Gunners have been scouting the attacker, who reportedly has a £4m release clause in his contract.
Bundesliga outfit Borussia Dortmund have now entered the race to sign in-form Nurnberg front man Josip Drmic next season, according to reports in the Daily Mirror.
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The red-hot Switzerland international has been making all the headlines in the Bundesliga after what has been a fine campaign in front of goal by the 21-year-old.
So far, Drmic has managed to register a highly impressive 16 strikes and three assists in total in his 29 matches in all competitions for his club, all of which have arrived in the league this season.
And it is those kind of eye-catching attacking numbers that have attracted the attention of Premier League giants Arsenal to the player, with the north London club believed to have been extensively scouting Drmic over the course of the past few weeks ahead of making a possible move for the forward as soon as the summer transfer window reopens finally for business at the start of July.
However, if reports in German sports daily Bild are now to be believed, then Gunners head coach Arsene Wenger is set to face a tough battle with Dortmund to land the Swiss attacking starlet, who has a contract at Nurnberg that runs until 2017.