The Gunners are in pole position to sign the striker after launching an improved €27 million bid on Thursday, although the offer is still short of Madrid's €30m asking price.
The arrival of the Blancos striker would appear to put Podolski's first-team place under threat, but the Germany international is not worried about being overshadowed by Higuain and is delighted to see the club sign quality players.
|10/1||Arsenal are 10/1 with bet365 to win the Premier League
"I am strong enough and I have qualities and when good players come in, I will play with good players.
"Every season players come in and players go but I think it is good news if top players come in.
"The hope is that this season Arsenal will be at the top of the league.
"English football, thankfully, is not like Spain where you only have two teams, Barcelona and Real Madrid, who fight at the top.
"In the Premier League you have five, six, even seven top, top teams.
"It is very difficult but I know that Arsenal are one of those top teams who will be involved.
"You don't know how the season will work out, a few of the other teams all have new managers so it is difficult to say but they will be strong and equally, Arsenal will be strong."
Higuain scored 16 goals in 28 La Liga games for Real Madrid last season, while Podolski netted 11 times in 33 Premier League appearances for Arsenal.