling discussions with other executives prior to buying Penobscot Shoe. “I supposed that we would get the red carpet. I just made the assumption that ‘let’s just take care of business and Maine will respond to us.’ That didn’t come to fruition.”

There is a possibility that sometime down the road the company will move, Tunney said. He said he has a responsibility to his shareholders, and there are other states that are willing to open up their coffers if it means more jobs and a greater tax base.

“We have to compete not in the little state of Maine but in the world,” Tunney said. “Companies do have options. To say that we’re here for the next 100 years, I can’t say that. I have a responsibility to do the right thing.”

For right now, though, the right fit for this shoe business, at least, appears to be Old Town. Yes, the executive boasts, a shoe business is thriving in Maine.

“Congratulations!” Tunney told his partners at the recent product development meeting. “Man, we got the shoes! We got the shoes!”