So you get to learn from their mistakes, and you don't even have to start in the same market!

You could even advertise yourself as being like your competitor, but the local option. Sell them on the idea that by paying you instead of the competitor, the money would stay in the community instead of going to the USA.

Absolutely. If you aren't in the US, market it to wherever you are. And YC is a funding/networking/mentoring mechanism, not a super power. Don't be intimidated just because someone is YC.

Totally. There's much more to the world than the US. Use your differences to your advantage -- you can be more localized.

For example, I'm working in a little niche with some US competitors. But my partners have found that being "Made in Canada" is actually helping us sell to our local Canadian small businesses. Additionally, we're going to do a French Canadian version of our app and market in Quebec -- our US competitors haven't touched multiple language support. These small differentiators will help make us a successful business; not a Google or an Apple, but, a source of revenue that we built by ourselves out of nothing.

Competition is a sign that you're on the same track others have identified as being viable. It's much better to have competition than to be all alone.